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As used in this report, the terms “we,” “us,” “our,” “ASMI,” “ASM International” and the “Company” mean ASM International N.V. and its subsidiaries, unless the context indicates otherwise.

(Amounts in thousands of euros, except per share and other non-financial data, unless otherwise stated.)

ASM International N.V. is a corporation domiciled in the Netherlands with principal operations in Europe, the United States, Southeast Asia and Japan.

The accompanying condensed financial information (which we refer to as the Interim Financial Information) has been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), except for the disclosure of segment information in accordance with SFAS 131 “Disclosures about Segments of an Enterprise and Related Information.” Our 53.87%-owned subsidiary, ASM Pacific Technology Limited, which comprises our back-end operations, is listed on the Hong Kong Stock Exchange and publicly reports semi-annual financial information in accordance with the rules of that stock exchange. Accordingly, we provide segment information for our front-end and back-end operations only on a semi-annual basis.

The Interim Financial Information is unaudited but includes all adjustments (consisting of normal recurring adjustments) which the Company’s management considers necessary for a fair presentation of the financial position as of such dates and the operating results and cash flows for those periods. Certain information and footnote disclosures normally included in financial information prepared in accordance with U.S. GAAP have been condensed or omitted. The results of operations for the three months ended March 31, 2004 may not necessarily be indicative of the operating results for the entire fiscal year.

The December 31, 2003 balance sheet was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The Interim Financial Information should be read in conjunction with the consolidated balance sheets of ASM International N.V. as of December 31, 2002 and 2003, and the related consolidated statements of operations, comprehensive income, cash flows and changes in shareholders’ equity for each of the three years ended December 31, 2003. See the Company’s annual report on Form 20-F for the year ended December 31, 2003.

In April 2003, the FASB issued SFAS No. 149 “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” The changes in this Statement require that contracts with comparable characteristics be accounted for similarly. This Statement is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 did not have a material impact on the Company’s financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classifies a financial instrument as a liability (or an asset in some circumstances) if certain conditions are met. This Statement is effective for financial instruments entered into or modified after May 31, 2003. The adoption of SFAS No. 150 did not have a material impact on the Company’s financial position or results of operations and the financial instruments in existence prior to May 31, 2003 were not materially affected by SFAS No. 150 as of the adoption date.

In January 2003, the FASB released FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities.” FIN 46 requires that all primary beneficiaries of variable interest entities consolidate that entity. FIN 46 is effective immediately for variable interest entities created after January 31, 2003 and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003 to variable interest entities in which an enterprise holds a variable interest it acquired before February 1, 2003. In December 2003, the FASB published a revision to FIN 46 (“FIN 46R”) to clarify some of the provisions of the interpretation and to defer the effective date of implementation for certain entities. Under the guidance of FIN 46R, entities that do not have interests in structures that are commonly referred to as special purpose entities are required to apply the provisions of the interpretation in financial statements for periods ending after March 14, 2004. The Company did not create a variable interest entity after January 31, 2003 and does not have a variable interest entity as of December 31, 2003. The adoption of FIN 46R in 2004 did not have a material impact on the Company’s financial position or results of operations.

At March 31, 2004, cash and cash equivalents and marketable securities of the Company’s subsidiary ASM Pacific Technology Ltd. (“ASMPT”) amounted to € 84,817 and are restricted to use in the operations of ASMPT.

In October 2001, the Company entered into a strategic alliance with NuTool, Inc. (“NuTool”), a privately owned semiconductor equipment company. In October 2001 the Company made an equity investment of € 20,278 in NuTool and in April 2003 an additional equity investment of € 1,229. The total equity interest in NuTool as of December 31, 2003 and as of March 31, 2004 was 15.7%. At December 31, 2003 and March 31, 2004 , the Company has provided loan advances to NuTool totaling € 2,375 and € 4,091, respectively, at an average interest rate of 4.12%. The investment in NuTool is accounted for under the cost method.

The investment in NanoPhotonics AG, which the Company acquired in 1999, is accounted for under the equity method. As of December 31, 2003 and as of March 31, 2004, the Company has provided loan advances to NanoPhotonics AG totaling € 4,443 and € 4,943, respectively. Due to the negative equity balances of NanoPhotonics AG as of December 31, 2003 and as of March 31, 2004,

the investment and loan advances to NanoPhotonics AG are valued at zero. The total equity interest in NanoPhotonics AG as of December 31, 2003 and as of March 31, 2004 was 23.6%.

ASMI and its individual subsidiaries borrow under separate short-term lines of credit with banks in the countries where they are located. The lines contain general provisions concerning renewal and continuance at the option of the banks. The weighted average interest rate of the outstanding notes payable was 2.33% at March 31, 2004.

Total short-term lines of credit amounted to € 85,056 at March 31, 2004. The amount outstanding at March 31, 2004 was € 22,713 and the undrawn portion totaled € 62,343. The undrawn portion includes € 35,564 relating to ASMPT, in which the Company holds a 53.87% interest, and such amount is limited solely for use in the operations of ASMPT. ASM Japan had € 26,742 available for borrowings under its bank lines, which are restricted for use in the ASM Japan operations. Total short-term facilities of ASM Japan in the amount of € 49,454 are guaranteed by ASMI.

The Company does not provide guarantees for borrowings of ASMPT and there are no guarantees from ASMPT to secure indebtedness of the Company. Under the rules of the Stock Exchange of Hong Kong, ASMPT is precluded from providing loans and advances other than trade receivables in the normal course of business, to ASMI or its affiliates.

Long-term debt outstanding in local currencies, including current portion (in thousands):

The long-term facilities offered by the Japanese banks to ASM Japan are collateralized by the real estate and other assets of ASM Japan, with additional guarantees provided by ASMI.

In November and December 2001, ASMI issued US$ 115.0 million in principal amount of 5.0% convertible subordinated notes due November 15, 2005 in a private offering. Interest is payable on May 15 and November 15 of each year. The notes are subordinated in right of payment to our existing and future senior debt. The notes are convertible into common shares at

any time before their maturity at a conversion rate of 53.0504 shares per each US$ 1,000 principal amount of notes, subject to adjustment in certain circumstances. This is equivalent to an initial conversion price of US$ 18.85 per share. The Company may redeem, under certain conditions, some or all of the notes at any time after November 30, 2003 at a redemption price of US$ 1,000 per US$ 1,000 principal amount of notes, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, if the closing price of the Company’s common shares has exceeded 150% of the conversion price then in effect for at least 20 trading days within a period of 30 consecutive trading days ending on the trading day before the date of mailing of the redemption notice. With respect to any notes called for early redemption, ASMI is required to make an additional payment in cash or, at ASMI’s option, in common shares, or in a combination of cash and common shares, in an amount equal to US$ 199.44 per US$ 1,000 principal amount of notes, less the amount of any interest actually paid on the notes before the date of redemption. In the event of a change in control, ASMI may be required to repurchase the notes. At March 31, 2004, none of the US$ 115.0 million convertible subordinated notes have been converted or repurchased.

In May 2003, ASMI issued US$ 90.0 million in principal amount of 5.25% convertible subordinated notes due in May 2010 in a private offering. Interest on the notes is payable on May 15 and November 15 of each year. The notes are subordinated in right of payment to all of our existing and future senior indebtedness. The notes are convertible, at the option of the holder, into shares of our common stock initially at a conversion rate of 52.0237 shares of common stock for each US$ 1,000 principal amount of notes, subject to adjustment in certain circumstances. This is equivalent to an initial conversion price of US$ 19.22 per share. On or after May 20, 2006, the Company may redeem any of the notes at a redemption price equal to 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest, if the closing price of our common shares has exceeded 150% of the conversion price for at least 20 trading days in any period of 30 consecutive trading days and if certain other conditions are satisfied. In the event of a change in control, the Company may be required to repurchase the notes. The US$ 115.0 million 5.0% convertible subordinated notes rank pari passu with the US$ 90.0 million convertible subordinated notes. At March 31, 2004, none of the US$ 90.0 million convertible subordinated notes have been converted or repurchased.

Other movements in the balance of the outstanding subordinated debt in the period ended March 31, 2004 are related to the translation of the outstanding amounts in US dollars to euros.

The fees incurred for the issuance of the convertible subordinated notes are included as debt issuance costs in the Balance Sheet and amortized by the interest method as interest cost during the life of the debts.

The Company has adopted various stock option plans and has entered into stock option agreements with various key management personnel. Under these plans, key employees may purchase a specific number of shares of the Company’s common stock. Options are priced at market value in euros or US dollars on the date of grant, generally vest in equal parts over a period of five years and generally expire after five or ten years. Under the 2001 Stock Option Plan the Company is authorized to issue options to purchase 4,000,000 shares. At March 31, 2004,

options to purchase 1,142,500 shares had been issued under the 2001 Stock Option Plan. Under previous plans no more options to purchase shares can be issued. At March 31, 2004, options to purchase an aggregate of 1,592,181 shares of common stock were outstanding, expiring at various dates through 2014.

The Company applies the intrinsic value method allowed by APB 25 in accounting for its stock option plans. Under APB 25, compensation expense resulting from awards under fixed plans is measured as the difference between the market price and the exercise price at the grant date. All fixed plan options were granted at an exercise price equal to market value at the measurement date. Accordingly, no compensation expense has been recognized in the Consolidated Statements of Operations pursuant to APB 25.

The following table illustrates the effect on net earnings (loss) if the Company had applied the fair value recognition provisions of SFAS No. 123, amended by SFAS No. 148:

The total estimated stock-based compensation expense, determined under the fair value based method, net of related tax effect, is amortized ratably over the option vesting periods and computed using the Black-Scholes option pricing model with the following weighted average assumptions:

The following represents a reconciliation of net earnings (loss) and weighted average number of shares outstanding (in thousands) for purposes of calculating basic and diluted net earnings (loss) per share:

No adjustments have been reflected in the diluted weighted average number of shares and net loss for the three months ended March 31, 2003 due to the anti-dilutive effects of the loss reported in the three months ended March 31, 2003. For the three months ended March 31, 2003 the effect of 289 stock options, 6,101 conversion rights, and 35 exercisable warrants to issue common stock were anti-dilutive.

