Prepared by MERRILL CORPORATION

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/ No / /

AFFYMETRIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

AFFYMETRIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
(UNAUDITED)

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The consolidated financial statements include the accounts of Affymetrix, Inc. ("Affymetrix" or the "Company") and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, all adjustments (consisting of normal recurring entries) considered necessary for a fair presentation have been included. Certain amounts in 2000 have been reclassified to conform to the 2001 presentation. All share and per share amounts have been adjusted to reflect a two-for-one stock split in August 2000.

Results for any interim period are not necessarily indicative of results for any future interim period or for the entire year. The accompanying financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.

Product revenues include sales of GeneChip instrumentation, Affymetrix scanners and arrayers, software and probe arrays as well as subscription fees earned under EasyAccess™ agreements. Instrumentation and probe array revenues are recognized when earned, which is generally upon shipment and transfer of title to the customer and fulfillment of any significant post-delivery obligations. Software revenue is recognized upon completion of performance obligations, which is generally upon installation. Reserves are provided for anticipated warranty expenses at the time the associated revenue is recognized. Revenue related to extended warranty and software maintenance arrangements is deferred and recognized over the applicable periods. Revenue from subscription fees earned under EasyAccess agreements is recognized ratably over the term of the agreement subject to adjustments for anticipated reductions provided for in certain agreements for late delivery of probe arrays. Payments received in advance under these arrangements are recorded as deferred revenue until earned.

Research revenue includes amounts earned from services performed pursuant to commercial collaboration and supply agreements as well as under government grants. Research revenue is recorded in the period in which the costs are incurred or in which the revenue is earned as defined in the related agreement. Direct costs associated with these contracts and grants are reported as research and development expense.

License and royalty revenues include amounts earned from third parties with licenses to the Company's intellectual property and are recognized when earned under the terms of the related agreements, generally upon signing of the license. In situations where the Company has continuing performance obligations, license revenue is recognized ratably over the period of expected performance.

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Financial Instruments and for Hedging

Activities" ("SFAS 133") which provides a comprehensive and consistent standard for hedging activities and the accounting for derivatives. In June 1999, FASB issued Statement of Financial Accounting Standards No. 137 which defers the effective date of SFAS 133 to years beginning after June 15, 2000. The adoption of SFAS 133 did not have a material impact on the Company's results of operations or financial position.

Basic earnings (loss) per share is calculated using the weighted average number of shares of common stock outstanding during the period less the weighted-average number of shares of common stock subject to repurchase. Diluted earnings (loss) per share gives effect to the dilutive effect of stock options and warrants (calculated based on the treasury stock method) and convertible debt (calculated on an as-if-converted method). Diluted net loss per share is the same as basic net loss per share as the Company is in a net loss position.

	Three Months Ended March 31,
	2001		2000
Weighted-average shares outstanding	57,428		53,663
Less: Weighted-average shares of common stock subject to repurchase	(433	)	—

Weighted average shares used in computing basic and diluted net loss per share	56,995		53,663

At March 31, 2001, cash equivalents and available-for-sale securities consisted of U.S. Government obligations, U.S. corporate debt securities and equity securities. The investments are carried at fair value with unrealized gains and losses reported in stockholders' equity.

		March 31, 2001		December 31, 2000
Raw materials		$	5,088	$	4,494
Work in process			791		931
Finished goods			17,692		11,809

	Total	$	23,571	$	17,234

Accounts payable and accrued liabilities consist of the following (in thousands):

		March 31, 2001		December 31, 2000
Accounts payable		$	12,918	$	15,242
Accrued compensation and related liabilities			8,018		7,059
Accrued interest on convertible subordinated notes			1,340		5,971
Accrued sales and use tax			3,591		2,940
Accrued warranties			4,822		4,738
Accrued legal			10,943		8,153
Accrued royalties			11,070		6,003
Accrued legal settlement			18,587		18,587
Other			1,592		2,331

	Total	$	72,881	$	71,024

The components of comprehensive loss for the three months ended March 31, 2001 and 2000 are as follows (in thousands):

	Three Months Ended March 31,
	2001			2000
Net loss		(10,763	)		(6,269	)
Unrealized loss on equity investment		(9,304	)		—
Unrealized gain (loss) on debt securities		3,281			(142	)

Comprehensive (loss)	$	(16,786	)	$	(6,411	)

In 2000, Affymetrix formed a wholly-owned subsidiary called Perlegen Sciences, Inc. ("Perlegen"). On March 30, 2001, Perlegen completed a private financing which reduced Affymetrix' ownership position in Perlegen to approximately 53%. Affymetrix and certain of its affiliates have placed a portion of this shareholding (approximately 8%) into a voting trust, relinquishing certain voting rights and control such that Affymetrix will account for Perlegen's financial results using the equity method from the date of the financing. The Company's investment in Perlegen has no basis for accounting purposes. Affymetrix' financial statements for the three months ended March 31, 2001 include the operating results of Perlegen through the date of the financing.

On March 23, 2001 Affymetrix and Oxford Gene Technology, Ltd. ("OGT") entered into a settlement agreement resolving all existing litigation between the two companies.

The settlement encompasses a number of lawsuits and other adverse proceedings involving the parties' respective patents, patent applications and patent license rights in various countries as well as litigation over the transfer to Affymetrix of Beckman Coulter's ("Beckman") license to certain OGT patents through Affymetrix' 1999 purchase of Beckman's array business. Key components of the settlement include:

As a result of the settlement, Affymetrix did not receive any additional license rights from OGT and the terms of the existing license to OGT's technology obtained from Beckman remains unchanged. As a result of the settlement, the Company has recorded an additional charge of approximately $18.6 million in the quarter ended December 31, 2000. In addition, the Company has recorded a charge of $1.9 million in the first quarter of 2001 as a result of a fee arrangement entered into with the Company's legal counsel. While the settlement agreement settles all outstanding litigation and ensures that the Company is licensed under certain OGT patents, it does not require the withdrawal of undeclared interferences or ensure that the parties will not be involved in future administrative and other proceedings, such as interferences, arbitration proceedings, or litigation proceedings. Such proceedings could have a material, adverse effect on the Company as a result of expenses incurred, distraction of management, or narrowing or elimination of some of its patent rights.

On March 3, 1997, Hyseq, Inc. ("Hyseq") filed a lawsuit in United States District Court for the Northern District of California (San Jose Division) alleging that Affymetrix' products infringe United States Patent Nos. 5,202,231 (the " '231 Patent"), and 5,525,464 (the " '464 Patent"). In addition, in December 1997, Hyseq filed a second action claiming that Affymetrix' products infringe a related patent, United States Patent 5,695,940 (the " '940 Patent"). On October 26, 1999, Hyseq filed a third action in United States District Court for the Northern District of California claiming that Affymetrix' products infringe a related patent, United States Patent No. 5,972,619 (the " '619 Patent"). The action also requests a declaration that Affymetrix' United States Patent No. 5,795,716 (the " '716 Patent") is invalid based on the '619 Patent. On November 2, 2000, Hyseq was granted permission to file a supplemental complaint in United States District Court for the Northern District of California alleging that Affymetrix' products infringe an additional related patent, United States Patent No. 6,018,041 (the " '041 Patent"). No trial date in these matters has been set.

District Court for the Northern District of California on July 28, 2000, issued a revised claims construction order interpreting various terms of the '231, '464 and '940 Patents. The parties have briefed claim construction issues on the '619 Patent, and a tentative claims construction decision was issued by the court on March 20, 2001 regarding the '619 Patent. Claim construction rulings are a pre-trial proceeding that provide interpretations of specific language in claims of the relevant patents.

The Hyseq actions seek damages based on the sale of Affymetrix' products and processes and seek to enjoin commercial activities relating to those products and processes. In addition to subjecting Affymetrix to potential liability for damages, these actions, and any other similar legal actions against Affymetrix or its collaborative partners, could require Affymetrix or its collaborative partners to obtain a license in order to continue to manufacture, market or use the affected products and processes. While Affymetrix believes that the Hyseq complaints are without merit, Affymetrix may not prevail in these actions and Affymetrix or its collaborative partners may not prevail in any other related action. Moreover, in the event Affymetrix does not prevail in the Hyseq actions and Affymetrix, its partners or its customers are required to obtain a license to continue to manufacture, market or use the affected products and processes, Affymetrix, its partners or its customers may not be able to obtain such a license on commercially acceptable terms, if at all. Furthermore, Affymetrix has expended and is likely to continue to expend substantial financial and managerial resources in defending against the claims filed by Hyseq.

