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 ý No o

AFFYMETRIX, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)

(UNAUDITED)

AFFYMETRIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)

AFFYMETRIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)

AFFYMETRIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2002

(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 2001 have been reclassified to conform to the 2002 presentation.

Results for any interim period are not necessarily indicative of results for any future interim period or for the entire year. The accompanying condensed consolidated 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, 2001.

Historically, the functional currency of Affymetrix' European subsidiaries ("European subsidiaries") was the U.S. dollar. Effective January 1, 2002, the Company changed the functional currency of its European subsidiaries to their respective local currencies due to the European subsidiaries' operations becoming more self-contained and integrated within Europe. As a result, the European subsidiaries' financial statements have been translated into U.S. dollars using the appropriate exchange rates with the resulting translation adjustments recorded directly to accumulated comprehensive income, a separate component of stockholders' equity. Prior to 2002, the functional currency translation adjustments that are included in operations have not been material.

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. Reserves are provided for anticipated warranty expenses at the time the associated revenue is recognized. Revenue related to extended warranty arrangements is deferred and recognized over the applicable periods. Revenue from subscription fees earned under EasyAccess™ agreements is recorded ratably over the term of the agreement. Payments received in advance under these arrangements are recorded as deferred revenue until earned.

The Company also derives revenues from software licenses to end-users. The Company follows Statement of Position ("SOP") 97-2, "Software Revenue Recognition," as amended. In accordance with the provisions of SOP 97-2 as amended, the Company records revenue from software licenses when a license agreement is signed by both parties, the fee is fixed or determinable, collection of the fee is probable and delivery of the product has occurred, which for certain products follows installation. If an element of the license agreement has not been delivered, revenue for the element is deferred based on vendor-specific objective evidence of fair value. If vendor-specific objective evidence of fair value does not exist, all revenue is deferred until sufficient objective evidence exists or all elements have been

delivered. Revenues from maintenance and support are deferred and recognized ratably over the term of the contract.

Research revenue is comprised of amounts earned from services performed pursuant to commercial collaboration agreements, including custom-mask design fees, as well as government grants. Research revenue is recorded in the period in which the costs are incurred or at the time the mask design is completed and the first lot of chips associated with a particular design are shipped. Payments received related to substantive at-risk milestones are recognized upon the occurrence or completion of the milestone events. 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 licensed under the Company's intellectual property and are recognized when earned under the terms of the related agreements. License revenues are generally recognized upon receipt unless the Company has continuing performance obligations, in which case the license revenue is recognized ratably over the period of expected performance. Royalty revenues are recognized under the terms of the related agreements generally upon manufacture or shipment of a product by a licensee.

Basic net 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 net loss per share gives effect to dilutive stock options and warrants (calculated based on the treasury stock method) and convertible debt (calculated on an as-if-converted method). The calculation of diluted net loss per share excludes shares of potential common stock if their effect is anti-dilutive.

Shares used in computing basic and diluted net loss per share is as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2002		2001		2002		2001
Weighted-average shares outstanding	58,121		57,718		58,077		57,574
Less: Weighted-average shares of common stock subject to repurchase	(199	)	(378	)	(208	)	(406	)

Weighted average shares used in computing basic and diluted net loss per share	57,922		57,340		57,869		57,168

On January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 provides a single accounting model for, and supersedes previous guidance on, accounting and reporting for the impairment/disposal of long-lived assets. SFAS 144 sets new criteria for the classification of assets

held-for-sale and changes the reporting of discontinued operations. The adoption of SFAS 144 had no significant impact on the Company's financial statements for the six months ended June 30, 2002.

At June 30, 2002, 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 accumulated other comprehensive income as a component of stockholders' equity.

		June 30, 2002		December 31, 2001
Raw materials		$	6,102	$	8,942
Work-in-process			2,822		2,733
Finished goods			20,620		17,137

	Total	$	29,544	$	28,812

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

		June 30, 2002		December 31, 2001
Accounts payable		$	8,807	$	9,621
Accrued compensation and related liabilities			11,867		11,769
Accrued interest on convertible subordinated notes			5,794		5,794
Accrued taxes			3,298		3,064
Accrued warranties			1,848		955
Accrued legal			3,425		6,293
Accrued royalties			7,416		5,980
Accrued legal settlements			—		5,850
Accrued facilities consolidation costs			1,529		2,064
Accrued distribution fees			1,243		—
Other			1,739		2,038

	Total	$	46,966	$	53,428

The components of comprehensive loss for the three and six months ended June 30, 2002 and 2001 are as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2002			2001			2002			2001
Net loss	$	(1,584	)	$	(9,107	)	$	(5,165	)	$	(19,870	)
Foreign currency translation adjustment		(418	)		—			(351	)		—
Non-cash write down of equity investment due to an other-than-temporary decline in fair value		3,189			—			3,189			—
Unrealized (loss) gain on equity investment		(1,277	)		2,917			(4,204	)		(6,387	)
Unrealized (losses) gains on debt securities		517			(2,326	)		(3,336	)		955

Comprehensive income (loss)	$	427		$	(8,516	)	$	(9,867	)	$	(25,302	)

In October 2000, Affymetrix formed Perlegen Sciences, Inc. ("Perlegen"), initially a wholly owned subsidiary. From Perlegen's inception through March 30, 2001 the operating results of Perlegen were consolidated into Affymetrix' financial statements. Affymetrix contributed to Perlegen certain intellectual property with no cost basis and has rights to use and commercialize certain data generated by Perlegen in the array field. If such data is used, the Company will pay Perlegen royalties based on array sales. No royalties have been paid to date.