At December 31, 2003 and at March 31, 2004 the Company had entered into purchase commitments with suppliers in the amount of € 84,915 and € 101,036, respectively, for purchases within the next 12 months. Commitments for capital expenditures at December 31, 2003 and March 31, 2004 were € 4,572 and € 16,571, respectively.

The Company is party to various legal proceedings generally incidental to its business and is subject to a variety of environmental and pollution control laws and regulations. As is the case with other companies in similar industries, the Company faces exposure from actual or potential claims and legal proceedings. Although the ultimate disposition of legal proceedings cannot be predicted with certainty, it is the opinion of the Company’s management that the outcome of any claim which is pending or threatened, either individually or on a combined basis,

will not have a materially adverse effect on the financial position of the Company, but could materially affect the Company’s results of operations in a given year.

In June 2001, the Company’s subsidiary, ASM America, filed a lawsuit against Genus, Inc. in the U.S. District Court for the Northern District of California alleging infringement of three patents involving sequential chemical vapor deposition (U.S. Patents Nos. 5,916,365, 6,015,590 and 4,798,165). Genus responded by denying the allegations and counterclaimed alleging antitrust violations and infringement of U.S. Patent No. 5,294,568 involving selective etching of native oxide. After court rulings that Genus did not infringe the ‘365 or ‘590 patents, the parties entered into a binding memorandum in April 2003 settling the litigation. Pursuant to the memorandum Genus granted to the Company and ASM America a nonexclusive, worldwide, fully paid-up license under the ‘568 patent and directly related patents and ASM America granted to Genus a nonexclusive, worldwide, fully paid-up license under the ‘165, ‘365 and ‘590 patents and directly related patents, provided that the license for the ‘365 and ‘590 patents will be effective only upon completion of the appeal by ASM America of the lower court’s rulings of no infringement in respect of such patents. If the appeals court vacates either ruling on the basis of a change in the lower court’s claim construction, Genus must pay ASM America US$ 1.0 million. Genus and the Company also agreed to refrain for a five-year period from litigating patent and antitrust claims, although each party retains the right to recover damages incurred during such period if a suit is brought later. Genus, the Company and ASM America stipulated to an Entry of Judgment and the Company and ASM America filed a Notice of Appeal in January 2004, appealing the District Court’s rulings on the ‘590, ‘365 and ‘165 patents to the U.S. Court of Appeals for the Federal Circuit. Given the stage of the proceedings, it is not possible to predict the outcome of the appeal.

Following a letter from Applied Materials, Inc. to the Company alleging that the Company’s Eagle reactors infringe various Applied Materials patents, the Company and its subsidiary, ASM America, Inc., filed a declaratory judgment action against Applied Materials on August 27, 2002 in the U.S. District Court for the District of Arizona. The lawsuit seeks a declaration of non-infringement, invalidity or unenforceability of six Applied Materials patents relating to cleaning of reaction chambers and deposition of silicon nitride. Applied Materials responded on December 16, 2002 by denying the allegations and counterclaimed, as modified by supplemental answer filed July 21, 2003, for a judgment of infringement, including willful infringement, of all six patents and for damages and other relief. No trial date has been set. Given the stage of the proceedings, it is not possible to predict the outcome of the claims and counterclaims at this time, or the range of potential recovery or loss.

The Company and its subsidiary, ASM America, Inc., filed a lawsuit against Applied Materials on October 3, 2003 in the U.S. District Court for the Eastern District of Texas alleging infringement of six patents: U.S. Patent No. 6,418,945 entitled “Method and Device for Transferring Wafers”, U.S. Patent No. 6,572,924 entitled “Exhaust System for Vapor Deposition Reactor and Method of Using the Same”, U.S. Patent No. 6,579,374 entitled “Apparatus for Fabrication of Thin Films”, U.S. Patent No. 6,410,463 entitled “Method for Forming Film With Low Dielectric Constant on Semiconductor Substrate”, U.S. Patent No. 6,511,539 entitled “Apparatus and Method for Growth of a Thin Film”, and U.S. Patent No. 6,053,686 entitled “Device and Method for Load Locking for Semiconductor Processing”. Applied Materials counterclaimed in November 2003, alleging infringement of U.S. Patent No. 5,710,407 and the six

patents at issue in the above noted litigation in Arizona. The Company and ASM America have filed a motion to dismiss the counterclaims as to the six patents currently pending in Arizona. Applied Materials has filed a motion to change venue to the District of Arizona. No trial date has been set. Given the stage of the proceedings, it is not possible to predict the outcome of the claims and counterclaims at this time, or the range of potential recovery or loss.

On February 29, 2004 the Company entered into an agreement to acquire NuTool, a privately-held semiconductor equipment company based in Milpitas, California. The Company currently owns preferred stock representing 15.7% of the fully-diluted common stock of NuTool. The Company will acquire the remaining 84.3% of NuTool in exchange for shares of its common stock. The number of shares to be issued will be determined based on the market value of the Company’s common stock as of the closing date of the transaction. Based on the market value of the Company’s common stock as of February 27, 2004, the number of the Company’s common shares to be issued at closing would be less than 4% of its total shares outstanding, and up to an additional 2% would be issued over the next three years based on NuTool’s achievement of various performance targets. The transaction is subject to NuTool stockholder approval and is expected to close in June 2004.

On April 26, 2004 the Company entered into an agreement to acquire Genitech, Inc., a privately-held semiconductor equipment supplier based in South Korea for a combination of cash, the Company’s common shares and additional variable cash payments over the next five years. The value of the transaction at the closing date, expected in May 2004, is approximately US$9.0 million, of which slightly over US$5.0 million will be in common shares. Additionally, the Company will pay up to approximately US$9.0 million in cash over the next five years, depending upon the achievement of performance targets. The transaction is expected to be finalized within the next two months and is subject to regulatory approvals customary for such a transaction in South Korea.

You should read this discussion together with the financial statements and other financial information included in this report. Our financial statements are prepared in accordance with U.S. GAAP, except that we provide segment information for our front-end and back-end operations only on a semi-annual basis. This report contains forward-looking statements that involve risks and uncertainties described in more detail below under “Cautionary Factors.”

We design, manufacture and sell equipment and systems used to produce semiconductor devices, or integrated circuits. Our production equipment and systems are used by both the front-end and back-end segments of the semiconductor market. Front-end equipment performs various fabrication processes in which multiple thin films of electrically insulating or conductive material are grown or deposited onto a round slice of silicon, called a wafer. Back-end equipment separates these processed wafers into numerous individual dies, each containing the circuitry of a single semiconductor device, and assembles packages and tests the dies in order to create semiconductor devices. We conduct our front-end business, which accounted for 49.2 % of our net sales in 2003, through our principal facilities in the Netherlands, the United States and Japan. We conduct our back-end business, which accounted for 50.8% of our net sales in 2003, through our principal facilities in Hong Kong, the People’s Republic of China, Singapore and Malaysia. Our back-end operations are conducted through our 53.87% majority-owned subsidiary, ASM Pacific Technology Limited (“ASMPT”).

We sell our products worldwide to the semiconductor industry, which is subject to sudden and extreme cyclical variations in product supply and demand. Since late 2000, the semiconductor industry has been impacted by a severe cyclical downturn characterized by overcapacity and reduced demand for products, lower average selling prices across certain product lines, reduced investment in semiconductor capital equipment and other factors, all of which have led to lower sales and earnings for our business, in particular for capacity-driven purchases. Since the fourth quarter of 2003 we have seen a shift in order momentum, which is signaling a recovery in our industry. This recovery resulted in a significant improvement in sales, operating result and net earnings in the first quarter of 2004. Our backlog of € 228.8 million as of March 31, 2004 and the order momentum is encouraging for our sales levels for the second quarter of 2004.

The current transition in the industry to new processes and materials and to a larger, 300mm wafer size from the current 200mm wafer requires equipment providers to develop entirely new sets of tools and presents us with an opportunity to displace existing suppliers to major semiconductor manufacturers. We believe that we are well positioned and that our firm commitment to research and development, our readiness in new technologies, design-in wins at top-tier customers as well as our strategic partnerships provide us with a broad basis for substantial long-term market share gains.

Our discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these Consolidated Financial Statements requires us to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the periods presented. The significant accounting policies which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:

Revenue Recognition. We follow very specific and detailed guidelines in recognizing revenue following principles of revenue recognition described in United States Securities and Exchange Commission (“SEC”) Staff Topic 13, which includes interpretive guidance issued in Staff Accounting Bulletin No. 101 “Revenue Recognition in Financial Statements,” issued by the staff of the SEC in December 1999, and SAB No. 104 “Revenue Recognition,” issued by the staff of the SEC in December 2003, as well as guidance set forth in EITF 00-21 “Revenue Arrangements with Multiple Deliverables.” However, certain judgments affect the application of our revenue policy. Our transactions frequently involve the sale of complex equipment, which may include customer-specific criteria, transactions to new customers or transactions with new technology, as well as payment terms, linked to achieving certain milestones. Management must make the determination whether such a transaction is recognized as revenue based on the merits of the contractual agreements with a customer, the experience with a particular customer, the technology and the number of similarly configured products previously delivered.