On August 18, 1998, Affymetrix filed a lawsuit in United States District Court for the Northern District of California against Hyseq alleging infringement of the '716 Patent, and United States Patent No. 5,744,305 (the " '305 Patent"). On September 1, 1998, Affymetrix added its United States Patent No. 5,800,992 (the " '992 Patent"), to the complaint of infringement against Hyseq. On November 23, 1998, Hyseq filed an answer to Affymetrix' complaint, alleging that Affymetrix' three asserted patents are invalid. On January 25, 2001, the United States District Court for the Northern District of California issued a claims construction order interpreting various terms of the '716, '305 and '992 Patents. On May 8, 2001, the Court determined that the term "substantially complementary," as used in the two asserted claims of the '992 Patent is indefinite within the meaning of the federal code provisions governing patent validity. No trial dates have been set in these cases.

On January 30, 2001, the Board of Patent Appeals and Interferences of the United States Patent and Trademark Office issued to Affymetrix a Notice Declaring Interference and has ordered the commencement of an interference proceeding between Affymetrix and Hyseq involving certain claims of Affymetrix' '716 Patent, and certain claims of a Hyseq patent application.

On January 6, 1998, Affymetrix filed a patent infringement action in the United States District Court for the District of Delaware alleging that certain of Incyte Genomics, Inc.'s ("Incyte") and Synteni, Inc.'s ("Synteni") products infringe United States Patent 5,445,934, (the " '934 Patent"). On September 1, 1998, Affymetrix filed a complaint against Incyte and Synteni in United States District Court for the District of Delaware alleging infringement of the '305 Patent and the '992 Patent. These actions were transferred to the United States District Court for the Northern District of California on November 18, 1998. The actions seek to enjoin commercial activities of Incyte and Synteni relating to Affymetrix' patents and, in regard to the '992 Patent, sought a preliminary injunction. Incyte and

Synteni moved for summary judgment that certain claims of the '992 Patent were invalid. On May 4, 1999, the court denied Affymetrix' motion for preliminary injunction and denied Incyte and Synteni's motion for summary judgment.

On April 17, 1998, Incyte filed a response and counterclaim, asserting that the '934 Patent is invalid and not infringed. On April 17, 1998, Incyte also filed a counterclaim alleging that a patent license agreement Affymetrix entered into in December 1997 with Molecular Dynamics interfered with an agreement between Incyte and Molecular Dynamics. In the counterclaim, Incyte alleges that the terms of Affymetrix' patent license to Molecular Dynamics prevented Molecular Dynamics from meeting its obligations to Incyte. Incyte seeks damages from Affymetrix. On September 21, 1998, Incyte and Synteni filed an answer asserting various defenses to the lawsuits in relation to the '992 Patent and the '305 Patent, and asserted several counterclaims, including:

On August 11, 2000, Incyte and Synteni asserted that the '934, '305 and '992 Patents are unenforceable. On August 17, 2000 Incyte filed a lawsuit against Affymetrix in the United States District Court for the Northern District of California alleging infringement of U.S. Patent Nos. 5,716,785 and 5,891,636 and asserting various state law claims. On September 6, 2000, Affymetrix filed its answer in this lawsuit and also filed counterclaims against Incyte alleging infringement of Affymetrix' U.S. Patent Nos. 6,040,193 (the " '193 Patent") and 5,871,928 (the " '928 Patent"). In response to Affymetrix' counterclaims, Incyte has filed various state law counterclaims against Affymetrix and requests for declaration that the '193 and '928 patents are not infringed, are invalid and are unenforceable.

On January 25, 2001, the United States District Court for the Northern District of California issued a claims construction order interpreting various terms of the '934, '305 and '992 Patents. On May 2, 2001, the Court entered partial summary judgment that certain of Incyte's products do not infringe the '934 Patent or certain claims of the '305 Patent. On May 8, 2001, the Court determined that the term "substantially complementary," as used in two asserted claims of the '992 Patent, is indefinite within the meaning of the federal code provisions governing patent validity. The Special Master administering this case has recommended a trial date of January 16, 2002.

On April 2, 1999, the United States Patent and Trademark Office, or USPTO, notified Affymetrix that Stanford University presented claims that relate to substantially the same subject matter as certain claims from the '992 Patent and all of the claims of the '305 Patent. The Stanford application is alleged to be exclusively licensed to Incyte. The USPTO notified Affymetrix on April 2, 1999 that it had declared an interference proceeding relating to these patents and claims of patents. The USPTO conducted proceedings and determined on September 10, 1999 that Incyte and Synteni did not meet the burden of proof required to establish a case that the claims should be further evaluated in a full

interference proceeding. Incyte and Synteni appealed this decision in the United States Court for the Northern District of California on November 8, 1999.

Affymetrix believes that Incyte's claims and counterclaims are without merit. However, Affymetrix has expended and is likely to continue to expend significant financial and managerial resources defending against these and any other counterclaims filed by Incyte and Synteni and others. Affymetrix' failure to successfully enforce its patent rights or defend against counterclaims of Incyte, Synteni, or others could result in a material adverse effect on Affymetrix' business, financial condition and results of operations.

On July 5, 2000, Applera Corporation, previously known as PE Corporation ("Applera"), filed a lawsuit in the United States District Court for the District of Delaware alleging that certain Affymetrix products infringe five Applera patents related to reagents that Affymetrix purchases from Applera licensed vendors. Applera served Affymetrix with the complaint on October 16, 2000 and on December 14, 2000, Affymetrix filed its response to the complaint and asserted various counterclaims against Applera. On January 25, 2001, Affymetrix filed a declaratory judgement action and various state law claims against Applera in the United States District Court for the Southern District of New York seeking, among other things, a declaration that Affymetrix has not infringed any of Applera's subject patents. On January 30, 2001, Affymetrix filed a motion in the Delaware court to dismiss Applera's claims for lack of subject matter jurisdiction. In response, Applera moved for leave to amend its Delaware complaint to correct the alleged jurisdictional defect. Affymetrix has opposed this motion to amend on grounds that the jurisdictional defect could not be corrected to relate back to the filing of the complaint. On March 21, 2001, the District Court for the Southern District of New York held a hearing and stayed the New York action pending a ruling from the Delaware court on Affymetrix' motion to dismiss for lack of subject matter jurisdiction. No trial dates have been set in these actions.

Affymetrix believes that Applera's claims are without merit. However, Affymetrix cannot be sure that it will prevail in these matters.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management's Discussion and Analysis of Financial Condition and Results of Operations as of March 31, 2001 and for the three month periods ended March 31, 2001 and 2000 should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000.

All statements in this quarterly report that do not discuss past results are forward-looking statements. Forward-looking statements are based on management's current expectations and are therefore subject to certain risks and uncertainties, including those discussed under the section titled "Risk Factors" included in this report. Specific uncertainties which could cause Affymetrix' actual results to differ materially from those projected include: uncertainties relating to technological approaches, product development, manufacturing and market acceptance; uncertainties related to cost and pricing of Affymetrix' products; dependence on collaborative partners; uncertainties relating to sole source suppliers; uncertainties relating to FDA and other regulatory approvals; competition; risks relating to intellectual property of others; and uncertainties of patent protection.

Affymetrix expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in Affymetrix' expectations with regard thereto or any change in events, conditions, or circumstances on which any such statements are based.

Affymetrix has developed and intends to establish its GeneChip® system and related microarray technology as the platform of choice for acquiring, analyzing and managing complex genetic information. The Company's GeneChip® system consists of disposable DNA probe arrays containing gene sequences on a chip, certain reagents for use with the probe arrays, a scanner and other instruments to process the probe arrays, and software to analyze and manage genetic information from the probe arrays. Related microarray technology offered by the Company includes instrumentation, software and licenses for fabricating, scanning and collecting and analyzing results from low density microarrays. The Company commenced commercial sales of the GeneChip system for research use in April 1996 and currently sells its products directly to pharmaceutical and biotechnology companies, academic research centers and clinical reference laboratories in the United States and Europe. The Company also sells some of its products through certain distributors, principally in Japan.