On March 30, 2001, Perlegen completed a private financing with a group of investors raising approximately $100 million, which reduced Affymetrix' ownership position in Perlegen to approximately 53%. Two of these outside investors include trusts of which two of Affymetrix' current directors are trustees. The investments by these trusts represent less than $0.6 million of the total financing for Perlegen. The Company, and certain of its affiliates, including its chief executive officer Stephen P.A. Fodor, has placed a portion of its collective holdings (approximately 8%) into an irrevocable voting trust, relinquishing certain voting rights and, as such, has relinquished control of Perlegen. The trustee, State Street Bank and Trust Company of California, N.A., is required to vote the shares held in the trust on all matters subject to shareholder vote in proportion to the votes of all non-Affymetrix shareholders. The voting trust will remain in place until the Company and its affiliates cease to be the beneficial owners of 45% of the total voting power of all of the voting capital stock of Perlegen. Affymetrix has the right to designate three members of Perlegen's Board of Directors which shall consist of not more than seven members. The Company has appointed two out of three of its designees to the current six member Perlegen Board. Affymetrix' two current designees to Perlegen's Board are also members of Affymetrix' Board of Directors.

The Company accounts for its 53% ownership interest in Perlegen on the equity method as the Company and its affiliates collectively control less than 50% of the voting shares of Perlegen and also do not control the strategic, operating, investing and financing activities of Perlegen. As the Company's investment in Perlegen has no basis for accounting purposes under generally accepted accounting

principles, Affymetrix has not recorded any proportionate share of Perlegen's operating losses in its financial statements since the completion of Perlegen's financing.

Pursuant to a supply agreement with Perlegen, the Company sells whole wafers to Perlegen for use in Perlegen's research and development activities at the Company's fully burdened cost of manufacturing. If Perlegen uses the wafers or arrays supplied by Affymetrix for the benefit of third parties, then Perlegen is obligated to make additional payments for such wafers so that Affymetrix will receive normal commercial margins on these wafers. At June 30, 2002, the amounts due from Perlegen were $9.0 million and have been included in accounts receivable in the accompanying condensed consolidated balance sheet. Amounts due from Perlegen are payable to Affymetrix on reasonable commercial terms. Affymetrix has no obligations to provide funding to Perlegen nor does it guarantee or otherwise have any obligations related to the liabilities or results of operations of Perlegen or its investors.

In June 2001, the FASB issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), which establishes new standards for goodwill and other intangible assets, including the elimination of goodwill amortization, to be replaced with periodic evaluation of goodwill for impairment. The Company adopted SFAS 142 on January 1, 2002 at which time, the Company was required to evaluate its existing goodwill and intangible assets and make any necessary reclassifications in order to comply with the new criteria in SFAS 142. The Company then reassessed the useful lives of all intangible assets acquired in purchase business combinations, including those reclassified from goodwill, and made any necessary amortization adjustments by the end of the first interim period after adoption. To the extent that any intangible asset is identified as having an indefinite useful life, SFAS 142 requires the Company to test the intangible asset for impairment and recognize any impairment losses as a cumulative effect of change in accounting principle in the first interim period. After the identification and assessment of intangible assets discussed above, the Company is required, under SFAS 142, to identify reporting units and assign all related assets and liabilities and goodwill to the reporting units. The Company must then complete the two-step transitional goodwill impairment test. The first step, which must be completed within six months of adoption of SFAS 142, requires the Company to determine the fair value of each reporting unit and compare it to the reporting unit's carrying amount. To the extent that a reporting unit's carrying amount exceeds its fair value, an indication exists that the reporting unit's goodwill may be impaired and the Company is required to complete step two of the transitional goodwill impairment test as soon as possible, but no later than December 31, 2002. Step two requires the Company to compare the implied fair value of the reporting unit to its carrying amount as of January 1, 2002. In accordance with SFAS 142, the Company has completed its review for potential impairment of its goodwill as of January 1, 2002, (the date of adoption) and June 30, 2002, and has concluded there is no impairment of goodwill. At June 30, 2002, the Company had goodwill and intangible assets of $37.4 million subject to SFAS 142. The net impact on the full year 2002 consolidated statement of operations from the adoption of SFAS 142 is expected to be a reduction in amortization of approximately $5.1 million compared to 2001. The net impact on the consolidated statements of operations from the adoption of

SFAS 142 was a reduction of $1.3 million and $2.6 million for the three and six months ended June 30, 2002, respectively, compared to three and six months ended June 30, 2001.

The Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142") as of January 1, 2002. In accordance with SFAS 142, the Company has reclassified $0.8 million of assembled workforce to goodwill to comply with the new criteria and has ceased amortization of goodwill. The following table presents net loss for the periods before the adoption of SFAS 142, adjusted for the impact of SFAS 142:

	Three Months Ended June 30,						Six Months Ended June 30,
	2002			2001			2002			2001
Reported net loss	$	(1,584	)	$	(9,107	)	$	(5,165	)	$	(19,870	)
Add back: Goodwill amortization		—			1,176			—			2,360
Add back: Amortization of assembled workforce		—			108			—			215

Adjusted net loss	$	(1,584	)	$	(7,823	)	$	(5,165	)	$	(17,295	)

Basic and diluted loss per share:
As reported	$	(0.03	)	$	(0.16	)	$	(0.09	)	$	(0.35	)
Goodwill amortization		—			0.02			—			0.04
Amortization of assembled workforce		—			0.00			—			0.00

As adjusted net loss per share	$	(0.03	)	$	(0.14	)	$	(0.09	)	$	(0.31	)

On July 5, 2000, Applera Corporation and related corporate plaintiffs ("Applera"), filed a lawsuit in the United States District Court for the District of Delaware alleging that certain of Affymetrix' products infringe five Applera patents related to processes for making oligonucleotides and reagents that Affymetrix purchases from Applera licensed vendors. Applera served Affymetrix with the complaint on October 16, 2000. On January 30, 2001, Affymetrix filed a motion to dismiss Applera's lawsuit pending in Delaware for lack of subject matter jurisdiction. On January 25, 2001, Affymetrix filed a declaratory judgment action 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, which lawsuit was stayed by the Court in New York pending the Delaware Court's ruling on the aforementioned motion to dismiss. On September 27, 2001, the District Court for the District of Delaware granted Affymetrix' motion to dismiss for lack of subject matter jurisdiction. On October 3, 2001, the New York Court restored the New York case to active status. Pre-trial discovery is presently proceeding in this action, however, no trial date has been set.