We recognize revenue from equipment sales upon shipment of our products when it is proven prior to shipment that the equipment has met all of the customers’ criteria and specifications. The installation process is not believed to be essential to the functionality of our products. However, since under most of our sales contracts the timing of payment of a portion of the sales price is coincident with installation, such installation is not considered to be inconsequential or perfunctory. Therefore, at the time of shipment, we defer that portion of the sales price related to the fair value of installation. We believe we have an enforceable claim for the portion of the sales price not related to the fair value of the installation should we not fulfill our installation obligation. If this belief were changed by industry developments in the future, this portion would be deferred in future periods until final acceptance by the customer or until contractual conditions lapse. At March 31, 2004 we have deferred revenues related to the fair value of installations and equipment deliveries in the amount of € 9.2 million. Revenue results are difficult to predict, and any shortfall in revenue or delay in recognizing revenue could cause our operating results to vary significantly from quarter to quarter and could result in future operating losses.

Valuation of Goodwill. We perform an annual impairment test as of December 31 of each year, and upon the occurrence of an indication that a potential impairment exists, in accordance with the requirements of Statement of Financial Accounting Standard (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” issued by the Financial Accounting Standards Board (“FASB”). Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value. Our impairment test and the determination of the implied fair value is based

on a discounted future cash flow approach that uses our estimates of future revenues, driven by assumed market growth and estimated costs as well as appropriate discount rates. These estimates are consistent with the plans and estimated costs we use to manage the underlying business. As of December 31, 2003 we did not record an impairment loss as a result of our tests performed. The calculation of the implied fair value involves certain management judgments and was based on our best estimates and projections at the time of our review, and the value may be different if other assumptions are used. In future periods we may be required to record an impairment loss based on the impairment test performed, which may significantly affect our result of operations at that time. Our analysis as of December 31, 2003 indicated that a 10% decrease in the estimated discounted future cash flows would not have resulted in an impairment loss.

Valuation of Long-Lived Assets. In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” we review our long-lived assets and certain recognized intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, we estimate the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. At December 31, 2003, we reviewed our long-lived assets, for facts or circumstances, both internal and external that may suggest impairment. In 2003 we recorded an impairment charge of € 3.2 million related to the consolidation of manufacturing facilities in the Netherlands and the restructuring of our research and development activities in Finland. Our cash flow estimates used include certain management judgments and were based on our best estimates and projections at the time of our review, and may be different if other assumptions are used. In future periods, however, we may be required to record an impairment loss, which may significantly affect our results of operations at that time.

Valuation of Investments. We account for our 15.7% equity investment in NuTool at cost. Under Accounting Principles Board Opinion (“APB”) No. 18 “The Equity Method of Accounting for Investments in Common Stock” we should review our investment for a decrease in value other than temporary if a series of operating losses or other factors may indicate such a decrease in value. We reviewed a potential decrease in value of NuTool as of December 31, 2003 based on cash flow estimates, including projected future sales and market share, technology penetration and operating results, and concluded that no decrease in value occurred. In our cash flow estimates we used certain management judgments based on our best estimates and projections at the time of our review, and these may be different if other assumptions are used. In future periods, however, we may be required to record a decrease in value, which may significantly affect our results of operations at that time. Our investment in NuTool and loan advances to NuTool amounted to € 25.6 million at March 31, 2004. Our analysis as of December 31, 2003 indicated that a 10% decrease in the estimated cash flows would not have resulted in a decrease in value.

Valuation of Inventory. Inventories are valued at the lower of cost or market. We regularly evaluate the value of our inventory of components and raw materials, work in progress and finished goods, based on a combination of factors including the following: forecasted sales, historical usage, product end of life cycle, estimated current and future market values, service inventory requirements and new product introductions, as well as other factors. Purchasing requirements and alternative uses for the inventory are explored within these processes to mitigate inventory exposure. We record write downs for inventory based on the above factors and take into account worldwide quantities and demand into our analysis. At March 31, 2004 our valuation

allowance for inventory obsolescence and lower market value amounted to € 20.4 million, which is 11.1% of our total inventory. If circumstances related to our inventories change, our estimates of the value of inventory could materially change. At March 31, 2004, an increase of our overall estimate for obsolescence and lower market value by 10% of our total inventory balance would result in an additional charge to cost of sales of € 18.3 million.

Accounting for Income Taxes. We currently have significant deferred tax assets, which resulted primarily from operating losses incurred in prior years as well as other temporary differences. SFAS No. 109, “Accounting for Income Taxes,” requires us to establish a valuation allowance to reflect the likelihood of the realization of deferred tax assets. Based on available evidence, we regularly evaluate whether it is more likely than not that the deferred tax assets will be realized. This evaluation includes our judgment on the future profitability and our ability to generate taxable income, changes in market conditions and other factors. At December 31, 2003, we believed that there was insufficient evidence to substantiate recognition of substantially all net deferred tax assets with respect to net operating loss carry forwards, and we have established a valuation allowance in the amount of € 105.7 million. Future changes in facts and circumstances, if any, may result in a change of the valuation allowance to these deferred tax asset balances which may significantly influence our results of operations at that time. If our evaluation of the realization of deferred tax assets would have indicated that an additional 10% of the net deferred tax assets as of December 31, 2003 was not realizable, this would have resulted in an additional valuation allowance and an income tax expense of € 0.9 million.

The following table shows the operating performance for the first quarter of 2004 as compared to the fourth quarter of 2003 and the first quarter of 2003 and the percentage change for the first quarter of 2004 compared to the fourth quarter of 2003 and the first quarter of 2003:

Net Sales. Our consolidated net sales amounted to € 195.9 million for the first three months ended March 31, 2004, the highest quarterly sales level since the first three months ended March 31, 2001. Strong order intake started in the previous quarter ended December 31, 2003 signaling a recovery in the semiconductor equipment industry and strongly improved our sales level in the first three months ended March 31, 2004. While the back-end segment already benefited from the increased demand in the three months ended December 31, 2003, both the front-end and back-end segments showed improved sales levels in the three months ended March 31, 2004.

Our consolidated net sales expressed in euro were negatively impacted by the strong euro against the Japanese yen, the US dollar and US dollar related currencies. The decline in exchange rates for the three months ended March 31, 2004 compared to the three months ended March 31, 2003 impacted our sales negatively by 11.5%.

Gross Profit. Our Gross profit margin for the three months ended March 31, 2004 amounted to 41.4% of net sales, 9.0 percentage points above the gross profit margin of 32.4% of net sales in the three months ended March 31, 2003, and 1.7 percentage points above the gross margin of 39.7% for the three months ended December 31, 2003. The improved gross margin is the result of slightly improved average sales prices, the product and customer mix, the overall growth in sales volumes and the related increased utilization of the Company’s manufacturing capacity.

Selling, General and Administrative. Selling, general and administrative expenses increased 3.8% from € 24.0 million in the three months ended March 31, 2003 to € 24.9 million in the three months ended March 31, 2004 and decreased 23.8% from the € 32.8 million in the three months ended December 31, 2003. The decrease from the previous quarter ended December 31, 2003 is mainly the result of the restructuring charges of € 4.4 million recorded in the three months ended December 31, 2003 and the effect of the restructuring and fixed costs control measures in the first three months ended March 31, 2004.

As a percentage of net sales, selling, general and administrative expenses were 12.7% in the three months ended March 31, 2004 compared to 20.4% in the three months ended March 31, 2003, and 20.0% in the three months ended December 31, 2003.

Research and Development. Research and development expenses decreased from € 18.4 million or 15.6% of net sales in the three months ended March 31, 2003 to € 17.5 million or 8.9% of net sales in the three months ended March 31, 2004, and were 19.2% below the € 21.6 million in research and development expenses in the previous three months ended December 31, 2003. The decrease from the previous three months ended December 31, 2003 in research and development expenses is the result of the restructuring charges of € 1.6 million in the three months ended December 31, 2003 and the effect of the restructuring and the timing of certain research and development projects in the three months ended March 31, 2004.

Net Interest Expense. Net interest expense increased from a net expense of € 1.9 million in the three months ended March 31, 2003 to a net expense of € 2.4 million in the three months ended March 31, 2004. The increase is mainly the result of increased interest expenses due to increased borrowings, including the issuance of US$ 90.0 million in convertible debt in May 2003, partially offset by the lower US dollar exchange rate in the three months ended March 31, 2004 compared to the three months ended March 31, 2003.

Income Tax Expense. We recorded a tax expense of € 4.8 million for the three months ended March 31, 2004 compared to a tax expense of € 0.1 million for the same period in 2003. The increase in tax expense is primarily the result of improved earnings.

Net Earnings (Loss). We recorded net earnings of € 14.9 million for the three months ended March 31, 2004 compared to a net loss of € 8.3 million for the three months ended March 31, 2003. The improved net earnings reflect the improved sales and operating performance levels, in both our front-end and back-end segments. The restructuring plans implemented in the second half of the year ended December 31, 2003 contributed positively to the Company’s front-end operating performance.

We expect consolidated net sales in the three months ended June 30, 2004 to be at a similar or slightly higher level than during the three months ended March 31, 2004.

The recent periods with good levels of bookings and book-to-bill ratio’s above parity requires us to further invest in the hiring and training of service engineers for our front-end operations. This is needed for current customer requirements and anticipated strong bookings levels.

Net earnings for the three months ended June 30, 2004 are expected to be clearly positive but might be at a lower level than the three months ended March 31, 2004 in case the increase in costs is not sufficiently compensated through additional sales.

New orders received in the first three months ended March 31, 2004 were € 225.7 million, 8.0% lower than the strong order intake of € 245.4 million in the previous three months ended December 31, 2003. Although the order intake decreased, the level of new orders is signaling a continued recovery in the industry, supported by an accelerated order intake on a month to month basis in the first three months ended March 31, 2004, both in the front-end and the back-end segment. For the first three months ended March 31, 2004 the level of new orders divided by the net sales for the quarter (book-to-bill ratio) was 1.15.

The backlog at the end of March 2004 amounted to € 228.8 million, an increase of 15.0% compared to € 199.0 million at December 31, 2003.