The Company has incurred operating losses in each year since its inception, including a loss of approximately $10.8 million during the three months ended March 31, 2001 and, as of such date, had an accumulated deficit of approximately $189 million. The Company's losses have resulted principally from costs incurred in research and development and manufacturing and from selling, general and administrative costs associated with the Company's operations as well as non-cash charges from an acquisition. These costs have exceeded the Company's revenues and interest income, which to date have been generated principally from product sales, technology access and other license fees, royalties, collaborative research and development agreements, government research grants and from interest earned on cash and investment balances. The Company's ability to generate significant revenues and become profitable is dependent in large part on the ability of the Company and its collaborative partners to successfully develop, manufacture and commercialize products incorporating the Company's technologies, and on the ability of the Company to enter into additional supply, license and collaborative arrangements on satisfactory terms.

The Company's operating results vary and depend on numerous factors. Revenues are principally impacted by the volume, mix and price of product sales, the timing of orders and deliveries of products,

design fees, royalties, license fees, and other research revenues under collaborative and licensing agreements. Expenses are principally impacted by the cost of goods for products, the mix of products sold, the magnitude and duration of research and development, sales and marketing and general and administrative expenses. General and administrative expenses are particularly subject to variation as a result of fluctuations in the intensity of legal activities associated with the Company's on-going intellectual property litigation.

The Company's operating results may also fluctuate significantly depending on other factors. To maintain or gain market acceptance of the Company's products in the face of the introduction of new products by the Company's competitors, Affymetrix may have to reduce or discount the price of its products resulting in an adverse impact on revenues and gross margins. Other factors that may significantly impact the Company's operating results include: the outcome of on-going or future litigation; the cost of any additional licenses needed by the Company for freedom to operate; adoption of new technologies; the cost, quality and availability of reagents and components; regulatory actions; and third-party reimbursement policies.

PRODUCT REVENUE. Product revenue was $50.5 million for the three months ended March 31, 2001, compared to $36.7 million in the three months ended March 31, 2000. The increase in product revenue resulted primarily from growth in the sales volume of GeneChip® probe arrays and increased placement of GeneChip systems as well as increases in subscription fees earned under EasyAccess™ contracts. In the first quarter of 2001, the Company discovered ambiguities in the UniGene U74 database build that was used in the design of the Murine Genome U74 set of GeneChip arrays. As a result, the Company has redesigned these arrays and has had discussions with its affected customers to address their individual needs. Based on these discussions, the Company is offering certain replacement arrays to these customers. Nearer term, the decision is expected to continue to adversely impact product sales, with the majority of this impact anticipated in the second and third quarter of 2001 as replacement arrays are shipped and used by customers.

RESEARCH REVENUE. Research revenue includes custom probe array design fees, milestones, full-time-equivalent ("FTE") support and grant funding. Research revenue decreased to $1.1 million for the three months ended March 31, 2001 from $2.4 million for the three months ended March 31, 2000 primarily due to lower activity under government grants.

LICENSE FEES AND ROYALTY REVENUES. License fees and royalty revenues increased to $3.3 million for the three months ended March 31, 2001 from $1.1 million for the three months ended March 31, 2000. The increase was attributed primarily to the increase in license agreements. Licenses permit the licensees to utilize the Company's intellectual property on a non-exclusive basis over specified periods for either internal research and development, or in some cases, for commercialization of products. The Company generally has no continuing obligations under these agreements.

COST OF PRODUCT REVENUES AND GROSS MARGINS. Cost of product revenue increased to $19.2 million for the quarter ended March 31, 2001, up from $13.5 million for the quarter ended March 31, 2000. The increase in cost of product revenues resulted principally from the growth in product sales. Principal factors that favorably impacted gross margins included improved manufacturing yields for GeneChip probe arrays, increased production volumes of probe arrays and changes in product sales mix offset by an unanticipated warranty expense arising from the replacement of Murine Genome U74 sets of arrays that contained incorrect probe sequences. Specifically, in the first quarter of 2001, the Company recorded an incremental warranty expense of $0.8 million to cover costs associated with the replacement of Murine Genome U74 sets of arrays sold in the first quarter of 2001.

The charges recorded in the first quarter of 2001 were based upon estimates of the number of replacement arrays and other compensation deemed necessary to maintain appropriate customer satisfaction. The Company began shipping the replacement arrays in April 2001.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses, which primarily consist of research, product development and manufacturing process improvement, increased to $19.3 million for the quarter ended March 31, 2001 compared to $12.2 million for the quarter ended March 31, 2000. The increase in research and development expenses was attributable primarily to the hiring of additional research and development personnel, including headcount associated with the continued support for Perlegen. Given the completion of the private financing of Perlegen on March 30, 2001, Affymetrix will account for Perlegen's financial results using the equity method for the quarter beginning April 1, 2001. As the Company's investment in Perlegen has no basis for accounting purposes, the Company does not expect to record its proportionate share of Perlegen's results in its financial statements until Perlegen records operating profits. Affymetrix recorded $4.5 million in research and development expenses associated with Perlegen in the quarter ended March 31, 2001.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased to $24.5 million in the first quarter of 2001 compared to $19.8 million for the comparable quarter in 2000. The increase in selling, general and administrative expenses resulted primarily from the Company's expansion of commercial activities and increased legal costs arising from ongoing patent litigation. On March 23, 2001, the Company and OGT entered into a settlement agreement resolving existing litigation between the two companies. The Company recorded a charge of approximately $18.6 million in the quarter ended December 31, 2000. The Company recorded an additional charge of $1.9 million in the quarter ended March 31, 2000 as a result of a fee arrangement entered into with the Company's legal counsel. Selling, general and administrative expenses are expected to continue to increase as the Company expands sales, marketing, and technical support functions, increases headcount in management and administrative functions, prosecutes and defends its intellectual property position and defends against claims made by third parties in ongoing litigation. In particular, the Company expects legal costs to vary substantially as the intensity of legal activity changes in on-going patent litigation with Hyseq, Inc., Incyte Genomics, Inc./Synteni and Applera Corporation. Depending on the outcome of these lawsuits the Company may be entitled to damages or may be obligated to pay damages. There can be no assurance that Company has adequately estimated its potential damages exposure.

AMORTIZATION DEFERRED STOCK COMPENSATION AND PURCHASED INTANGIBLES. During the first quarter of 2001, the Company incurred charges of $3.2 million for amortization of deferred stock compensation and $1.6 million of amortization of purchased intangibles related to the acquisition of Neomorphic, Inc. The Company expects amortization of deferred stock compensation and purchased intangibles related to the Neomorphic acquisition to total approximately $19.0 million in 2001.

INTEREST AND OTHER INCOME, NET. Interest income was $7.4 million for the first quarter of 2001 compared to $5.0 million for the first quarter of 2000 due to higher investment balances from the sale of convertible subordinated notes. Interest expense increased to $5.0 million for the first quarter of 2001 compared to $3.6 million for the first quarter of 2000 primarily due to the interest expense associated with the convertible subordinated notes.

INCOME TAX PROVISION. The provision for tax of approximately $0.2 million consists entirely of current taxes accrued on the profits attributable to the Company's foreign operations for the first quarter of 2001. Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109") provides for the recognition of deferred tax assets if realization of such assets is more likely than not. Based upon the weight of available evidence, which includes the historical operating

performance and the reported cumulative net losses in all prior years, at December 31, 2000 the Company has provided a full valuation allowance against its net deferred tax assets.

As of March 31, 2001, the Company had cash, cash equivalents and available-for-sale securities of $423.4 million compared to $436.0 million at March 31, 2000. The decrease is primarily attributable to cash used to fund the Company's operating loss and capital expenditures.

Net cash used in operating activities was $2.4 million for the three months ended March 31, 2001, as compared to $7.1 million for the three months ended March 31, 2000. The decrease in net cash used in operating activities resulted primarily from a decrease in accounts receivable in the three months ended March 31, 2001 and a smaller increase in notes receivable from employees and other assets relative to the increase in the three months ended March 31, 2000. These changes were offset in part by an increase in net loss in the three months ended March 31, 2001, and increase in inventories and prepaid expenses, as compared to a decrease in the three months ended March 31, 2000, and increases in accounts payable and accrued liabilities and deferred revenue. The three months ended March 31, 2001 also included higher non-cash charges for depreciation and amortization, amortization of intangible assets and amortization of deferred stock compensation.

The Company's investing activities, other than purchases, sales and maturities of available-for-sale securities, consisted of capital expenditures, which totaled $7.1 million for the three months ended March 31, 2001, as compared to $6.8 million for the three months ended March 31, 2000. The slight increase in capital expenditures during the three months ended March 31, 2001 related primarily to improvements to office and administrative facilities in Sunnyvale, California. The Company expects to continue to expand its manufacturing and other operating facilities over the next few years.