On April 17, 2002, the New York Court heard oral argument on Applera's motions to bifurcate or dismiss certain of Affymetrix' claims, including claims of breach of contract and antitrust violations by Applera. On May 24, 2002, the Court rejected Applera's motion to dismiss Affymetrix' breach of

contract and antitrust claims and agreed to bifurcate and stay discovery on antitrust issues as well as on all damages issues. Following the Court's order, on June 6, 2002, Applera filed its counterclaim in the New York case alleging infringement of four of the five patents originally asserted in the Delaware action. In addition, Affymetrix also has pending a motion seeking a summary judgment that the last to expire of Applera's subject patents had in fact expired as a matter of law in 2001. The parties have requested oral argument on this motion at the earliest opportunity.

Affymetrix believes that Applera's claims are without merit and that all of Applera's patents subject to this litigation have now expired. However, Affymetrix cannot be sure that it will prevail in these matters. Affymetrix' failure to successfully defend against Applera's allegations could result in a material adverse effect on Affymetrix' business, financial condition and results of operations.

In December 2001, Affymetrix entered into a Settlement Agreement with Incyte Genomics, Inc. ("Incyte") providing for the comprehensive settlement of the existing patent infringement litigation between the two companies that began in January 1998.

The two companies have not resolved Incyte's and Stanford University's ("Stanford") complaint of dissatisfaction with decisions of the United States Patent and Trademark Office Board of Patent Appeals and Interferences (USPTO) that is pending in Incyte Pharmaceuticals, Inc. et al. v. Affymetrix, Inc., Case No. C 99-21111 JF (N.D. Cal.). In this case, Incyte and Stanford claim that the USPTO incorrectly found that Incyte and Stanford did not come forward with enough evidence to warrant a full interference proceeding in the USPTO against certain claims of Affymetrix' U.S. Patent No. 5,800,992 and all claims of Affymetrix' U.S. Patent No. 5,744,305 with respect to certain patent claims that Stanford has applied for that are exclusively licensed to Incyte. In the interference, Incyte and Stanford had sought a finding that Stanford is entitled to receive patents on subject matter which is covered by some claims of Affymetrix' U.S. Patent No. 5,800,992 and all claims of Affymetrix' U.S. Patent No. 5,744,305. Affymetrix believes that Incyte's and Stanford's complaint is without merit; however, Affymetrix cannot be sure that it will prevail in this case. Affymetrix' failure to successfully defend against Incyte's and Stanford's complaint and any subsequent proceeding in the USPTO could result in a material adverse effect on Affymetrix' business, financial condition and results of operations.

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 June 30, 2002 and for the three and six month periods ended June 30, 2002 and 2001 should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2001.

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 our 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 our 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.

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

We have developed and intend to establish our GeneChip® system and related microarray technology as the platform of choice for acquiring, analyzing and managing complex genetic information. Our integrated GeneChip® platform 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. Our related microarray technology includes instrumentation, software and licenses for fabricating, scanning and collecting and analyzing results from low density microarrays. We commenced commercial sales of the GeneChip® system for research use in April 1996 and currently sell our products directly to pharmaceutical, biotechnology, agrochemical, diagnostics and consumer products companies as well as academic research centers, private foundations and clinical reference laboratories in the United States and Europe. We also sell some of our products through authorized distributors, principally in Japan.

We have incurred operating losses each year since our inception, including a loss of approximately $1.6 million during the three months ended June 30, 2002 and, as of such date, had an accumulated deficit of approximately $216 million. Our losses have resulted principally from costs incurred in research and development, manufacturing and from selling, general and administrative costs associated with our operations, including the costs of patent related litigation. These costs have exceeded our 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 funded grants and from interest earned on cash and investment balances. Our ability to generate significant revenues and become profitable is dependent in large part on our ability to expand our customer base, increase sales of our products to existing customers, manage our expense growth, as well as our ability to enter into additional supply, license and collaborative arrangements and on our ability and that of our collaborative partners to successfully manufacture and commercialize products incorporating our technologies in new applications and in new markets.

Our operating results vary and depend on numerous factors. Revenues are principally impacted by the volume 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 magnitude and duration of research and development and 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 our on-going intellectual property litigation.

Our operating results may also fluctuate significantly depending on other factors. To maintain or gain market acceptance of our products in the face of the introduction of new products by our competitors, we may have to reduce or discount the price of our products resulting in an adverse impact on revenues and gross margins. Other factors that may significantly impact our operating results include: the outcome of ongoing or future litigation; the need for additional royalty bearing licenses; adoption of new technologies; the cost, quality and availability of reagents and components; and regulatory actions.

Product Revenue. Product sales increased to $58.6 million and $115.9 million for the three and six months ended June 30, 2002, respectively, compared to $42.0 million and $92.5 millions for the three and six months ended June 30, 2001, respectively. The increase primarily resulted from growth in sales of GeneChip® probe arrays. Revenue from sales of instruments increased to $11.6 million from $8.5 million for the three month periods ended June 30, 2002 and 2001, respectively. Instrument sales comprised mainly of our GeneChip® instrument and related components. For the six months ended June 30, 2002, instrument revenue was $22.7 million compared to $22.4 million for the six months ended June 30, 2001. For the six month period, growth in the GeneChip® instrument platform and related components was partially offset by a decline in our spotting instrument business. Going forward, we do not expect revenue from the spotting business to be a material component of product revenue.