Our backlog consists of orders of products by purchase orders or letters of intent for future periods, typically for up to one year. In some markets, such as Japan, it is common practice for letters of intent to be used in place of firm purchase orders. Under specific circumstances, customers can cancel or reschedule deliveries. In addition, purchase orders are subject to price negotiations and changes in quantities of products ordered as a result of changes in customers’ requirements. Depending on the complexity of an order, we generally ship our products from one to six months after receipt of an order. We include in the backlog only orders for which a delivery schedule has been specified and to which the customer has assigned an order number. Rescheduled deliveries are included in backlog if they have a firm delivery date.

Our liquidity is affected by many factors, some of which are related to our ongoing operations and others of which are related to the semiconductor and semiconductor equipment industries and to the economies of the countries in which we operate. Although our cash requirements fluctuate based on the timing and extent of these factors, we believe that cash generated by operations, together with the liquidity provided by our existing cash resources and our financing arrangements, will be sufficient to fund working capital, capital expenditures and other ongoing business requirements for at least the next twelve months. The cyclicality of the industry could result in lower customer demand and continued fixed costs and as a result cash generated by operations may be lower than forecasted. In such a situation we might need to further utilize our short-term credit facilities or investigate additional financing.

At March 31, 2004 our principal sources of liquidity consisted of € 184.3 million in cash and cash equivalents and € 62.3 million in undrawn bank lines. Approximately € 84.8 million of the cash and cash equivalents and € 35.6 million of the undrawn bank lines are restricted to use in our back-end operations and € 26.7 million in undrawn bank lines are available for our front-end Japanese operations.

In May 2003, we issued US$ 90.0 million in principal amount of 5.25% convertible subordinated notes due in May 2010 in a private offering to strengthen our liquidity and capital structure. The proceeds were used to repay the outstanding debt balance of our multicurrency revolving credit facility and for general corporate purposes. The notes rank equally in right with the US$ 115.0 million 5.0% convertible subordinated notes issued in 2001. At March 31, 2004, none of the convertible subordinated notes have been converted or repurchased.

During the three months ended March 31, 2004, our net cash provided by operations and investing activities for the first quarter of 2004 was € 34.1million as compared to € 2.1 million in cash used by operating and investing activities for the three months ended March 31, 2003. The increase was primarily the result of the net income in the three months ended March 31, 2004 as compared to the same period in 2003, offset by increased needs in working capital. Net working capital, consisting of accounts receivable, inventories, other current assets, accounts payable, accrued expenses, advance payments from customers and deferred revenue, increased from € 154.4 million at December 31, 2003 to € 170.8 million at March 31, 2004. The increase is primarily the result of increased sales levels and manufacturing activity, although outstanding days of working capital, measured based on quarterly sales, decreased from 85 days at December 31, 2003 to 78 days at March 31, 2004.

At December 31, 2003 and March 31, 2004, we had purchase commitments with suppliers in the amount of € 84.9 million and € 101.1 million, respectively.

During the three months ended March 31, 2004, we invested € 7.3 million in capital equipment and facilities and invested € 1.7 million in additional loan advances to NuTool, Inc., which we have agreed to acquire, as described below under “Acquisition.” We expect capital expenditures for the full year 2004 to be approximately € 40.0 to € 50.0 million including investments in new manufacturing facilities for our front-end segment in Asia. Our capital expenditure commitments at December 31, 2003 were € 4.6 million and at March 31, 2004 were € 16.6 million.

Net cash used in financing activities was € 1.1 million in the three months ended March 31, 2004. During that period, we repaid € 2.8 million in debt and received € 1.7 million from the issuance of common shares.

We finance the operation of our front-end business from operating cash flows, from dividends received from ASMPT and from borrowings. We support certain borrowings of our front-end subsidiaries with guarantees.

We rely on dividends from ASMPT for a portion of our cash flow for use in our front-end operations. Cash dividends received from ASMPT during 2001, 2002 and 2003 were € 35.7 million, € 29.5 million and € 24.1 million, respectively. In April 2004, we received a final dividend for the year 2003 of € 17.8 million.

Our back-end operations, which are conducted through our 53.87%-owned subsidiary ASMPT, are entirely self-financed by ASMPT. However, the earnings, cash resources and borrowing capacity of ASMPT are not available to our front-end operations due to restrictions imposed by the Stock Exchange of Hong Kong, on which the ASMPT common shares are listed.

Although several of the directors of ASMPT are affiliates of ASM International, they are under no obligation to declare dividends to shareholders or enter into transactions that are beneficial to us. As a majority shareholder, we can approve the payment of dividends, but cannot compel their payment or size.

The market value of our investment in ASMPT at March 31, 2004 was approximately € 755.8 million, which is higher than the market value at December 31, 2003, which was approximately € 717.2 million.

On February 29, 2004 we entered into an agreement to acquire NuTool, Inc., a privately-held semiconductor equipment company based in Milpitas, California. We currently own preferred stock representing 15.7% of the fully-diluted common stock of NuTool. We will acquire the remaining 84.3% of NuTool in exchange for shares of our common stock. The number of shares to be issued will be determined based on the market value of our common stock as of the closing date of the transaction. Based on the market value of our common stock as of February 27, 2004, the number of our common shares to be issued at closing would be less than 4% of our total shares outstanding, and up to an additional 2% would be issued over the next three years based on NuTool’s achievement of various performance targets. The transaction is subject to NuTool stockholder approval and is expected to close in June 2004. NuTool has limited revenues and is expected to require capital resources to fund its research and development and manufacturing activities in 2004 and 2005. We believe we will have adequate resources to fund these requirements without affecting our ability to execute our front-end strategy.

On April 26, 2004 we entered into an agreement to acquire Genitech, Inc., a privately-held semiconductor equipment supplier based in South Korea for a combination of cash, shares in our common stock and additional variable cash payments over the next five years. The value

of the transaction at the closing date, expected in May 2004, is approximately US$9.0 million, of which slightly over US$5.0 million will be in common stock. Additionally, we will pay up to approximately US$9.0 million in cash over the next five years, depending upon the achievement of performance targets. The transaction is expected to be finalized within the next two months and is subject to regulatory approvals customary for such a transaction in South Korea. We believe we will have adequate resources to fund the cash requirements resulting from this acquisition.

We are exposed to market risk from changes in interest rates and foreign currency exchange rates, most notably fluctuations of the United States dollar, the Hong Kong dollar and the Japanese yen against the euro. We report our operating results and financial position in euros, while foreign affiliates report their operating results and financial position in their respective functional currencies. To the extent that foreign currency fluctuations affect the value of our investments in our foreign affiliates, they are not hedged. The cumulative effect of these fluctuations is separately reported in Shareholders’ Equity. For the three months ended March 31, 2003, we recorded an unfavorable movement of € 7.0 million and for the three months ended March 31, 2004, we recorded a favorable movement of € 6.3 million.

Our operations are exposed to foreign exchange risk arising from cash flows and financial instruments that are denominated in currencies other than the functional currency of ASM International or the respective subsidiary conducting the business. The purpose of our foreign currency management is to manage the effect of exchange rate fluctuations on certain foreign currency denominated revenues, costs and eventual cash flows and on foreign currency denominated assets and liabilities.

The terms of currency instruments used for hedging purposes are consistent with the timing of the transactions being hedged. We do not use derivative financial instruments for trading or speculative purposes. We use derivative financial instruments, such as forward exchange contracts, to hedge certain forecasted foreign currency denominated transactions expected to occur within the next 12 months. As a policy we only hedge anticipated foreign currency sales and purchase transactions for which we have a firm commitment to a customer or supplier. All hedges related to anticipated transactions are designated and documented at the inception of the hedge as cash flow hedges, and are evaluated for effectiveness quarterly. The effective portion of the gain or loss on these hedges is reported as a component of other comprehensive income in Shareholders’ Equity, and is reclassified into earnings when the hedged transaction affects earnings. A cumulative effective loss of approximately € 0.6 million included in other comprehensive income (loss) at March 31, 2004 will be reclassified to earnings within 12 months upon completion of the underlying transaction. If the underlying transaction being hedged fails to occur, or if a portion of any derivative is ineffective, the gain or loss is immediately recognized in earnings under foreign currency transaction gains (losses) on the Statement of Operations.

Furthermore, we continue to manage the currency exposure of certain receivables and payables using derivative instruments, such as forward exchange contracts and currency swaps, and non-derivative instruments, such as debt borrowings in foreign currencies. The gains or losses on these instruments provide an offset to the gains or losses recorded on the foreign currency receivables and payables. The derivative instruments are recorded at fair value and changes in fair value are recorded in earnings under net interest and other financial income (expenses) on the Statement of Operations. Foreign currency receivables and payables are recorded at the exchange rate at the balance sheet date and gains and losses as a result of changes in exchange rates are recorded in earnings under net interest and other financial income (expenses) on the Statement of Operations. The operations of our subsidiaries are generally financed with debt issued in the currency of the country in which each subsidiary is located in an effort to limit our foreign currency exposure.

As of March 31, 2004, we have entered into forward exchange contracts with terms less than twelve months to sell US$ 38.2 million and to receive € 30.7 million, to sell US$ 3.0 million and to receive Japanese yen 330.4 million, to buy US$ 0.4 million for payment of € 0.3 million and to buy € 1.2 million for payment of Japanese yen 156.5 million. At March 31, 2004, the aggregate fair market value of these forward exchange contracts was to receive € 33.8 million and to pay € 1.5 million. The fair market values of these contracts are based on external quotes from banks for similar contracts.

As our borrowings are primarily in other currencies than euros, a change in foreign currency exchange rates will have an impact on our net earnings. A hypothetical change of 10% in foreign currencies against the euro would result in an annual € 1.0 million change in interest expenses at March 31, 2004 borrowing levels.

Our long-term and convertible subordinated debt borrowings outstanding have fixed interest rates. At December 31, 2003 and March 31, 2004 we had € 23.7 million and € 22.7 million, respectively, in other borrowings with variable short-term interest rates outstanding. We are exposed to interest rate risk primarily through our borrowing activities. We do not enter into financial instrument transactions for trading or speculative purposes or to manage interest rate exposure. A hypothetical change in the average interest rate by 10% on the portion of our debt bearing interest at variable rates would not result in a material change in interest expense at March 31, 2004 borrowing levels.

Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed completely to perform as contracted and from movements in interest rates and foreign exchange rates. We do not anticipate nonperformance by counterparties. We generally do not require collateral or other security to support financial instruments with credit risk. Concentrations of credit risk (whether on or off-balance sheet) that arise from financial instruments exist for groups of customers or counterparties when they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. Financial instruments on the balance sheet that potentially subject us to concentrations of credit risk consist primarily of cash and cash

equivalents and accounts receivable. We maintain a policy providing for the diversification of cash and cash equivalent investments and placement of investments in high quality financial institutions to limit the amount of credit risk exposure. A significant percentage of our revenue is derived from a limited number of large customers. Our largest customer accounted for approximately 18.5% of our net sales in 2003 and our ten largest customers accounted for approximately 46.5% of our net sales in 2003. For the three months ended March 31, 2004, our largest customer accounted for approximately 11.0% of our net sales and our ten largest customers accounted for approximately 44.3% of net sales. Sales to these large customers also may fluctuate significantly from time to time depending on the timing and level of purchases from us. Significant orders from such customers may expose us to a concentration of credit risk and difficulties in collecting amounts due, which might harm our financial results and financial condition. At March 31, 2004, one customer accounted for 9.2% of the outstanding balance in accounts receivable.

Some of the information in this report constitutes forward-looking statements within the meaning of the United States federal securities laws, including the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include, among others, statements regarding future expenditures, sufficiency of cash generated from operations, maintenance of majority interest in ASM Pacific Technology Ltd. (“ASM Pacific Technology”), business strategy, product development, product acceptance, market penetration, market demand, return on investment in new products and product shipment dates. These statements may be found under “Management’s Discussion and Analyses of Financial Condition and Results of Operations,” and elsewhere in this report. Forward-looking statements typically are identified by use of terms such as “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “will,” “may” and similar words, although some forward-looking statements are expressed differently. You should be aware that these statements involve risks and uncertainties and our actual results could differ materially from those contained in the forward-looking statements due to a number of factors, including the following discussion of cautionary factors.

Our business could be adversely affected by the cyclical nature of the semiconductor industry.

We sell our products to the semiconductor industry, which is subject to sudden, extreme, cyclical variations in product supply and demand. Since late 2000, the semiconductor industry has been in a cyclical downturn characterized by reduced demand for products, lower average selling prices, reduced investment in semiconductor capital equipment and other factors all of which have resulted in lower sales and earnings for our business. The timing, length and severity of these cycles are difficult to predict. In some cases, these cycles have lasted more than a year. The latest downturn has lasted longer than past cycles and, although conditions in the industry improved in the fourth quarter of 2003 and the first quarter of 2004, the market remains volatile and hard to predict. Semiconductor manufacturers may contribute to the severity of these cycles by misinterpreting the conditions in the industry and over-investing or under-investing in semiconductor manufacturing capacity and equipment. We may not be able to respond effectively to these industry cycles.

Downturns in the semiconductor industry often occur in connection with, or anticipation of, maturing product cycles and declines in general economic conditions. Industry downturns have been characterized by reduced demand for semiconductor devices and equipment, production over-capacity and a decline in average selling prices. During a period of declining demand, we must be able to quickly and effectively reduce expenses and motivate and retain key employees. Our ability to reduce expenses in response to any downturn in the semiconductor industry is limited by our need for continued investment in engineering and research and development and extensive ongoing customer service and support requirements. In addition, the long lead time for production and delivery of some of our products creates a risk that we may incur expenditures or purchase inventories for products, which we cannot sell. During periods of extended downturn, a portion of our inventory may be written down if it is not sold.

Industry upturns have been characterized by fairly abrupt increases in demand for semiconductor devices and equipment and insufficient production capacity. During a period of increasing demand and rapid growth, we must be able to quickly increase manufacturing capacity to meet customer demand and hire and assimilate a sufficient number of additional qualified personnel. Our inability to quickly respond in times of increased demand could harm our reputation and cause some of our existing or potential customers to place orders with our competitors rather than us.

Our industry is subject to rapid technological change and we may not be able to forecast or respond to commercial and technological trends in time to avoid competitive harm.

Our growth strategy and future success depend upon commercial acceptance of products incorporating technologies we are developing, such as atomic layer chemical vapor deposition, rapid thermal processing, low-k dielectrics and silicon or silicon-germanium epitaxy. The semiconductor industry and the semiconductor equipment industry are subject to rapid technological change and frequent introductions of enhancements to existing products. Technological changes have had and will continue to have a significant impact on our business. Our operating results and our ability to remain competitive are affected by our ability to accurately anticipate customer and market requirements and develop technologies and products to meet these requirements. Our success in developing, introducing and selling new and enhanced products depends upon a variety of factors, including:

We may not be able to accurately forecast or respond to commercial and technical trends in the semiconductor industry or to the development of new technologies and products by our competitors. Our competitors may develop technologies and products that are more effective than ours or that may be more widely accepted. In addition, we may incur substantial unanticipated costs to ensure the functionality and reliability of our current and future products. If our products are unreliable or do not meet our customers’ expectations, then we may experience reduced orders, higher manufacturing costs, delays in collecting accounts receivable, and/or additional service and warranty expense. We have experienced delays from time to time in the introduction of, and some technical and manufacturing difficulties with, some of our systems and enhancements. We may also experience delays and technical and manufacturing difficulties in future introductions or volume production of new systems or enhancements. Significant delays can occur between a product’s introduction and the commencement of volume

production of that product. Any of these events could negatively impact our ability to generate the return we intend to achieve on our investments in new products.

If we fail to adequately invest in research and development, we may be unable to compete effectively.

We have limited resources to allocate to research and development, and must allocate our resources among a wide variety of projects in our front-end and back-end businesses. Because of intense competition in our industry, the cost of failing to invest in strategic developments is high. In order to enhance the benefits obtained from our research and development expenditures, we have contractual and other relationships with independent research institutes. If we fail to adequately invest in research and development or lose our ability to collaborate with these independent research entities, we may be unable to compete effectively in the front-end and back-end markets in which we operate.

We face intense competition from companies which have greater resources than we do, and potential competition from new companies entering the market in which we compete. If we are unable to compete effectively with these companies, our market share may decline and our business could be harmed.

We face intense competition in both the front-end and back-end segments of the semiconductor equipment industry from other established companies. Our primary competitors in the front-end business include Applied Materials, Novellus, Tokyo Electron, and Kokusai. Our primary competitors in the back-end business include Kulicke & Soffa, ESEC, Shinkawa, Apic Yamada, BE Semiconductor, Towa, Shinko and Mitsui. A number of our competitors have significantly greater financial, technological, engineering, manufacturing, marketing and distribution resources than we do. Their greater capabilities in these areas may enable them to:

In addition, new companies may enter the markets in which we compete, further increasing competition in the semiconductor equipment industry.

We believe that our ability to compete successfully depends on a number of factors, including:

Some of these factors are outside our control. We may not be able to compete successfully in the future, and increased competition may result in price reductions, reduced profit margins, loss of market share, and inability to generate cash flows that are sufficient to maintain or expand our development of new products.

Our quarterly revenues and operating results fluctuate due to a variety of factors, which may result in volatility or a decrease in the price of our common shares.

Our quarterly revenues and operating results have varied significantly in the past and may vary in the future due to a number of factors, including:

In addition, we derive a substantial portion of our net sales from products that have a high average selling price and significant lead times between the initial order and delivery of the product. The timing and recognition of net sales from customer orders can cause significant fluctuations in our operating results from quarter to quarter. Gross margins realized on product sales vary depending upon a variety of factors, including the mix of products sold during a particular period, negotiated selling prices, the timing of new product introductions and enhancements and manufacturing costs. A delay in a shipment near the end of a fiscal quarter or year, due, for example, to rescheduling or cancellations by customers or to unexpected manufacturing difficulties experienced by us, may cause sales in a particular period to fall significantly below our expectations and may materially adversely affect our operating results for that period. Further, our need to continue expenditures for research and development and engineering make it difficult for us to reduce expenses in a particular quarter even if our sales goals for that quarter are not met. Our inability to adjust spending quickly enough to compensate for any sales shortfall would magnify the adverse impact of a sales shortfall on our operating results. In addition, announcements by us or our competitors of new products and technologies could cause customers to defer purchases of our existing systems, which could negatively impact our earnings and our financial position.

As a result of these factors, our operating results may vary significantly from quarter to quarter. Any shortfall in revenues or net income from levels expected by securities analysts and investors could cause a decrease in the trading price of our common shares.

Our products generally have long sales cycles and implementation periods, which increase our costs in obtaining orders and reduce the predictability of our earnings.

Our products are technologically complex. Prospective customers generally must commit significant resources to test and evaluate our products and to install and integrate them into larger systems. In addition, customers often require a significant number of product presentations and demonstrations, in some instances evaluating equipment on site, before reaching a sufficient level of confidence in the product’s performance and compatibility with the customer’s requirements to place an order. As a result, our sales process is often subject to delays associated with lengthy approval processes that typically accompany the design and testing of new products. The sales cycles of our products often last for many months or even years. Longer sales cycles require us to invest significant resources in attempting to make sales and delay the generation of revenue.

Long sales cycles also subject us to other risks, including customer’s budgetary constraints, internal acceptance reviews and cancellations. In addition, orders expected in one quarter could shift to another because of the timing of customer’s purchase decisions. The time required for our customers to incorporate our products into their systems can vary significantly with the needs of our customers and generally exceeds several months, which further complicates our planning processes and reduces the predictability of our operating results.

Substantially all of our equipment orders are subject to operating or performance specifications. We occasionally experience unforeseen difficulties in compliance with these criteria, which can result in increased design, installation and other costs and expenses.