Financing activities for the three months ended March 31, 2001 include net proceeds of $4.0 million from the exercise of employee stock options. This compares to net proceeds of $227.4 million for the three months ended March 31, 2000 which was primarily the result of a private placement of 4.75% Notes in February 2000. The 4.75% Notes are convertible, subject to adjustment in certain circumstances, into Affymetrix common stock at a price equal to $160.50 per share. Accrued interest on the 4.75% Notes is payable semi-annually. Affymetrix may redeem the 4.75% Notes at any time on or after February 15, 2003.

The Company anticipates that its existing capital resources will enable it to maintain currently planned operations and planned capital expenditures for the foreseeable future. However, this expectation is based on the Company's current operating plan and capital expenditure plan, which is expected to change, and therefore the Company could require additional funding sooner than anticipated. In addition, the Company expects its capital requirements will remain substantial and may increase over the next several years as it expands its facilities and acquires scientific equipment to support expanded manufacturing and research and development efforts.

The Company's exposure to interest rate risk relates primarily to its investment portfolio and its convertible subordinated notes. Fixed rate securities and borrowings may have their fair market value adversely impacted due to fluctuations in interest rates, while floating rate securities may produce less income than expected if interest rates fall and floating rate borrowings may lead to additional interest expense if interest rates increase. Due in part to these factors, the Company's future investment income may fall short of expectations due to changes in interest rates or the Company may suffer losses in principal if forced to sell securities which have declined in market value due to changes in interest rates.

The primary objective of the Company's investment activities is to preserve principal while at the same time maximize yields without significantly increasing risk. To achieve this objective, the Company invests its excess cash in debt instruments of the U.S. Government and its agencies and high-quality corporate issuers, and, by policy, restricts its exposure to any single corporate issuer by imposing concentration limits. To minimize the exposure due to adverse shifts in interest rates, the Company maintains investments at an average maturity of generally less than two years.

The table below presents the principal amounts and weighted-average interest rates by year of maturity for the Company's investment portfolio:

The Company is exposed to equity price risks on the marketable portion of equity securities in its portfolio of investments entered into to further its business and strategic objectives. The Company typically does not attempt to reduce or eliminate its market exposure on these securities. A 20% adverse change in equity prices would result in a decrease of approximately $1.0 million in the Company's available-for-sale securities based on the Company's position at March 31, 2001. However, actual results may differ materially.

The Company derives a small portion of its revenues in foreign currencies, predominantly in Europe. The Company also has subsidiaries in Europe, for which activities to date have been insignificant. Due to the low volume of transactions from these two sources, the Company does not believe that it has significant exposure to foreign currency exchange rate risks. The Company currently does not use derivative financial instruments to mitigate this exposure.

Affymetrix is a party to significant litigation, which will consume substantial financial and managerial resources and which could adversely affect its business, financial condition and results of operations. If in any pending or future intellectual property litigation Affymetrix or its collaborative partners is found to have infringed the valid intellectual property rights of third parties, Affymetrix or its collaborative partners could be subject to significant liability for damages, could be required to obtain a license from a third party, which may not be available on reasonable terms or at all, or could be prevented from manufacturing and selling its products. In addition, if Affymetrix is unable to enforce its patents and other intellectual property rights against others, or if its patents are found to be invalid, third parties may more easily be able to introduce and sell DNA array technologies that compete with Affymetrix' GeneChip® technology, and Affymetrix' competitive position could suffer. Affymetrix expects to devote substantial financial and managerial resources to protect its intellectual property rights and to defend against the claims described below as well as any future claims asserted against it. Further, because of the substantial amount of discovery required in connection with any litigation, there is a risk that confidential information could be compromised by disclosure.

On March 23, 2001 Affymetrix and Oxford Gene Technology, Ltd. ("OGT") entered into a settlement agreement resolving all existing litigation between the two companies.

On October 26, 1999, the United States District Court for the Northern District of California issued a claims construction order interpreting various terms of the '231, '464, and '940 Patents. Following Hyseq's motion for reconsideration of that claims construction order, the United States District Court for the Northern District of California on July 28, 2000, issued a revised claims construction order interpreting various terms of the '231, '464 and '940 Patents. The parties have briefed claim construction issues on the '619 Patent, and a tentative claims construction decision was issued by the court on March 20, 2001 regarding the '619 Patent. Claim construction rulings are a pre-trial proceeding that provide interpretations of specific language in claims of the relevant patents.

On August 18, 1998, Affymetrix filed a lawsuit in United States District Court for the Northern District of California against Hyseq alleging infringement of the " '716 Patent", and United States Patent No. 5,744,305 (the " '305 Patent"). On September 1, 1998, Affymetrix added its United States Patent No. 5,800,992 (the " '992 Patent"), to the complaint of infringement against Hyseq. On November 23, 1998, Hyseq filed an answer to Affymetrix' complaint, alleging that Affymetrix' three asserted patents are invalid. On January 25, 2001, the United States District Court for the Northern District of California issued a claims construction order interpreting various terms of the '716, '305 and '992 Patents. On May 8, 2001, the Court determined that the term "substantially complementary," as used in the two asserted claims of the '992 Patent is indefinite within the meaning of the federal code provisions governing patent validity. No trial dates have been set in these cases.

declared an interference proceeding relating to these patents and claims of patents. The USPTO conducted proceedings and determined on September 10, 1999 that Incyte and Synteni did not meet the burden of proof required to establish a case that the claims should be further evaluated in a full interference proceeding. Incyte and Synteni appealed this decision in the United States Court for the Northern District of California on November 8, 1999.

On July 5, 2000, Applera Corporation, previously known as PE Corporation ("Applera"), filed a lawsuit in the United States District Court for the District of Delaware alleging that certain Affymetrix products infringe five Applera patents related to reagents that Affymetrix purchases from Applera licensed vendors. Applera served Affymetrix with the complaint on October 16, 2000 and on December 14, 2000, Affymetrix filed its response to the complaint and asserted various counterclaims against Applera. On January 25, 2001, Affymetrix filed a declaratory judgement action and various state law claims against Applera in the United States District Court for the Southern District of New York seeking, among other things, a declaration that Affymetrix has not infringed any of Applera's subject patents. On January 30, 2001, Affymetrix filed a motion in the Delaware court to dismiss Applera's claims for lack of subject matter jurisdiction. In response, Applera moved for leave to amend its Delaware complaint to correct the alleged jurisdictional defect. Affymetrix has opposed this motion to amend on grounds that the alleged jurisdictional defect could not be corrected to relate back to the filing of the complaint. On March 21, 2001, the District Court for the Southern District of New York held a hearing and stayed the New York action pending a ruling from the Delaware court on Affymetrix' motion to dismiss for lack of subject matter jurisdiction. No trial dates have been set in these actions.

Affymetrix believes that Applera's claims are without merit. However, Affymetrix cannot be sure that it will prevail in these matters.

Affymetrix' intellectual property is expected to be subject to significant additional administrative and litigation actions. For example, in Europe and Japan, third parties are expected to oppose significant patents owned or controlled by Affymetrix. Currently, Incyte, OGT, Multilyte Ltd. and ProtoGene Laboratories, Inc. have filed oppositions against Affymetrix' EP 0-619-321 Patent in the European Patent Office. This procedure will result in the patent being either upheld in its entirety, allowed to grant in amended form in designated European countries, or revoked. Subsequent to the settlement agreement entered into by the Company and OGT referred to above, OGT has withdrawn its opposition to the Company's EP 0-619-321 Patent.

Further, in the United States, it is expected that third parties will continue to "copy" the claims of Affymetrix' patents in order to provoke interferences in the United States Patent Office. These proceedings could result in Affymetrix' patent protection being significantly modified or reduced, and could result in significant costs and consume substantial managerial resources.

In September 2000, the Company formed a wholly-owned genomics company called Perlegen Sciences, Inc. and on October 3, 2000, the Company announced Perlegen's formation and anticipated relationship with the Company. Perlegen is a Delaware corporation engaged in the business of scanning human genomes in an effort to identify variations and patterns within the human genome to aid research on genetic characteristics associated with disease and such characteristics' responsiveness to drug therapy. The Company holds 1,000 shares of Perlegen's Common Stock and 35,800,000 shares of Perlegen's Series A Preferred Stock. On March 30, 2001, Perlegen completed a private placement round of equity financing to third-party outside investors (the "Series B Financing"). As a result of the Series B Financing, the Company's percentage ownership interest in Perlegen was reduced to approximately 52.6% (without giving effect to the issuance of shares upon exercise of employee stock options). As a result of the deposit of shares in a voting trust, the Company holds approximately 45% of Perlegen's voting capital stock outside the voting trust (without giving effect to the issuance of shares upon exercise of employee stock options). In connection with the transactions described above, the Company has also entered into a number of agreements with Perlegen that cover the supplying of wafers and chips by the Company to Perlegen, the cross-licensing of certain intellectual property between the companies, and the short-term provision of certain support services by the Company to Perlegen.