Revenue From Perlegen Sciences, Inc. Revenue from the sale of wafers to Perlegen, an affiliated party, was $5.6 million for the three months ended June 30, 2002 compared to $2.9 million for the same period in 2001. The increase during the second quarter compared to 2001 was due to increased sales of wafers to Perlegen. For the six months ended June 30, 2002, revenue from Perlegen was $11.6 million compared to $2.9 million. The increase for the six month period was due to an increased level of wafer sales to Perlegen and the fact that Perlegen was a wholly owned subsidiary of Affymetrix until March 30, 2001 and therefore, its activities in the first quarter of 2001 were consolidated into the financial results of Affymetrix. Going forward, we expect the level of revenue from the sale of wafers to Perlegen to decrease over the next few quarters.

Research Revenue. Research revenue includes custom probe array design fees, full-time-equivalent ("FTE") support and grant funding. Research revenue was up slightly to $1.4 million for the three months ended June 30, 2002 from $1.3 million for the three months ended June 30, 2001. For the six months ended June 30, 2002, research revenue was $3.0 million compared to $2.4 million in the same period of 2001. On a quarterly basis, research revenues are expected to remain relatively constant throughout 2002.

License Fees and Royalty Revenues. License fees and royalty revenues increased to $5.0 million for the three months ended June 30, 2002, compared to $3.4 million for the three months ended June 30, 2001. The increase in license and royalty revenue was related to the recognition of approximately $1.8 million of deferred revenue related to a long-term contractual arrangement under which we have no further obligations. License and royalty revenue increased to $8.3 million in the six month period ended June 30, 2002 compared to $6.7 million in the same period last year. The increase was primarily related to the accelerated recognition of $1.8 million described above.

Cost of Product Revenues and Gross Margins. Cost of product revenue increased to $21.0 million and $41.7 million for the three and six months ended June 30, 2002, respectively, compared to $15.7 million and $34.9 million for the three and six months ended June 30, 2001, respectively. The increase in cost of product revenues resulted principally from growth in product sales. Gross margins on product sales improved to 64.1% for the three months ended June 30, 2002 compared to 62.5% for the three months ended June 30, 2001. For the six months ended June 30, 2002, gross margins were 64.0% compared to 62.2% in the same period of 2001. Principal factors that favorably impacted gross margins in the three and six month periods ended June 30, 2002 compared to 2001 included: favorable changes in product sales mix, increased production volumes of probe arrays and improved manufacturing yields.

Research and Development Expenses. Research and development expenses, which primarily consist of research, product development and manufacturing process improvement, increased to $17.3 million for the three months ended June 30, 2002 compared to $16.5 million for the same period last year. The increase for the quarter compared to last year was due to the expansion of our new product development programs and the expansion of our basic research efforts. For the six months ended June 30, 2002, research and development expenses decreased from $35.8 million for the first half of 2001 to $34.0 million in the first half of 2002. The decrease in research and development expenses was primarily attributable to $4.5 million of research and development expenses associated with Perlegen that were included in the results of the first quarter of 2001. Excluding costs associated with Perlegen, the increase in research and development costs for the six months ended June 30, 2002 was primarily due to expanded investments in new product development and basic research.

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $23.0 million for the three month period ended June 30, 2002 compared to $21.6 million last year. Selling, general and administrative expenses were $46.5 million and $45.7 for the six month periods ended June 30, 2002 and 2001, respectively. Selling, general and administrative expenses remained relatively flat during the three and six month periods of 2002 and 2001 due to lower levels of legal expense offset by increased investments in the worldwide sales, marketing and technical support infrastructures.

Stock Compensation Expense. We recorded stock compensation expense of $1.9 million during the quarter ended June 30, 2002 compared to $3.2 million during the quarter ended June 30, 2001. For the six months ended June 30, 2002 stock compensation expense was $5.6 million compared to $6.4 million in the comparable period of 2001. Stock compensation expense relates principally to the amortization of deferred stock compensation resulting from the acquisition of Neomorphic, Inc.

Amortization of Purchased Intangibles. During the three months ended June 30, 2002, we incurred charges of $0.3 million for the amortization of purchased intangibles related to the acquisition of Neomorphic, Inc. compared to $1.6 million for the three months ended June 30, 2001. The decrease is due to the adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS 142), which is more fully discussed in Note 7 to the condensed consolidated financial statements. For the six months ended June 30, 2002 we recorded amortization of $0.6 million compared to $3.1 million in the comparable period of 2001.

Interest and Other (Expense) Income, Net. Interest and other (expense) income, net was a net expense of $2.9 million and $3.6 million for the three and six months ended June 30, 2002, respectively, compared to net income of $2.8 million and $4.7 million for the three and six months ended June 30, 2001. The change from net income to net expense for the three and six month periods ended June 30, 2002 compared to 2001 was the result of two principal factors. First, in the quarter ended June 30, 2002 we recorded a $3.2 million write down related to an other-than-temporary decline in the value of its investment in Orchid Biosciences, Inc. Prior to the write down, the carrying value of this investment was approximately $4.5 million. In addition, we experienced lower returns on our cash and marketable

securities portfolio during the three and six month periods ended June 30, 2002 due to the decline in the interest rates compared to the same periods in 2001. This decline was partially offset by favorable currency variances during the second quarter of 2002.

Income Tax Provision. The provision for tax was approximately $0.2 million for the three months ended June 30, 2002 and $0.4 million for the six month period ended June 30, 2002 and consists of current taxes accrued on the profits attributable to our foreign operations and state taxes for the three and six month periods ended June 30, 2002. We recorded a tax provision of $200,000 in the first half 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 June 30, 2002, we provided a full valuation allowance against our net deferred tax assets.