Substantially all of our equipment sales are conditioned on our demonstration, and our customer’s acceptance, that the equipment meets specified operating and performance criteria, either before shipment or after installation in a customer’s facility. We occasionally experience unforeseen difficulties in demonstrating compliance with these criteria, which can lead to unanticipated expenses for the redesign, modification and testing of the equipment and related software. To the extent this occurs in the future, our cost of goods sold and operating income will be adversely effected. If we are not able to demonstrate compliance with the performance and operating specifications in respect of specific equipment, we may have to pay penalties to the customer, issue credit notes to the customer and/or take other remedial action, including payment of damages, any one of which could negatively affect our operating income.

We derive a significant percentage of our revenue from sales to a small number of large customers, and if we are not able to retain these customers, or they reschedule, reduce or cancel orders, our revenues would be reduced and our financial results would suffer.

Our largest customers account for a significant percentage of our revenues. Our largest customer accounted for 18.5% and our ten largest customers accounted for 46.5% of our net sales in 2003. For the three months ended March 31, 2004, our largest customer accounted for 11% of our net sales and our ten largest customers accounted for 44.3% of our net sales. Sales to and the relative importance of these large customers have varied significantly from year to year and will continue to fluctuate in the future. These sales also may fluctuate significantly from quarter to quarter. We may not be able to retain our key customers or they may cancel purchase orders or reschedule or decrease their level of purchases from us. Any substantial decrease or delay in sales to one or more of our key customers could harm our sales and financial results. In addition, any difficulty in collecting amounts due from one or more key customers could harm our financial results.

We may need additional funds to finance our future growth, and ongoing research and development activities. If we are unable to obtain such funds, we may not be able to expand our business as planned.

In the past, we have experienced severe capital constraints that adversely affected our operations and ability to compete. We may require substantial additional capital to finance our future growth and fund our ongoing research and development activities beyond 2004. Our capital requirements depend on many factors, including acceptance of and demand for our products, and the extent to which we invest in new technology and research and development projects.

If we raise additional funds through the issuance of equity securities, the percentage ownership of our existing shareholders would be diluted. If we finance our capital requirements we may incur significant interest costs. Additional financing may not be available to us when needed or, if available, may not be available on terms acceptable to us.

If we are unable to raise needed additional funds, we may have to reduce the amount we spend on research and development, slow down our introduction of new products, reduce capital expenditures necessary to support future growth and/or take other measures to reduce expenses which could limit our growth and ability to compete.

We may not be able to recruit or retain qualified personnel or integrate qualified personnel into our organization. Consequently, we could experience reduced sales, delayed product development and diversion of management resources.

Our business and future operating results depend in part upon our ability to attract and retain qualified management, technical, sales and support personnel for our operations on a worldwide basis. Competition for qualified personnel is intense, and we cannot guarantee that we will be able to continue to attract and retain qualified personnel particularly during sustained economic upturns in the industry. Availability of qualified technical personnel varies from country to country, and may affect the operations of our subsidiaries in some parts of the world. Our operations could be negatively affected if we lose key executives or employees or are unable to attract and retain skilled executives and employees as needed. In particular, if our growth strategies are successful, we may not have sufficient personnel to manage that growth and may not be able to attract the personnel needed. We do not maintain insurance to protect against the loss of key executives or employees. Further, we have agreements with some, but not all, employees, restricting their ability to compete with us after their employment terminates. Our future growth and operating results will depend on:

We are not currently focused on attracting new key personnel, we have in the past experienced the intense competition for skilled personnel during market expansions and believe competition will again be intense if the semiconductor market continues its current trend toward a sustained rebound. Consequently, we generally attempt to minimize reductions in skilled personnel as a reaction to industry downturns, which reduces our ability to lower costs by payroll reduction. We continue to monitor market and economic developments and are ready to implement further measures if circumstances warrant.

Although we are a majority shareholder, ASM Pacific Technology is not obligated to pay dividends to us and may take actions or enter into transactions that are detrimental to us.

ASM Pacific Technology is a Cayman Islands limited liability company that is based in Hong Kong and listed on the Hong Kong Stock Exchange. As of March 31, 2004, we owned

53.87% of ASM Pacific Technology through our wholly-owned subsidiary, Advanced Semiconductor Materials (Netherlands Antilles N.V.), a Netherlands Antilles company, and the remaining 46.13% was owned by the public.

Although three of the five directors of ASM Pacific Technology are affiliates of ASM International, they are under no obligation to take any actions that are beneficial to us. Issues and conflicts of interest therefore may arise which might not be resolved in our best interests.

In addition, the directors of ASM Pacific Technology are under no obligation to declare a payment of dividends to shareholders. As a shareholder of ASM Pacific Technology, we can approve the payment of dividends, but cannot compel their payment or size. With respect to the payment of dividends, the directors must consider the financial position of ASM Pacific Technology after the dividend. Since a portion of our cash flows available for front-end is derived from the dividends we receive from ASM Pacific Technology, its failure to declare dividends in any year would negatively impact the cash position of our front-end segment for that year and reduce cash available to service our indebtedness. Cash dividends received from ASM Pacific Technology totaled € 35.7 million, € 29.5 million, and € 24.1 million in 2001, 2002 and 2003, respectively. In April 2004, we received a final dividend for the year 2003 of € 17.8 million.

The directors of ASM Pacific Technology owe their fiduciary duties to ASM Pacific Technology, and may approve transactions to which we are a party only if the transactions are commercially beneficial to ASM Pacific Technology. Further, under the listing rules of the Hong Kong Stock Exchange, directors who are on the boards of both ASM Pacific Technology and ASM International are not permitted to vote on a transaction involving both entities. This would disqualify all three of the affiliates of ASM International who currently serve on the board of ASM Pacific Technology from voting on any such transaction.

As a shareholder of ASM Pacific Technology, we can vote our shares in accordance with our own interests. However, we may not be entitled to vote on transactions involving both us and ASM Pacific Technology under the listing rules of the Hong Kong Stock Exchange and the Hong Kong Takeover Code. For example, under the Hong Kong Takeover Code, we would be excluded from voting if we were directly involved in a takeover of ASM Pacific Technology in a transaction requiring a shareholder vote.

Our reliance on a limited number of suppliers could result in disruption of our operations.

We outsource a substantial majority of the manufacturing of our front-end business to a limited number of suppliers. We are in the process of developing additional internal and external sources of supply for these manufacturing processes in the future, including an additional front-end supply source in Singapore. If our suppliers were unable or unwilling to deliver products to us in the quantities we require for any reason, including natural disaster, labor unrest, capacity constraints, supply chain management problems or contractual disputes, we may be unable to fill customer orders on a timely basis, which could negatively affect our financial performance and customer relationships.

Because the costs to semiconductor manufacturers of switching from one semiconductor equipment supplier to another can be high, it may be more difficult to sell our products to new customers which could limit our growth in sales and market share.

We believe that once a semiconductor manufacturer has selected a supplier’s equipment for a particular product line, that manufacturer generally continues to rely on that supplier for future equipment requirements, including new generations of similar products. Changing from one equipment supplier to another is expensive and requires a substantial investment of resources by the customer. Accordingly, it is difficult to achieve significant sales to a customer using another supplier’s equipment. Our inability to sell our products to potential customers who use another supplier’s equipment could adversely affect our ability to increase revenue and market share.

Our ability to compete could be jeopardized if we are unable to protect our intellectual property rights from challenges by third parties; claims or litigation regarding intellectual property rights could require us to incur significant costs.

Our success and ability to compete depend in large part upon protecting our proprietary technology. We rely on a combination of patent, trade secret, copyright and trademark laws, nondisclosure and other contractual agreements and technical measures to protect our proprietary rights. These agreements and measures may not be sufficient to protect our technology from third party infringements, or to protect us from the claims of others. In addition, patents issued to us may be challenged, invalidated or circumvented, rights granted to us under patents may not provide competitive advantages to us, and third parties may assert that our products infringe their patents, copyrights or trade secrets. Third parties could also independently develop similar products or duplicate our products.

In addition, monitoring unauthorized use of our products is difficult and we cannot be certain that the steps we have taken will prevent unauthorized use of our technology. The laws of some countries in which our products are or may be developed, manufactured or sold, including various countries in Asia, may not protect our products or intellectual property rights to the same extent as do the laws of the Netherlands and the United States and thus make the possibility of piracy of our technology and products more likely in these countries. If competitors are able to use our technology as their own, our ability to compete effectively could be harmed.

In recent years, there has been substantial litigation regarding patent and other intellectual property rights in semiconductor-related industries. We are currently involved in patent litigation proceedings in the United States with Applied Materials, Inc. involving claims and counter-claims over certain patent infringement unrelated to our 1997 settlement with Applied Materials discussed below. In addition, in April 2003, we and our subsidiary, ASM America, entered into a binding memorandum of understanding regarding the settlement of mutual patent infringement claims between ASM America and Genus, Inc. In the future, additional litigation may be necessary to enforce patents issued to us, to protect trade secrets or know-how owned by us or to defend us against claimed infringement of the rights of others and to determine the scope and validity of the proprietary rights of others. For additional information regarding this matter, see Note K to Notes to our unaudited Consolidated Financial Statements elsewhere in this report.

Claims that our products infringe the proprietary rights of others would force us to defend ourselves and possibly our customers or suppliers against the alleged infringement. Such claims, if successful, could subject us to significant liability for damages and invalidate our proprietary rights. Regardless of the outcome, patent infringement litigation is time-consuming and expensive to resolve and diverts management time and attention.

Intellectual property litigation could force us to do one or more of the following, any one of which could severely harm our business:

We license the use of some patents from a competitor pursuant to a settlement agreement; if the agreement is terminated, our business could be adversely affected.