An investment in the Company's common stock involves a high degree of risk. The reader should carefully consider the risks described below before making an investment decision.

The Company has experienced significant operating losses each year since its inception. For example, it experienced net losses of approximately $26.8 million in 1998, $25.5 million in 1999 and $54.0 million in 2000. It had an accumulated deficit of approximately $178.2 million as of December 31, 2000 and approximately $189.0 million as of March 31, 2001. Its losses have resulted principally from costs incurred in research and development and from general and administrative costs associated with its operations. Historically, these costs have exceeded revenues and interest income, which, to date, have been generated principally from product sales and technology access fees, license fees and royalties, collaborative research and development agreements, government research grants and cash and investment balances.

THE COMPANY HAS HAD ONLY ONE QUARTER OF PROFITABILITY AND MAY NEVER ACHIEVE SUSTAINED PROFITABILITY.

Although the Company's operating results for the quarter ended September 30, 2000 marked the first profitable quarter in the Company's history, the Company incurred a net loss of $54.0 million for the year ended December 31, 2000 and a net loss of $10.8 million for the quarter ended March 31, 2001 and cannot guarantee future profitability. Among other things, the Company's ability to achieve sustained profitability will depend upon its ability to:

In addition, any delays in receipt of any necessary regulatory approvals or any adverse developments with respect to its ability to enforce its intellectual property relative to its competitors could seriously harm the successful commercialization of its technologies and could have a material adverse effect on its business, financial condition and results of operations.

THE COMPANY'S QUARTERLY RESULTS OF OPERATION HAVE HISTORICALLY FLUCTUATED SIGNIFICANTLY PERIOD-TO-PERIOD, AND ITS STOCK MAY DECREASE IN VALUE SIGNIFICANTLY FOLLOWING AN EARNINGS RELEASE.

Although the Company believes that period-to-period comparisons of its results of operations are not a good indication of its future performance, its operating results may fall below the expectations of public market analysts or investors in future quarters and the market price of its common stock may fall significantly.

SALES OF THE COMPANY'S GENECHIP® AND SPOTTED ARRAY PRODUCTS AND ITS OPERATING RESULTS MAY FLUCTUATE UNPREDICTABLY FROM PERIOD TO PERIOD.

The Company expects that its customers' supply requirements and orders will depend, among other things, on the frequency of experiments conducted by them, their inventory of GeneChip and spotted array products and their expectations as to how long it will take for the Company to fill future orders. In addition, the Company expects that from time to time it will receive relatively large orders with short lead times. As a result, its revenues and operating results may fluctuate significantly from period to period due in part to factors that are outside of its control and which it cannot predict.

THE COMPANY MAY LOSE CUSTOMERS UNLESS IT IMPROVES ITS ABILITY TO MANUFACTURE ITS PRODUCTS AND ENSURE THEIR PROPER PERFORMANCE.

The Company produces its GeneChip® and spotted array products in an innovative and complicated manufacturing process. It has experienced and may experience in the future significant variability in the manufacturing yield of its GeneChip products which has reduced, and may reduce in the future, its gross margins and harm its business. The Company has also experienced, and anticipates that it may continue to experience, difficulties in meeting customer collaborator and internal demand for some of its probe array products. If the Company cannot deliver products in a timely manner, it could lose customers or be required to delay introduction of new products, and demand for the Company's products could decline. Furthermore, if the Company cannot deliver products to its

customers that consistently meet their performance expectations, demand for its products will decline. Because the Company has a limited manufacturing history, it does not fully understand all of the factors that affect its manufacturing processes. As a result, manufacturing and quality control problems have arisen in the past and may continue to arise as the Company attempts to increase the production rate at its manufacturing facilities. The Company may not be able to increase production rates at these facilities in a timely and cost-effective manner or at commercially reasonable costs.

IF THE COMPANY CANNOT CONTINUOUSLY DEVELOP AND INTRODUCE NEW PRODUCTS AND KEEP PACE WITH THE LATEST TECHNOLOGICAL CHANGES IT WILL NOT BE ABLE TO COMPETE SUCCESSFULLY IN ITS HIGHLY COMPETITIVE AND RAPIDLY CHANGING MARKET; IF THE COMPANY CANNOT COMPETE EFFECTIVELY, ITS REVENUES MAY DECLINE.

The Company competes in markets that are new, intensely competitive, highly fragmented and rapidly changing, and many of its current and potential competitors have significantly greater financial, technical, marketing and other resources. In addition, many current and potential competitors have greater name recognition, more extensive customer bases and access to proprietary genetic content. The Company may not survive and its revenues may decline if it fails to respond quickly to new or emerging technologies and changes in customer requirements.

Currently, the Company's principal competition comes from existing DNA probe array and other technologies that are used to perform many of the same functions for which the Company markets its GeneChip® products. In order to compete against existing and newly developed technologies and maintain pricing and gross margins, the Company needs to successfully demonstrate to potential customers that its GeneChip products provide improved performance and capabilities at an acceptable price. A large number of publicly traded and privately held companies including Agilent Technologies, Inc., Corning, Inc., CuraGen, Inc., Gene Logic, Inc., General Scanning, Inc., Genome Solutions, Inc., Hitachi, Ltd., Illumina, Inc., Incyte Genomics, Inc./Synteni, Inc., Lynx Therapeutics, Inc., Motorola, Inc. and Sequenome, Inc. also are developing or have developed DNA probe based assays or other products and services, some of which may be competitive with the Company's.

If the Company is unable to develop the enhancements to its technology necessary to compete successfully with newly emerging technologies and competitors, or if the Company is unable to develop products based on these technologies, its business, financial condition and results of operations will suffer. Moreover, to maintain or gain market acceptance of the Company's products in the face of new products introduced by the Company's competitors, Affymetrix may have to reduce or discount the price of its products resulting in an adverse impact on revenues and gross margins.

Future competition in existing and potential markets will likely come from existing competitors as well as other companies seeking to develop new technologies for sequencing and analyzing genetic information. In addition, pharmaceutical and biotechnology companies have significant needs for genomic information and may choose to develop or acquire competing technologies to meet these needs.

In the disease management field, competition will likely come from established diagnostic companies, companies developing and marketing DNA probe tests for genetic and other diseases and other companies conducting research on new technologies to ascertain and analyze genetic information.

Established diagnostic companies could compete with the Company by developing new products. Companies such as Abbott Laboratories, Becton Dickinson, Bayer A.G., Roche Boehringer Mannheim and Johnson & Johnson have the strategic commitment to diagnostics, the financial and other resources

to invest in new technologies, substantial intellectual property portfolios, substantial experience in new product development, regulatory expertise, manufacturing capabilities and the distribution channels to deliver products to customers. Established diagnostic companies also have an installed base of instruments in several markets, including clinical and reference laboratories, which are not compatible with the GeneChip® system and could deter acceptance of the Company's products. In addition, these companies have formed alliances with genomics companies which provide them access to genetic information that may be incorporated into their diagnostic tests.

AS THE COMPANY CONTINUES TO SCALE UP MANUFACTURING OF ITS PRODUCTS, IT MAY ENCOUNTER PROBLEMS DUE TO A RELATIVELY LIMITED MANUFACTURING HISTORY, THE COMPLEXITY OF ITS PRODUCTS AND AMBIGUITIES IN GENETIC SEQUENCE DATABASES UPON WHICH ITS PRODUCTS ARE BASED.