We have financed our operations primarily through the sale of equity and debt securities, government grants, collaborative agreements, interest income, product sales and licensing of our technology. Our material future obligations are as follows (in thousands):

As of June 30, 2002, we had cash, cash equivalents and available-for-sale securities of $353.5 million compared to $368.8 million at December 31, 2001. The cash used for operations was primarily to fund our operating losses, our working capital requirements and our capital expenditures.

Net cash generated from operating activities was $5.1 million for the six months ended June 30, 2002, as compared to net cash used from operating activities of $47.0 million for the six months ended June 30, 2001. The improvement in net cash flow from operating activities was due to primarily to decreases in our net loss and our payments related to legal settlements which occurred in the first half of 2001.

Our investing activities, other than purchases, sales and maturities of available-for-sale securities, consisted of capital expenditures, which totaled $13.7 million for the six months ended June 30, 2002, as compared to $18.1 million for the six months ended June 30, 2001. Capital expenditures during the six months ended June 30, 2002 related primarily to investments in enterprise resource planning (ERP) and storage management systems, along with continued expansion in manufacturing and other operating facilities.

Financing activities for the six months ended June 30, 2002 included net proceeds of $1.0 million resulting from the exercise of stock options compared to $5.8 million for the six months ended June 30, 2001.

We anticipate that our existing capital resources will enable us to maintain currently planned operations and planned capital expenditures for the foreseeable future. However, this expectation is based on our current operating plan and capital expenditure plan, which are expected to change, and

therefore we could require additional funding sooner than anticipated. In addition, we expect our capital requirements will remain substantial and may increase over the next several years as we expand our facilities and acquire scientific equipment to support expanded manufacturing and research and development efforts.

Certain accounting policies are particularly important to the portrayal of our financial position and results of operations and require the application of significant judgment by our management; as a result they are subject to an inherent degree of uncertainty. In applying those policies, our management uses its judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on our historical experience, terms of existing contracts, our observance of trends in the industry, information provided by our customers and information available from other outside sources, as appropriate. Our significant accounting policies include:

Revenue on product sales is recognized when persuasive evidence of an arrangement exists, the price is fixed and final, delivery has occurred and there is a reasonable assurance of collection of the sales proceeds. We obtain written purchase authorizations from our customers for a specified amount of product at a specified price and consider delivery to have occurred for most of our products at the time of shipment. We make estimates of warranty costs and of allowances for doubtful accounts based on historical experience, individual customer financial viability, and age of individual receivables.

For sales of software licenses, we defer revenue for the undelivered elements based on vendor-specific evidence of fair value, which is determined from our list price and actual transactions.

Research revenue is comprised of amounts earned from services performed pursuant to commercial collaboration agreements, including custom-mask design fees, as well as government grants. Research revenue is recorded in the period in which the costs are incurred or at the time the mask design is completed. Payments received related to substantive at-risk milestones are recognized upon the occurrence or completion of the milestone events. Direct costs associated with these contracts and grants are reported as research and development expense. While milestone events are specified in our contracts, we must apply judgment in determining whether a milestone was substantially at risk and therefore justify the recognition of related revenue as the culmination of a separate earnings process. To date, milestone revenue has not been a significant portion of our research revenues.

License and royalty revenues include amounts earned from third parties licensed under our intellectual property. License revenues are recognized when earned under the terms of the related agreements, generally upon receipt unless we have continuing performance obligations, in which case the license revenue is recognized ratably over the period of expected performance. Royalty revenues are recognized under the terms of the related agreements generally upon manufacture or shipment of a product by a licensee.

A portion of our sales and accounts receivable are denominated in foreign currencies. We have not historically hedged our foreign currency exposure.

We account for our 53% ownership interest in Perlegen on the equity method as we have determined that we do not control its operations. Factors we considered in determining our level of control in Perlegen include the fact that we and certain of our affiliates have put approximately 8% of our voting rights into an irrevocable voting trust which is required to vote in proportion to the votes of the other shareholders, we have no ability to terminate or modify the trust unilaterally, we have the

right to appoint only three out of seven seats on Perlegen's board and we have no commitment to provide additional funding to Perlegen.

We carry our inventories at the lower of cost or market, cost being determined on the first-in, first-out method. We apply judgment in determining the provisions for slow moving, excess and obsolete inventories based on historical experience and anticipated product demand.

Our intangible assets are comprised principally of technology rights. We apply judgment in determining the useful lives of our intangible assets and whether such assets are impaired. Factors we consider include the life of the underlying patent, the expected period of benefit from the use of the technology, existence of competing technology and potential obsolescence. To date, we have not experienced any impairment to our intangible assets. See Note 7 to the condensed consolidated financial statements for further discussion of our adoption of SFAS 142 "Goodwill and Other Intangible Assets." In accordance with SFAS 142, the Company has completed its review for potential impairment of its goodwill as of January 1, 2002, (the date of adoption) and June 30, 2002, and has concluded there is no impairment of goodwill.

We are subject to legal proceedings principally related to intellectual property matters. Based on the information available at the balance sheet dates, we assess the likelihood of any adverse judgments or outcomes to these matters, as well as potential ranges of probable losses. If losses are probable and reasonably estimable, we will record a reserve in accordance with SFAS 5, "Accounting for Contingencies." Any reserves recorded may change in the future due to new developments in each matter.

Our exposure to interest rate risk relates primarily to our investment portfolio and our 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, our future investment income may fall short of expectations due to changes in interest rates or we 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 our investment activities is to preserve principal while at the same time maximize yields without significantly increasing risk. To achieve this objective, we invest our excess cash in debt instruments of the U.S. Government and our agencies and high-quality corporate issuers, and, by policy, restrict our exposure to any single corporate issuer by imposing concentration limits. To minimize the exposure due to adverse shifts in interest rates, we maintain investments at an average maturity of generally less than three years.