In October 1997, we entered into an agreement to settle mutual patent infringement litigation with Applied Materials, Inc., which was amended and restated in 1998, pursuant to which Applied Materials agreed to grant us a worldwide, non-exclusive and royalty-bearing license to use all of the litigated patents and certain additional patents that were not part of the litigation. In return we agreed to pay Applied Materials a settlement fee and to grant it a worldwide, non-exclusive license to use a number of our patents including but not limited to those patents which we were enforcing in the litigation. All licenses expire at the end of the life of the underlying patents. Our obligation to pay certain royalties to Applied Materials continues until the expiration of the corresponding underlying patent. In addition, the settlement agreement included covenants for limited periods during which the parties would not litigate the issue of whether certain of our products infringe any of Applied Materials’ patents that were not

licensed to us under the settlement agreement. The covenants, which lasted for different periods of time for different products, have expired. Upon the occurrence of an event of default or other specified events, including, among other things, our failure to pay royalties, a change of control of ASM International, and improper use of the licenses, Applied Materials may terminate the settlement agreement, including the licenses included in the agreement.

We are currently involved in patent infringement litigation with Applied Materials involving claims that are unrelated to and patents which are not the subject of our settlement agreement with Applied Materials. Additional litigation with Applied Materials regarding other matters or the operation of the settlement agreement itself could occur. Litigation with Applied Materials, which has greater financial resources than we do, could negatively impact our earnings and financial position. For additional information regarding our litigation with Applied Materials, see Note K to Notes to our unaudited Consolidated Financial Statements elsewhere in this report.

We operate worldwide; economic, political, military or other events in a country where we make significant sales or have significant operations could interfere with our success or operations there and harm our business.

We market and sell our products and services throughout the world. We have assembly facilities in the Netherlands, the United States, Japan, Hong Kong and Singapore, and manufacturing facilities in the People’s Republic of China and Malaysia. We are subject to risks inherent in doing business internationally. In particular, the September 11, 2001 attacks in New York and Washington, D.C. disrupted commerce throughout the United States and other parts of the world. The occurrence of future similar attacks throughout the world and military action taken and to be taken by the United States and other nations in Iraq and elsewhere may cause significant disruption to commerce throughout the world or in regions where we have operations. In addition, outbreaks of highly infectious diseases or viruses, such as Severe Acute Respiratory Syndrome or the Avian Flu, in East Asian countries or other areas of the world may disrupt the economies, financial markets and business activities in East Asia and elsewhere, including areas where we have operations, such as our back-end operations located in the Guangdong province in the People’s Republic of China. To the extent that such disruptions further slow the global economy or, more particularly, result in delays or cancellations of purchase orders, our business and results of operations could be materially and adversely affected. We are unable to predict whether these risks or the responses thereto will result in any long-term commercial disruptions or if such activities or responses will have a long-term material adverse effect on our business, results of operations or financial condition.

Our operational results could be negatively impacted by currency fluctuations.

Our assets, liabilities and operating expenses and those of our subsidiaries are to a large extent denominated in the currency of the country where each entity is established. Our financial statements, including our consolidated financial statements, are expressed in euros. The translation exposures that result from the inclusion of financial statements of our subsidiaries that are expressed in the currencies of the countries where the subsidiaries are located are not hedged. As a result, our operational results are exposed to fluctuations of various exchange rates. These net translation exposures are taken into account in determining shareholder’s equity.

In addition, foreign currency fluctuations may affect the prices of our products. Prices for our products are currently denominated in United States dollars, euros and Japanese yen for sales to our customers throughout the world. If there is a significant devaluation of the currency in a specific country, the prices of our products will increase relative to that country’s currency and our products may be less competitive in that country. Also, we cannot be sure that our international customers will continue to be willing to place orders denominated in these currencies. If they do not, our revenue and operating results will be subject to additional foreign exchange rate fluctuations.

Although we monitor our exposure to currency fluctuations, these fluctuations could negatively impact our earnings, cash flow and financial position.

If our products are found to be defective, we may be required to recall and/or replace them, which could be costly and result in a material adverse effect on our business, financial condition and results of operations.

One or more of our products may be found to be defective after we have already shipped the products in volume, requiring a product replacement or recall. We may also be subject to product returns and product liability claims that could impose substantial costs and have a material and adverse effect on our business, financial condition and results of operations.

Environmental laws and regulations may expose us to liability and increase our costs.

Our operations are subject to many environmental laws and regulations wherever we operate governing, among other things, air emissions, wastewater discharges, the use and handling of hazardous substances, waste disposal and the investigation and remediation of soil and groundwater contamination. In February 2003, the European Commission published a directive on waste electrical and electronic equipment (“WEEE”) (Directive 2002/96/EC, which was amended in December 2003 by Directive 2003/108/EC). In principal, the directive results in “take-back” obligations of manufacturers and/or the responsibility of manufacturers for the financing of the collection, recovery and disposal of electrical and electronic equipment by requiring that European Union Member States adopt appropriate measures to minimize WEEE disposal and achieve high levels of collection separation of WEEE by August 13, 2004. Producers of WEEE will have to provide for the financing of the collection, treatment, recovery and environmentally sound disposal of WEEE by August 13, 2005. Another directive of the European Commission (Directive 2002/95/EC) provides for a ban on the use of lead and some flame retardants in manufacturing electronic components. These measures could adversely affect our manufacturing costs or product sales by forcing us or our suppliers to change production processes or use more costly materials. Our customers may require us to conform to the new standards in advance of their implementation by the European Union Member States.

As with other companies engaged in similar activities, we face inherent risks of environmental liability in our current and historical manufacturing activities. Costs associated with future environmental compliance or remediation obligations could adversely affect our business.

Although we currently are a 53.87% shareholder of ASM Pacific Technology, we may not be able to maintain our majority interest, which, if other circumstances are such that we do not control ASM Pacific Technology, would prevent us from consolidating its results of operations with ours. This event would have a significant negative effect on our consolidated net earnings from operations.

We derive a significant portion of our net sales, earnings from operations and net earnings from the consolidation of the results of operations of ASM Pacific Technology with our results. If we do not maintain our majority interest in ASM Pacific Technology, and if other circumstances are such that we do not control it through other means, we would no longer be able to consolidate its results of operations with ours. Any such determination of whether we could continue to consolidate would be based on whether we still have a “controlling financial interest” within the meaning of United States generally accepted accounting principles. If we were to become unable to consolidate the results of operations of ASM Pacific Technology with our results, the results of operations of ASM Pacific Technology would no longer be included in our earnings from operations. Instead, our proportionate share of ASM Pacific Technology’s earnings would be reflected as a separate line-item called “share of results from investments” in our consolidated statements of operations. We would no longer be able to consolidate the assets and liabilities of ASM Pacific Technology and would have to reflect the net investment in ASM Pacific Technology in the line-item “investments” in our consolidated balance sheet. This event would have a significant negative effect on our consolidated earnings from operations, although our net earnings would be reduced only by an amount that reflects the reduction of our ownership interest in ASM Pacific Technology.

We maintain our majority interest in ASM Pacific Technology by purchasing shares from time to time as necessary. ASM Pacific Technology has an employee share incentive program pursuant to which it can issue up to an aggregate of 5.0% of its total issued shares, excluding shares subscribed for or purchased under the program, to directors and employees as an incentive. When ASM Pacific Technology issues shares pursuant to this program, our ownership interest is diluted. If the current maximum amount of shares are issued under this program, our ownership interest would continue to be above 50.0%. However, our interest could further be diluted if ASM Pacific Technology issues additional equity. Any such decision by ASM Pacific Technology to issue additional shares requires the approval of a majority of shareholders, which means that, at present, our approval would be required. Although we intend to continue to purchase shares of ASM Pacific Technology if necessary to maintain our majority interest, we may be unable to do so if we do not have sufficient financial resources at that time.

Our directors and officers control approximately 24.3% of our voting power which gives them significant influence over matters voted on by our shareholders, including the election of directors, and may make it more difficult for a shareholder group to remove or elect directors not supported by management.

Our directors and officers controlled approximately 24.3% of our voting power as of March 31, 2004. Accordingly, in the event they were to vote together in connection with matters submitted to a shareholder vote, such as the appointment of our management board by the shareholders, they would have significant influence on the outcome of those matters and on our direction and future operations. This makes it more difficult for a group of shareholders to remove or elect directors not supported by management.

Any investments we may make could disrupt our business and harm our financial condition.

We intend to consider investments in complementary businesses, products or technologies. In the event of any future acquisition of such a business, product or technology, we could:

Our operation of any acquired business will also involve numerous risks, including:

We may not be able to successfully integrate any businesses, products or technologies or personnel that we might acquire in the future and also may not realize any anticipated benefits from those acquisitions.

Our shareholders have granted to Stichting Continuïteit ASM International, or Stichting, a non-membership organization with a board composed of our President and Chief Executive Officer, the Chairman of our Supervisory Board and three independent members, the right to acquire and vote our preferred shares to maintain the continuity of our company. Toward that objective, Stichting will evaluate, when called for, whether a takeover offer is in our best interest, and may, if it determines that such action is appropriate, acquire preferred shares with voting power equal to 50.0% of the voting power of the outstanding common shares. This is likely to be sufficient to enable it to prevent a change of control from occurring. For additional information regarding Stichting, see Item 7 - Major Shareholders and Related Party Transactions in our Form 20-F for the year ended December 31, 2003.

These provisions may prevent us from entering into a change of control transaction that may otherwise offer our shareholders an opportunity to sell shares at a premium over the market price.

We must offer a possible change of control transaction to Applied Materials, Inc. first.

Pursuant to our 1997 settlement agreement with Applied Materials, Inc., one of our competitors, as amended and restated in 1998, if we desire to effect a change of control transaction, as defined in the settlement agreement, with a competitor of Applied Materials, we must first offer the change of control transaction to Applied Materials on the same terms as we would be willing to accept from that competitor pursuant to a bona fide arm’s-length offer made by that competitor.