The GeneChip® system is a complex set of products and includes DNA probe arrays, which are produced in an innovative and complicated manufacturing process. The Company tests only selected probe arrays from each wafer and only selected probes on such probe arrays. The Company therefore relies on internal quality control procedures to verify the correct completion of the manufacturing process. Also, the Company and its customers rely on the accuracy of genetic sequence information contained in databases upon which its products are based. It is therefore possible that probe arrays that do not meet all of the Company's performance specifications may not be identified before they are shipped. Due to the complexity and limited operating history of these products, the Company has from time to time experienced technical problems. The Company has plans to continue to invest substantial resources to ensure the accuracy of the sequence information used to design its probe arrays prior to the commercial release of its products but there can be no assurance that additional technical problems will not occur. The Company believes its recent acquisition of Neomorphic, Inc., a privately held bioinformatics company, will further enable it to refine and ensure the accuracy of the public domain sequence databases. Despite these efforts, because of the rapidly evolving nature of the public domain sequence databases, sequence errors and ambiguities may not be found prior to the commercial release of a product. The magnitude and importance of these errors depends on multiple and complex factors that the Company considers in determining appropriate actions to meet customer needs.

For example, in the first quarter of 2001 the Company discovered ambiguities in the UniGene U74 database build that was used in the design of the Murine Genome U74 Set of GeneChip® arrays. As a result, the Company has redesigned these arrays and has had discussions with its affected customers to address their individual needs and to offer certain replacement arrays to these customers. The Company has evaluated the financial impact of providing these replacement arrays and has taken a charge in the fourth quarter of 2000 of $1.8 million and has taken an additional charge of approximately $0.8 million in the first quarter of 2001. In addition, due to customer concern over the accuracy of the probe sequences on its arrays, sales of the Murine Genome U74 set of arrays as well as other products may be delayed or negatively impacted. The inability of the Company to timely deliver acceptable products would likely adversely affect the Company's relationship with its customers, and could have a material adverse effect on its business, financial condition and results of operations.

PATENT POSITIONS IN THE COMPANY'S INDUSTRY ARE GENERALLY UNCERTAIN AND LITIGATION IS PREVALENT.

The patent positions of pharmaceutical and biotechnology companies are generally uncertain and involve complex legal and factual questions. In addition, the Company believes that there will continue to be significant litigation in the industry regarding patent and other intellectual property rights. As a result, the Company cannot guarantee any of the following:

In addition, patent law relating to the scope of claims in the technology fields in which the Company operates is still evolving and the extent of future protection for its proprietary rights is uncertain.

Others may independently develop similar or alternative technologies, duplicate any of its technologies, or design around or invalidate the Company's patented technologies. In addition, the Company has and expects to continue to incur substantial costs in litigation to defend against the patent suits brought by third parties and when the Company initiates such suits. In addition, administrative proceedings such as "interferences," in the United States Patent Office could substantially impact the scope of the Company's patent protection as well as result in the expenditure of substantial funds in legal fees.

Others have filed, and in the future are likely to file, patent applications that are similar or identical to those of the Company or those of its licensors. To determine the priority of inventions, the Company will have to participate in interference proceedings declared by the United States Patent and Trademark Office that could result in substantial cost to the Company. The Company cannot assure investors that any such patent applications will not have priority over its patent applications.

Moreover, even if the Company defends and enforces its intellectual property rights, others may independently develop similar or alternative technologies, duplicate any of its technologies, or design around or invalidate its patented technologies. These developments would reduce the value of the Company's intellectual property assets.

The Company's business exposes it to potential product liability claims that are inherent in the testing, manufacturing, marketing and sale of human diagnostic and therapeutic products. The Company intends to acquire additional insurance, should it be desirable, for clinical liability risks. The Company may not be able to obtain such insurance or general product liability insurance on acceptable terms or at reasonable costs. In addition, such insurance may not be in sufficient amounts to provide the Company with adequate coverage against potential liabilities. A product liability claim or recall could have a serious adverse effect on the Company's business, financial condition and results of operations.

THE COMPANY IS ENGAGED IN SIGNIFICANT LITIGATION WITH ITS COMPETITORS REGARDING ITS INTELLECTUAL PROPERTY RIGHTS AND ITS SURVIVAL DEPENDS ON ITS ABILITY TO AVOID INFRINGING THE INTELLECTUAL PROPERTY OF OTHERS.

Intellectual property rights are essential to the Company's business. The Company is engaged in significant litigation with its competitors regarding its intellectual property rights. The Company has filed patent infringement actions against Incyte Genomics and Synteni to enforce its U.S. Patent Nos. 5,445,934, 5,744,305, 5,800,992, 6,040,193 and 5,871,928. Incyte has filed patent infringement claims against the Company alleging infringement of certain of its patents and also has asserted various state

law claims against the Company in the cases. Incyte and Synteni have also asserted that certain of Affymetrix' patents that are the subject of the litigation are not infringed, are invalid and are unenforceable. In addition, Hyseq has filed three patent infringement actions against the Company and the Company has filed suits against Hyseq to enforce its U.S. Patent Nos. 5,795,716, 5,744,305 and 5,800,992. On January 25, 2001, the U.S. District Court for the Northern District of California issued a Markman ruling interpreting the claims in certain of the U.S. patents that the Company has asserted in litigation against Incyte and Hyseq. Subsequently, Incyte filed a summary judgment motion asserting some of its products are not covered by some of the claims asserted by the Company. On May 2, 2001, the Court entered partial summary judgment that certain of Incyte's products do not infringe the '934 patent or certain claims of the '305 patent. On May 8, 2001, the Court determined that the term "substantially complementary," as used in two asserted claims of Affymetrix '992 patent, is indefinite within the meaning of the federal code provisions governing patent validity. The Special Master administering this case has recommended a trial date of January 16, 2002.

On January 30, 2001, the PTO issued to Affymetrix a Notice Declaring Interference and has ordered the commencement of an interference proceeding between Affymetrix and Hyseq involving certain claims of Affymetrix' '716 Patent, and certain claims of Hyseq's patent application.

In addition, on July 6, 2000, Applera Corporation ("Applera") filed a patent infringement action against the Company alleging that certain Affymetrix products infringe five patents related to reagents that Affymetrix purchases from Applera licensed vendors.

All of these cases are pending and consume, and will continue to consume, substantial portions of the Company's financial and managerial resources. A loss of a significant litigation could prevent the Company from producing its current products or developing new ones and could also result in the payment of significant penalties and royalties, which could make it too costly to produce some or all of its products. For a complete discussion of the Company's legal proceedings, see Part II, Item 1. "Legal Proceedings."

THE COMPANY'S SURVIVAL DEPENDS ON ITS ABILITY TO MAINTAIN, ENFORCE AND OBTAIN INTELLECTUAL PROPERTY RIGHTS NECESSARY TO CONTINUE OR EXPAND ITS BUSINESS; IF THE COMPANY IS SUBJECT TO ADDITIONAL LITIGATION CLAIMS ON ITS INTELLECTUAL PROPERTY RIGHTS, THEY COULD BE COSTLY AND DISRUPT THE COMPANY'S BUSINESS.

If the Company cannot maintain, enforce or obtain intellectual property rights, competitors can design probe array systems with similar competitive advantages to the Company's GeneChip® technology without paying the Company royalties. In order to continue the Company's current business, the Company must successfully:

Company's intellectual property assets. Additional litigation involving the Company regarding its intellectual property rights could consume substantial portions of the Company's financial and managerial resources.

THE COMPANY'S FACILITIES IN CALIFORNIA ARE VULNERABLE TO POWER OUTAGES WHICH COULD DISRUPT THE COMPANY'S OPERATIONS AND INCREASE ITS EXPENSES.

Several of the Company's facilities, including key manufacturing sites, are located in the state of California, which presently is experiencing a severe shortage of electrical power. Because of California's current energy crisis, the Company may experience increased electricity prices, power shortages and rolling blackouts. Although the Company maintains backup generators to supply electricity for key operations, it cannot provide any assurances that such generators will be sufficient to provide adequate power to the Company, if any, in the event of a blackout. If blackouts interrupt the Company's power supply, the Company may be temporarily unable to continue operations at its California facilities. Any such interruption in the Company's ability to continue operations at it facilities could delay its ability to develop or provide its products, which could result in lost revenue and seriously harm its business, financial condition and results of operations. The Company cannot be sure that the insurance it maintains against general business interruptions will be adequate to cover its losses in this particular case, if at all.

The Company intends to continue to expand its international presence in order to increase its export sales. Export sales to international customers entail a number of risks, including:

The Company is also subject to general geopolitical risks in connection with international operations, such as political, social and economic instability, potential hostilities and changes in diplomatic and trade relationships. Although the Company has not to date experienced any material adverse effect on its operations as a result of such regulatory, geopolitical and other factors, the Company cannot assure investors that such factors will not adversely affect its operations in the future or require it to modify its current business practices. The Company cannot assure the investors that one or more of the foregoing factors will not have a material adverse effect on its business, financial condition and operating results or require it to modify its current business practices.