The table below presents the principal amounts and weighted-average interest rates by year of maturity for our investment portfolio subject to interest rate risk:

We are exposed to equity price risks on the marketable portion of equity securities in our portfolio of investments entered into to further our business and strategic objectives. We typically do not attempt to reduce or eliminate our market exposure on these securities. A 10% adverse change in equity prices would result in a decrease of approximately $0.1 million in our available-for-sale securities based on our position at June 30, 2002. However, actual results may differ materially.

We derive a portion of our revenues in foreign currencies, predominantly in Europe and Japan. We also have subsidiaries in Europe and Singapore. We historically have not used derivative financial instruments to mitigate this exposure. However, we expect to begin hedging certain foreign exchange risks through the use of currency forwards in the second half of 2002.

Although we settled three significant lawsuits in 2001 with Oxford Gene Technology, Hyseq, Inc. and Incyte Genomics, Inc., we continue to be a party to litigation, which has consumed and may in the future consume substantial financial and managerial resources and which could adversely affect our business, financial condition and results of operations. If in any pending or future intellectual property litigation involving us or our collaborative partners, we are found to have infringed the valid intellectual property rights of third parties, we, or our 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 our products. In addition, if we are unable to enforce our patents and other intellectual property rights against others, or if our patents are found to be invalid or unenforceable, third parties may more easily be able to introduce and sell DNA array technologies that compete with our GeneChip® technology, and our competitive position could suffer. We expect to devote substantial financial and managerial resources to protect our intellectual property rights and to defend against the claims described below as well as any future claims asserted against us. 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 July 5, 2000, Applera Corporation and related corporate plaintiffs ("Applera"), filed a lawsuit in the United States District Court for the District of Delaware alleging that certain of our products infringe five Applera patents related to processes for making oligonucleotides and reagents that we purchase from Applera licensed vendors. Applera served us with the complaint on October 16, 2000. On January 30, 2001, we filed a motion to dismiss Applera's lawsuit pending in Delaware for lack of subject matter jurisdiction. On January 25, 2001, we filed a declaratory judgment action against Applera in the United States District Court for the Southern District of New York seeking, among other things, a declaration that we have not infringed any of Applera's subject patents, which lawsuit was stayed by the Court in New York pending the Delaware Court's ruling on the aforementioned motion to dismiss. On September 27, 2001, the District Court for the District of Delaware granted our motion to dismiss for lack of subject matter jurisdiction. On October 3, 2001, the New York Court restored the New York case to active status. Pre-trial discovery is presently proceeding in this action, however, no trial date has been set.

On April 17, 2002, the New York Court heard oral argument on Applera's motions to bifurcate or dismiss certain of our claims, including claims of breach of contract and antitrust violations by Applera. On May 24, 2002, the Court rejected Applera's motion to dismiss our breach of contract and antitrust claims and agreed to bifurcate and stay discovery on antitrust issues as well as on all damages issues. Following the Court's order, on June 6, 2002, Applera filed its counterclaim in the New York case alleging infringement of four of the five patents originally asserted in the Delaware action. In addition, we also have pending a motion seeking a summary judgment that the last to expire of Applera's subject patents had in fact expired as a matter of law in 2001. The parties have requested oral argument on this motion at the earliest opportunity.

We believe that Applera's claims are without merit and that all of Applera's patents subject to this litigation have now expired. However, we cannot be sure that we will prevail in these matters. Our failure to successfully defend against Applera's allegations could result in a material adverse effect on our business, financial condition and results of operations.

In December 2001, we entered into a Settlement Agreement with Incyte Genomics, Inc. ("Incyte") providing for the comprehensive settlement of the existing patent infringement litigation between the two companies that began in January 1998.

The two companies have not resolved Incyte's and Stanford University's ("Stanford") complaint of dissatisfaction with decisions of the United States Patent and Trademark Office Board of Patent Appeals and Interferences (USPTO) that is pending in Incyte Pharmaceuticals, Inc. et al. v. Affymetrix, Inc., Case No. C 99-21111 JF (N.D. Cal.). In this case, Incyte and Stanford claim that the USPTO incorrectly found that Incyte and Stanford did not come forward with enough evidence to warrant a full interference proceeding in the USPTO against certain claims of our U.S. Patent No. 5,800,992 and all claims of our U.S. Patent No. 5,744,305 with respect to certain patent claims that Stanford has applied for that are alleged to be exclusively licensed to Incyte. In the interference, Incyte and Stanford had sought a finding that Stanford is entitled to receive patents on subject matter which is covered by some claims of our U.S. Patent No. 5,800,992 and all claims of our U.S. Patent No. 5,744,305. We believe that Incyte's and Stanford's complaint is without merit; however, we cannot be sure that we will prevail in this case. Our failure to successfully defend against Incyte's and Stanford's complaint and any subsequent proceeding in the USPTO could result in a material adverse effect on our business, financial condition and results of operations.

The Company's 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 that we own or control. Currently, Multilyte Ltd. and ProtoGene Laboratories, Inc. are parties that have filed oppositions against our EP 0-619-321 Patent in the European Patent Office, and PamGene B. has filed an opposition against our EP 0 728 520. These procedures will result in the patent being either upheld in its entirety, allowed to issue in amended form in designated European countries, or revoked.

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

The Annual Meeting of the Stockholders of Affymetrix, Inc. was held on June 6, 2002.

(b) and (c) Name of Each Director Elected at the Meeting and Description of Each Matter Voted on and Number of Votes Cast

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

We have experienced significant operating losses each year since our inception. For example, we experienced net losses of approximately $25.5 million in 1999, $54.0 million in 2000 and $33.1 million in 2001 after an extraordinary gain of $1.7 million related to the repurchase of convertible notes. We had an accumulated deficit of approximately $216.5 million as of June 30, 2002. Our losses have resulted principally from costs incurred in research and development and from general and administrative costs associated with our 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.