The market price of our common shares has fluctuated substantially in the past. Between January 1, 2003 and March 31, 2004, the sales price of our common shares, as reported on the Nasdaq National Market, ranged from a low of $9.61 to a high of $20.58. The market price of our common shares will continue to be subject to significant fluctuations in the future in response to a variety of factors, including the risk factors discussed in this report.

Furthermore, stock prices for many companies, and high technology companies in particular, fluctuate widely for reasons that may be unrelated to their operating results.

Those fluctuations and general economic, political and market conditions, such as recessions or international currency fluctuations, may adversely affect the market price of our common shares.

This report on Form 6-K is hereby incorporated by reference into Forms F-3 nos. 333-11234, 333-08080, 333-11502 and 333-107339 and Forms S-8 nos. 333-87262, 33-07111, 33-07109, 33-6184, 33-6185, 33-6186, 33-78628, 33-93026 and 333-11060 filed with the U.S. Securities and Exchange Commission.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


ASM INTERNATIONAL N.V.

Date:		May 25, 2004

By:		/s/ Arthur H. del Prado

		Arthur H. del Prado President and CEO


		Page
Consolidated Balance Sheets as of December 31, 2003 and March 31, 2004 (unaudited)		3

Unaudited Consolidated Statements of Operations for the three month periods ended March 31, 2003 and March 31, 2004		4

Unaudited Consolidated Statements of Comprehensive Income (Loss) for the three month periods ended March 31, 2003 and March 31, 2004		5

Unaudited Consolidated Statements of Shareholders’ Equity for the three month periods ended March 31, 2003 and March 31, 2004		5

Unaudited Consolidated Statements of Cash Flows for the three month periods ended March 31, 2003 and March 31, 2004		6

Notes to Unaudited Consolidated Interim Financial Information		7

Management’s Discussion and Analysis of Financial Condition and Results of Operations		17

Market Risk Disclosure		25

Cautionary Factors		28

Incorporation by Reference		43

Exhibits		43

Signatures		43


		In Euro
(thousands, except per share data)	Note	December 31, 2003		March 31, 2004
		(Note A)		(unaudited)
Assets
Cash and cash equivalents	B	154,857		184,315
Marketable securities		9		9
Accounts receivable, net		144,900		182,648
Inventories, net	C	145,701		162,531
Income taxes receivable		873		21
Deferred tax assets		4,125		4,456
Other current assets		16,942		21,162

Total current assets		467,407		555,142
Property, plant and equipment, net	D	130,235		134,146
Goodwill		45,937		47,333
Deferred tax assets		136		136
Investments and loan advances	E	23,882		25,598
Debt issuance costs	H	4,704		4,475

Total Assets		672,301		766,830

Liabilities and Shareholders’ Equity
Notes payable to banks	F	23,680		22,713
Accounts payable		77,627		107,117
Accrued expenses		55,738		69,256
Advance payments from customers		9,601		10,014
Deferred revenue		10,173		9,152
Income taxes payable		7,618		12,176
Current portion of long-term debt	G	4,820		4,713

Total current liabilities		189,257		235,141
Deferred tax liabilities		1,740		2,302
Long-term debt	G	16,804		17,762
Convertible subordinated debt	H	162,319		167,711

Total liabilities		370,120		422,916
Commitments and contingencies	K
Minority interest in subsidiary		87,249		107,115
Shareholders’ Equity:
Common shares
Authorized 110,000,000 shares, par value € 0.04, issued and outstanding 50,061,647 and 50,276,323 shares		2,002		2,011
Financing preferred shares, issued none		—		—
Preferred shares, issued none		—		—
Capital in excess of par value		259,122		260,838
Retained earnings		5,734		20,614
Accumulated other comprehensive loss		(51,926	)	(46,664	)

Total Shareholders’ Equity		214,932		236,799

Total Liabilities and Shareholders’ Equity		672,301		766,830


	In Euro
	Three months ended March 31,
(thousands, except per share data)	2003		2004
	(unaudited)		(unaudited)
Net sales	117,767		195,871
Cost of sales	(79,654	)	(114,773	)

Gross profit	38,113		81,098
Operating expenses:
Selling, general and administrative	(24,033	)	(24,956	)
Research and development	(18,387	)	(17,484	)

Total operating expenses	(42,420	)	(42,440	)

Earnings (loss) from operations	(4,307	)	38,658
Net interest expense	(1,901	)	(2,351	)
Foreign currency transaction gains	227		128

Earnings (loss) before income taxes and minority interest	(5,981	)	36,435
Income tax expense	(139	)	(4,832	)

Earnings (loss) before minority interest	(6,120	)	31,603
Minority interest	(2,200	)	(16,723	)

Net earnings (loss)	(8,320	)	14,880

Net earnings (loss) per share:
Basic	(0.17	)	0.30
Diluted ⁽¹⁾	(0.17	)	0.28

Weighted average number of shares used in
computing per share amounts (in thousands):
Basic	49,371		50,156
Diluted ⁽¹⁾	49,371		61,491


	In Euro
	Three months ended March 31,
(thousands, except per share data)	2003		2004
	(unaudited)		(unaudited)
Net earnings (loss)	(8,320	)	14,880
Other comprehensive income (loss):
Exchange rate changes for the period	(7,028	)	6,253
Unrealized losses on derivative instruments	(463	)	(991	)

Total other comprehensive income (loss)	(7,491	)	5,262

Comprehensive income (loss)	(15,811	)	20,142


	In Euro
(thousands, except for number of common shares)	Number of common shares	Common shares	Capital in excess of par value	Retained earnings		Accumulated other com- prehensive income (loss)		Total Share- holders’ Equity
Balance December 31, 2002	49,370,308	1,975	254,999	35,054		(26,486	)	265,542
Issuance of common shares:
For stock options	1,550	—	11	—		—		11
Net loss	—	—	—	(8,320	)	—		(8,320	)
Other comprehensive loss	—	—	—	—		(7,491	)	(7,491	)

Balance March 31, 2003 (unaudited)	49,371,858	1,975	255,010	26,734		(33,977	)	249,742

Balance December 31, 2003	50,061,647	2,002	259,122	5,734		(51,926	)	214,932

Issuance of common shares:
For stock options	48,466	2	399	—		—		401
Exercise of warrants	166,210	7	1,317	—		—		1,324
Net earnings	—	—	—	14,880		—		14,880
Other comprehensive income	—	—	—	—		5,262		5,262

Balance March 31, 2004 (unaudited)	50,276,323	2,011	260,838	20,614		(46,664	)	236,799


	In Euro
	Three months ended March 31,
	Three months ended March 31,
(thousands)	2003		2004
	(unaudited)		(unaudited)
Cash flows from operating activities:
Net earnings (loss)	(8,320	)	14,880
Depreciation and amortization	8,788		7,715
Amortization of debt issuance costs	317		378
Deferred income taxes	123		372
Minority interest	2,200		16,723
Changes in other assets and liabilities:
Accounts receivable	(4,607	)	(32,310	)
Inventories	(3,163	)	(11,943	)
Other current assets	(3,262	)	(3,826	)
Accounts payable and accrued expenses	2,676		38,019
Advance payments from customers	452		133
Deferred revenue	950		(1,108	)
Income taxes	1,702		5,062

Net cash provided by (used in) operating activities	(2,144	)	34,095
Cash flows from investing activities:
Net capital expenditures	(4,212	)	(7,293	)
Investments and loan advances	—		(1,716	)
Proceeds from sale of property, plant and equipment	39		29

Net cash used in investing activities	(4,173	)	(8,980	)
Cash flows from financing activities:
Notes payable to banks, net	3,162		(2,410	)
Proceeds from issuance of common shares	11		1,725
Proceeds from long-term debt	22		—
Repayment of long-term debt	(896	)	(388	)

Net cash provided by (used in) financing activities	2,299		(1,073	)
Exchange rate effects	(2,712	)	5,416

Net increase (decrease) in cash and cash equivalents	(6,730	)	29,458
Cash and cash equivalents at beginning of period	70,991		154,857

Cash and cash equivalents at end of period	64,261		184,315

Cash paid (received) during the period for:
Interest	465		164
Income taxes	(1,686	)	(603	)


	Total
At cost:
Balance January 1, 2004	316,405
Capital expenditures	7,293
Retirements and sales	(325	)
Translation effect	10,731

Balance March 31, 2004 (unaudited)	334,104

Accumulated depreciation:
Balance January 1, 2004	186,170
Depreciation	7,715
Retirements and sales	(296	)
Translation effect	6,369

Balance March 31, 2004 (unaudited)	199,958

Property, plant and equipment, net:
January 1, 2004	130,235
March 31, 2004 (unaudited)	134,146

Useful lives in years:
Buildings and improvements	10-25
Machinery and equipment	2-10
Furniture and fixtures	2-10


	Investments	Loan advances	Total
Balance January 1, 2004	21,507	2,375	23,882
Additions	—	1,716	1,716

Balance March 31, 2004 (unaudited)	21,507	4,091	25,598


(euro millions)	Q1 2003		Q4 2003		Q1 2004		% Change Q4 2003 to *Q1 2004*		% Change Q1 2003 to *Q1 2004*
Net sales	117.8		163.6		195.9		19.7	%	66.3	%
Gross profit	38.1		64.9		81.1		25.0	%	112.8	%
Gross profit margin %	32.4	%	39.7	%	41.4	%	1.7	%	9.0	%
Selling, general and administrative expenses	(24.0	)	(32.8	)	(24.9	)	(23.8	)%	3.8	%
Research and development expenses	(18.4	)	(21.6	)	(17.5	)	(19.2	)%	(4.9	)%

Earnings (loss) from operations *	(4.3	)	10.5		38.7		268.8	%	na
Net earnings (loss) *	(8.3	)	(5.5	)	14.9		na		na
New orders	149.9		245.4		225.7		(8.0	)%	50.6	%
Backlog at end of period	175.0		199.0		228.8		15.0	%	30.7	%