THE LOSS OF A KEY CUSTOMER COULD SUBSTANTIALLY REDUCE THE COMPANY'S REVENUES AND BE PERCEIVED AS A LOSS OF MOMENTUM IN THE COMPANY'S BUSINESS.

The Company's customers are concentrated in a small number of pharmaceutical and biotechnology companies, academic research centers and clinical reference laboratories. The Company expects that a small number of customers, such as Aventis Pharma, Ltd., F. Hoffman-La Roche, Ltd.,

American Home Products Inc., Gene Logic, Inc. and other key customers, will in aggregate continue to account for a substantial portion of revenues for the foreseeable future.

THE COMPANY DEPENDS ON A LIMITED NUMBER OF SUPPLIERS AND IT WILL BE UNABLE TO MANUFACTURE ITS PRODUCTS IF SHIPMENTS FROM THESE SUPPLIERS ARE DELAYED OR INTERRUPTED.

Key parts of the GeneChip® product line, such as the scanner, certain reagent kits and lithographic masks as well as certain raw materials used in the synthesis of probe arrays, are currently available only from a single source or limited sources. The Company relies on Agilent Technologies to manufacture its scanners and on Enzo Diagnostics, Inc. to manufacture key expression analysis reagents used with probe arrays and various labeling kits recommended for the processing of samples. Agilent has publicly announced its intention to commercialize its own DNA array technology. There can be no assurance that Agilent's commercial activity will not adversely impact the Company's sales and supply agreements. In addition, Agilent has a life sciences instrumentation business, providing it with an existing sales and support infrastructure. There can be no assurance that Agilent's commercial activities will not adversely impact the market potential for the Company or other genetic analysis technologies. In addition, components of the Company's manufacturing equipment and certain raw materials used in the synthesis of probe arrays are available from one of only a few suppliers. In the event that supplies from these vendors were delayed or interrupted for any reason, the Company would not be able to get manufacturing equipment, produce probe arrays, or sell scanners or other components for its GeneChip® product in a timely fashion or in sufficient quantities or under acceptable terms.

Even if alternative sources of supply are available, it could be time consuming and expensive for the Company to qualify new vendors. In addition, it is dependent on its vendors to provide components of appropriate quality and reliability and to meet applicable regulatory requirements. Consequently, in the event that supplies from these vendors were delayed or interrupted for any reason, the Company could be delayed in its ability to develop and deliver products to its customers.

IF THE COMPANY IS UNABLE TO MAINTAIN ITS RELATIONSHIPS WITH COLLABORATIVE PARTNERS, IT MAY HAVE DIFFICULTY SELLING ITS PRODUCTS AND SERVICES.

The Company believes that its success in penetrating its target markets depends in part on its ability to develop and maintain collaborative relationships with key companies as well as with key academic researchers. The Company's collaborative partners, however, may not be able to perform their obligations as expected or devote sufficient resources to the development, clinical testing, supply or marketing of its potential products developed under these collaborations.

Currently, the Company's significant collaborative partners include Agilent Technologies in the making of its scanners, Amersham Pharmacia Biotech KK and Takara Shuzo Co., Ltd. in distributing its products in Japan, MWG-Biotech AG in distributing its products in Europe, and Roche Molecular Systems and bioMerieux in the development of its diagnostic chip products. Relying on these or other collaborative relationships is risky to the Company's future success because:

THE COMPANY'S CURRENT SALES, MARKETING AND TECHNICAL SUPPORT ORGANIZATION MAY LIMIT ITS ABILITY TO SELL ITS PRODUCTS.

The Company currently has limited sales, marketing and technical support services. To assist its sales and support activities, the Company entered into distribution agreements through certain distributors, principally in Japan. In addition, the Company also has in place with several third parties a series of distribution agreements covering the Affymetrix spotted array instruments product line that was acquired in the GMS acquisition. These and other third parties, such as Amersham Pharmacia Biotech KK on whom the Company relies for sales, marketing and technical support may decide to develop and sell competitive products or otherwise become its competitors, which could harm its business. For instance, Agilent Technologies has announced its intention to commercialize a competing DNA array technology platform. Although the Company has invested significant other resources to expand its direct sales force and its technical and support staff, it may not be able to establish a sufficiently sized sales, marketing or technical support organization to sell, market or support its products.

BECAUSE THE COMPANY'S BUSINESS IS HIGHLY DEPENDENT ON KEY EXECUTIVES AND SCIENTISTS, ITS INABILITY TO RECRUIT AND RETAIN THESE PEOPLE COULD HINDER ITS BUSINESS EXPANSION PLANS.

The Company is highly dependent on its executive officers and its senior scientists and engineers, including scientific advisors. The Company's product development and marketing efforts will be delayed or curtailed if it loses the services of any of these people.

The Company relies on its scientific advisors and consultants to assist it in formulating its research, development and commercialization strategy. All of these individuals are engaged by employers other than the Company and have commitments to other entities that may limit their availability to the Company. Some of them also consult for companies that may be competitors of the Company's. A scientific advisor's other obligations may prevent him or her from assisting the Company in developing its technical and business strategies.

To expand its research, product development and sales efforts the Company needs additional people skilled in areas such as bioinformatics, organic chemistry, information services, regulatory affairs, manufacturing, sales, marketing and technical support. Competition for these people is intense and their turnover rate is high. The Company will not be able to expand its business if it is unable to hire, train and retain a sufficient number of qualified employees.

BECAUSE GLAXO WELLCOME AND FMR CORP. EACH OWN A SUBSTANTIAL PORTION OF THE COMPANY'S OUTSTANDING CAPITAL STOCK, GLAXO OR FMR MAY BE ABLE TO INFLUENCE THE OUTCOME OF STOCKHOLDER VOTES OR THE MARKET PRICE OF THE COMPANY'S STOCK.

As of March 31, 2001, Glaxo Wellcome plc, ("Glaxo") and its affiliates beneficially own approximately 15% of the Company's outstanding common stock and FMR Corp. ("FMR") and its affiliates beneficially own approximately 11% of the Company's common stock. Accordingly, Glaxo or FMR may be able to exercise significant influence over the Company's business and over matters subject to stockholder votes, including votes concerning the election of directors, adoption of

amendments to the Company's certificate of incorporation and bylaws and approval of mergers and other significant corporate transactions. Moreover, the Company's stock price may drop if Glaxo or FMR or any of their respective affiliates sells a significant amount of the Company's stock or if investors interpret any sale of the Company's stock by Glaxo or FMR or any of their respective affiliates as a sign of weakness in the Company's business.

The Company acquired Genetic MicroSystems, Inc., a privately held instrumentation company specializing in DNA array technology in February, 2000 and Neomorphic, Inc., a privately-held, computational genomics company in October, 2000. These transactions may not be as beneficial to the Company as it expects.

FUTURE ACQUISITIONS MAY DISRUPT THE COMPANY'S BUSINESS AND DISTRACT COMPANY MANAGEMENT.

The Company has recently engaged in acquisitions and expects to continue to do so. The Company may not be able to identify suitable acquisition candidates, and if the Company does identify suitable candidates, it may not be able to make such acquisitions on commercially acceptable terms or at all. If the Company acquires another company, the Company may not be able to successfully integrate the acquired business into the Company's existing business in a timely and non-disruptive manner or at all. The Company may have to devote a significant amount of time and resources to do so. Even with this investment of time and resources, an acquisition may not produce the revenues, earnings or business synergies that the Company anticipates. If the Company fails to integrate the acquired business effectively or if key employees of that business leave, the anticipated benefits of the acquisition would be jeopardized. The time, capital management and other resources spent on an acquisition that fails to meet the Company's expectations could cause the Company's business and financial condition to be materially and adversely affected. In addition, acquisitions can involve non-recurring charges and amortization of significant amounts of goodwill and deferred stock compensation that could adversely affect the Company's results of operations.

THE MARKET PRICE OF THE COMPANY'S COMMON STOCK IS EXTREMELY VOLATILE, AND THE VALUE OF ITS COMMON STOCK MAY DECREASE SUDDENLY.