We incurred a net loss of $33.1 million for the year ended December 31, 2001 and a net loss of $1.6 million for the quarter ended June 30, 2002 and cannot guarantee future profitability. Among other things, our ability to achieve sustained profitability will depend upon our ability to:

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

OUR QUARTERLY RESULTS OF OPERATIONS HAVE HISTORICALLY FLUCTUATED SIGNIFICANTLY PERIOD-TO-PERIOD AND MAY CONTINUE TO FLUCTUATE UNPREDICTABLY, WHICH COULD CAUSE OUR STOCK TO DECREASE IN VALUE.

Our revenues and operating results may fluctuate significantly from period to period due in part to factors that are outside of our control and which we cannot predict. Some of the factors that could cause our operating results to fluctuate from period to period include:

In particular, the revenue growth, profitability and operating results of our business depend on sales of our GeneChip® products. Some of the factors that could cause sales for our GeneChip® products to fluctuate from period to period include:

Each of these factors have impacted, and may in the future impact, the demand for our products and our quarterly operating results. Although we believe that period-to-period comparisons of our results of operations are not a good indication of our future performance, our operating results may

fall below the expectations of public market analysts or investors in future quarters and the market price of our common stock may fall significantly.

PERLEGEN, WITH WHICH WE HAVE A CUSTOMER, INVESTMENT AND TECHNOLOGY RELATIONSHIP, IS A DEVELOPMENT STAGE COMPANY.

Perlegen operates as an independent company, and its results are not consolidated with those of Affymetrix. There are, however, significant ongoing relationships between the two companies, in the form of our approximate 53% ownership interest, our supply of wafers to Perlegen, and our technology cross-licensing arrangement. Perlegen is a development stage company. There can be no assurance that it will achieve commercial success. In addition, it is likely that Perlegen will require additional funding from outside sources in order to carry out its business plan and continue its operations. We cannot assure the success of Perlegen and we have no obligation to supply such funding nor do we guarantee or otherwise have liability for Perlegen's obligations. There can be no assurance that Perlegen will be able to obtain third party financing on favorable terms, if at all, or that any available funding will be sufficient to fund Perlegen's operations. If Perlegen is unable to obtain sufficient funding and, as a result or otherwise, Perlegen is unable to fulfill its obligations under our wafer supply agreement, we could experience a decline in chip gross margins if our commercial volumes were not sufficient enough to offset any shortfall in volume from Perlegen.

OUR STRATEGIC EQUITY INVESTMENTS IN PUBLICLY TRADED AND NON-PUBLICLY TRADED COMPANIES MAY RESULT IN LOSSES AND AS A RESULT MAY HAVE A NEGATIVE IMPACT ON OUR EARNINGS.

We periodically make strategic equity investments in various publicly traded and non-publicly traded companies with businesses or technologies that may complement our business. The market values of these strategic equity investments may fluctuate due to market conditions and other conditions over which we have no control. Fluctuations in the market price and valuations of the securities that we hold in other companies may require us to record losses related to our ownership interest and may result in an impairment in the value of the securities underlying our investment. This could result in future charges on our earnings and as a result, it is uncertain whether or not we will realize any long term benefits associated with these strategic investments.

WE MAY LOSE CUSTOMERS IF WE ARE UNABLE TO MANUFACTURE OUR PRODUCTS AND ENSURE THEIR PROPER PERFORMANCE OR QUALITY.

We produce our GeneChip® products in an innovative and complicated manufacturing process. Due to the complexity of these products, we may experience in the future significant variability in the manufacturing yield of our GeneChip® products, which may reduce our gross margins and harm our business. We may experience difficulties in meeting customer, collaborator and internal demand for some of our probe array products. If we cannot deliver products in a timely manner, we could lose customers or be required to delay introduction of new products, and demand for our products could decline. Furthermore, if we cannot deliver products to our customers that consistently meet their performance expectations, demand for our products will decline. Because we have a relatively limited production history, we cannot be sure we fully understand all of the factors that affect our manufacturing processes or product performance. As a result, manufacturing and product quality issues may arise as we increase production rates at our manufacturing facility and launch new products. We have a quality control system in place, including a product inquiry and complaint process, under which we have observed a variety of product performance issues at low frequency, including problems aligning software grids with array images, speckling on some arrays, and fluorescent haze in a variety of patterns on array images. As with any new technology, there can be no assurance that we will be able to fully

resolve any or all of the root causes of these inquiries or that new product quality or performance issues will not arise.

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

We compete in markets that are new, intensely competitive, highly fragmented and rapidly changing, and many of our 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. We may not survive and our revenues may decline if we fail to respond quickly to new or emerging technologies and changes in customer requirements.

Currently, our principal competition comes from existing DNA probe array and other technologies that are used to perform many of the same functions for which we market our GeneChip® products. In order to compete against existing and newly developed technologies and maintain pricing and gross margins, we need to successfully demonstrate to current and potential customers that our GeneChip® products provide superior performance and capabilities at an acceptable price. A large number of publicly traded and privately held companies, including Abbott Laboratories, Agilent Technologies, Inc., Axon Instruments, Inc., BD Biosciences Clontech, CombiMatrix Corporation, Digital Gene Technologies, Inc., febit ag, Illumina, Inc., Lynx Therapeutics, Inc., Motorola, Inc., Nanogen, Inc., NimbleGen Systems, Inc., Sequenom, Inc. and Visible Genetics Inc. also are developing or have developed DNA probe based assays or other products and services, some of which may be competitive with our products.