For a number of reasons, the market price of the Company's common stock is extremely volatile, and the value of its common stock may be significantly less than the market value of that stock today. To demonstrate the volatility of the Company's stock price, during the twelve month period ending on March 31, 2001, the volume of its common stock traded on any given day has ranged from 271,000 to 11,548,500 shares, a 4,161% difference. Moreover, during that period, its common stock has traded as low as $26.69 per share and as high as $99.25 per share, a 272% difference. The market price of its common stock has changed as much as $19.36 per share in a single day and its stock price has changed more than $10 in a single day 10 times in the twelve month period ending March 31, 2001.

THE COMPANY IS AT RISK OF SECURITIES CLASS ACTION LITIGATION DUE TO STOCK PRICE VOLATILITY

In the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its securities. Due to the potential volatility of its stock price, the Company may be the target of such litigation in the future. Securities litigation could result in substantial costs and divert management's attention and resources, which could seriously harm the Company's business, financial condition and results of operations.

Exhibit Number		Description of Document
3.1	(1)	Restated Certificate of Incorporation.
3.2	(2)	Bylaws.
3.3		Amendment No. 1 to the Bylaws dated as of April 25, 2001.
4.1	(3)	Rights Agreement dated October 15, 1998 between Affymetrix, Inc. and American Stock Transfer & Trust Company, as Rights Agent.
4.2	(4)	Indenture dated as of September 22, 1999, between Affymetrix, Inc. and The Bank of New York, as Trustee.
4.3	(5)	Amendment No. 1 to Rights Agreement, dated as of February 7, 2000, between Affymetrix, Inc. and American Stock Transfer & Trust Company, as Rights Agent.
4.4	(6)	Indenture, dated as of February 14, 2000 between Affymetrix, Inc. and The Bank of New York, as Trustee.
4.5	(7)	Registration Rights Agreement, dated as of February 14, 2000, between Affymetrix, Inc. and certain purchasers listed on the signature page thereto.
10.50		Amended and Restated 1996 Non-Employee Directors Stock Option Plan.

On January 12, 2001, the Company filed a Report on Form 8-K to report under Item 5 (Other Events) that the Board of Patent Appeals and Interferences of the United States Patent and Trademark Office issued a notice relating to the commencement of an interference proceeding between the Company and Oxford Gene Technology ("OGT").

On January 12, 2001, the Company filed a Report on Form 8-K/A to report under Item 2 (Acquisition of Disposition of Assets), Item 7 (Financial Statements, Pro Forma Financial Information and Exhibits) and Item 7a (Financial Statements of Business Acquired) financial information relating to the Company's acquisition of Neomorphic, Inc.

On March 7, 2001, the Company filed a Report on Form 8-K to report under Item 5 (Other Events) certain issues relating to the UniGene U74 database build that was used by the Company in the design of the Murine Genome U74 Set of GeneChip arrays.

On March 26, 2001, the Company filed a Report on Form 8-K to report under Item 5 (Other Events) that the Company and OGT entered into a settlement agreement resolving existing litigation between the two companies.

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.

DELAWARE (State or other jurisdiction of incorporation or organization)	77-0319159 (I.R.S. Employer Identification Number)
3380 CENTRAL EXPRESSWAY, SANTA CLARA, CALIFORNIA (Address of principal executive offices)	95051 (Zip Code)

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets at March 31, 2001 and December 31, 2000	3
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2001 and 2000	4
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2001 and 2000	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	18
Item 5.	Other Information	22
Item 6.	Exhibits and Reports on Form 8-K	32
SIGNATURES		34

			March 30, 2001			December 31, 2000
			(Unaudited)			(Note)
ASSETS
Current assets:
	Cash and cash equivalents		$	22,204		$	7,263
	Available-for-sale securities			401,248			428,767
	Accounts receivable			47,278			53,104
	Inventories			23,571			17,234
	Prepaid expenses			4,711			2,157
	Other current assets			363			367

		Total current assets		499,375			508,892
Net property and equipment				60,070			56,245
Acquired technology rights				9,805			10,014
Goodwill and other intangible assets				25,159			26,788
Notes receivable from employees				2,087			2,113
Other assets				17,665			16,728

			$	614,161		$	620,780

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable and accrued liabilities		$	72,881		$	71,024
	Deferred revenue			20,738			19,544
	Current portion of capital lease obligation			—			22

		Total current liabilities		93,619			90,590
Noncurrent portion of capital lease obligation				—			60
Obligation to Beckman Coulter, Inc.				5,000			5,000
Convertible subordinated notes				375,000			375,000
Common stock purchase rights				3,000			3,000
Stockholders' equity:
	Common stock			576			571
	Additional paid-in-capital			345,578			341,541
	Notes receivable from stockholders			(1,031	)		(994	)
	Deferred stock compensation			(24,682	)		(27,875	)
	Accumulated other comprehensive income			6,057			12,080
	Accumulated deficit			(188,956	)		(178,193	)

		Total stockholders' equity		137,542			147,130

			$	614,161		$	620,780

			Three Months Ended March 31,
			2001			2000
Revenue:
	Product		$	50,489		$	36,673
	Research			1,100			2,434
	License fees and royalties			3,298			1,124

		Total revenue		54,887			40,231
Costs and expenses:
	Cost of product revenue			19,197			13,506
	Research and development			19,343			12,208
	Selling, general and administrative			24,544			19,751
	Merger related costs			—			2,395
	Amortization of deferred stock compensation(1)			3,178			—
	Amortization of purchased intangibles			1,573			—

		Total costs and expenses		67,835			47,860

Loss from operations				(12,948	)		(7,629	)
Interest income, net				2,385			1,360

Net loss before income taxes				(10,563	)		(6,269	)
Income tax provision				(200	)		—

Net loss			$	(10,763	)	$	(6,269	)

Basic and diluted net loss per share			$	(0.19	)	$	(0.12	)

Shares used in computing basic and diluted net loss per share				56,995			53,663

						Three Months Ended March 31,
						2001			2000
Cash flows from operating activities:
	Net loss					$	(10,763	)	$	(6,269	)
		Adjustments to reconcile net loss to net cash used in operating activities:
			Depreciation and amortization				3,316			2,372
			Amortization of intangibles assets				1,838			177
			Amortization of investment premiums				955			(671	)
			Amortization of deferred stock compensation				3,193			29
			Accretion of interest of notes receivable from stockholders				37			—
			Change in operating assets and liabilities:
				Accounts receivable			5,826			(5,557	)
				Inventories			(6,337	)		(2,116	)
				Prepaid expenses			(2,554	)		281
				Other current assets			4			2,306
				Accounts payable and accrued liabilities			1,857			4,063
				Deferred revenue			1,194			7,808
				Notes receivable from employees and other assets			(911	)		(9,512	)

					Net cash used in operating activities		(2,419	)		(7,089	)

Cash flows from investing activities:
	Purchases of technology rights						—			(1,500	)
	Capital expenditures						(7,141	)		(6,757	)
	Purchases of available-for-sale securities						(155,659	)		(208,444	)
	Proceeds from the sale of available-for-sale securities						127,916			112,256
	Proceeds from maturities of available-for-sale securities						48,284			—

					Net cash provided by/(used in) investing activities		13,400			(104,445	)

Cash flows from financing activities:
	Issuance of common stock						4,042			2,265
	Issuance of convertible subordinated notes						—			225,000
	Repayment of notes receivable from stockholders'						—			150
	Principal payments on capital lease obligations						(82	)		(62	)

					Net cash provided by financing activities		3,960			227,353

Net increase in cash and cash equivalents							14,941			115,819
Cash and cash equivalents at beginning of period							7,263			12,677

Cash and cash equivalents at end of period						$	22,204		$	128,496

/x/	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED MARCH 31, 2001
or
/ /	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO .

	2001			2002			2003			2004			2005		Thereafter			Total		Fair Value at March 31, 2001
	(Dollar amounts in thousands)
ASSETS:
Available-for-sale debt securities	$	93,222		$	198,253		$	84,900		$	8,000		$	—	$	—		$	384,375	$	396,470
Average interest rate		6.1	%		6.4	%		5.7	%		5.1	%
LIABILITIES:
5% convertible subordinated notes due 2006	$	—		$	—		$	—		$	—		$	—	$	150,000		$	150,000	$	115,875
Average interest rate																5.0	%
4.75% convertible subordinated notes due 2007	$	—		$	—		$	—		$	—		$	—	$	225,000		$	225,000	$	136,755
Average interest rate																4.75	%

May 15, 2001	AFFYMETRIX, INC
	By:	/s/ GREGORY T. SCHIFFMAN
		Name:	Gregory T. Schiffman
		Title:	Vice President, Finance and Administration and Principal Accounting Officer