If we are unable to develop the enhancements to our technology necessary to compete successfully with newly emerging technologies and competitors, or if we are unable to develop products based on these technologies, our business, financial condition and results of operations will suffer. Moreover, to maintain or gain market acceptance of our products in the face of new products introduced by our competitors, we may have to reduce or discount the price of our 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 health 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 us by developing new products. Companies such as Abbott Laboratories, Becton Dickinson, Bayer AG, Roche, Johnson & Johnson and bioMérieux 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 our 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 WE CONTINUE TO SCALE UP MANUFACTURING OF OUR PRODUCTS, WE MAY ENCOUNTER PROBLEMS DUE TO A RELATIVELY LIMITED MANUFACTURING HISTORY, THE COMPLEXITY OF OUR PRODUCTS AND AMBIGUITIES IN GENETIC SEQUENCE DATABASES UPON WHICH OUR 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. We test only selected probe arrays from each wafer and only selected probes on such probe arrays. Therefore, we rely on internal quality control procedures to verify the correct completion of the manufacturing process. Also, we and our customers rely on the accuracy of genetic sequence information contained in databases upon which our products are based. It is therefore possible that probe arrays that do not meet all of our performance specifications may not be identified before they are shipped. Due to the complexity and relatively limited operating history of these products, we have from time to time experienced technical problems. We have plans to continue to invest substantial resources to ensure the accuracy of the sequence information used to design our probe arrays prior to the commercial release of our products but there can be no assurance that additional technical problems will not occur. We believe our acquisition of Neomorphic, Inc. in 2000 will further enable us 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 we consider in determining appropriate actions to meet customer needs.

For example, in the first quarter of 2001 we 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, we have redesigned these arrays and had discussions with our affected customers to address their individual needs and to offer replacement arrays to these customers. We evaluated the financial impact of providing these replacement arrays and recorded these charges in 2000 and the first quarter of 2001. In addition, due to customer concern over the accuracy of the probe sequences on our arrays, sales of the Murine Genome U74 set of arrays as well as other products were affected. Our inability to timely deliver acceptable products would likely adversely affect our relationship with our customers, and could have a material adverse effect on our business, financial condition and results of operations.

WE DEPEND ON A LIMITED NUMBER OF SUPPLIERS AND WE WILL BE UNABLE TO MANUFACTURE OUR PRODUCTS IF SHIPMENTS FROM THESE SUPPLIERS ARE DELAYED OR INTERRUPTED.

Key parts of the GeneChip® product line, such as the scanner, hybridization oven, 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. We rely on Agilent Technologies to manufacture our 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 that it is commercializing its own DNA array technology. There can be no assurance that Agilent's commercial activity will not adversely impact our 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 Affymetrix' or other genetic analysis technologies. In addition, components of our 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, we would not be able to get manufacturing

equipment, produce probe arrays, or sell scanners or other components for our 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 us to qualify new vendors. In addition, we are dependent on our 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, we could be delayed in our ability to develop and deliver products to our customers.

PATENT POSITIONS IN OUR 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, we believe that there will continue to be litigation in the industry regarding patent and other intellectual property rights. As a result, we cannot guarantee any of the following:

In addition, patent law relating to the scope of claims in the technology fields in which we operate is still evolving and the extent of future protection for our proprietary rights and the rights of third parties is highly uncertain.

Others may independently develop similar or alternative technologies, duplicate any of our technologies, or design around or invalidate our patented technologies. In addition, we have incurred and may in future periods incur substantial costs in litigation to defend against patent suits brought by third parties and when we initiate such suits. In addition, administrative proceedings such as "interferences," in the United States Patent and Trademark Office could substantially impact the scope of our 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 ours or those of our licensors. To determine the priority of inventions, we will have to participate in interference proceedings declared by the United States Patent and Trademark Office that could result in substantial cost. We cannot assure investors that any such patent applications will not have priority over our patent applications.

Moreover, even if we defend and enforce our intellectual property rights, others may develop similar or alternative technologies, duplicate our technologies, or design around or invalidate our patented technologies. These developments would reduce the value of our intellectual property assets.

Our business exposes us to potential product liability claims that are inherent in the testing, manufacturing, marketing and sale of human diagnostic and therapeutic products. We intend to acquire additional insurance, should it be desirable, for clinical liability risks. We 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 us with adequate coverage against potential liabilities. A product liability claim or recall could have a serious adverse effect on our business, financial condition and results of operations.

WE ARE ENGAGED IN LITIGATION REGARDING OUR INTELLECTUAL PROPERTY RIGHTS AND OUR SURVIVAL DEPENDS ON OUR ABILITY TO AVOID INFRINGING THE INTELLECTUAL PROPERTY OF OTHERS.

Intellectual property rights are essential to our business. We are engaged in litigation regarding our intellectual property rights. Although we settled three significant lawsuits with Oxford Gene Technology, Hyseq, Inc. and Incyte Genomics, Inc. in 2001, we continue to be engaged in litigation regarding our intellectual property rights with Stanford University and Applera Corporation.

These cases are pending and consume, and may continue to consume, substantial portions of our financial and managerial resources. A loss of a significant litigation could prevent us from producing our 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 our products. See Part II, Item 1. "Legal Proceedings."

OUR SURVIVAL DEPENDS ON OUR ABILITY TO MAINTAIN, ENFORCE AND OBTAIN INTELLECTUAL PROPERTY RIGHTS NECESSARY TO CONTINUE OR EXPAND OUR BUSINESS; IF WE ARE SUBJECT TO ADDITIONAL LITIGATION CLAIMS ON OUR INTELLECTUAL PROPERTY RIGHTS, THEY COULD BE COSTLY AND DISRUPT OUR BUSINESS.

If we cannot obtain, maintain or enforce intellectual property rights, competitors can design probe array systems similar to our GeneChip® technology. In order to continue our current business, we must successfully:

Moreover, even if we defend and enforce our intellectual property rights, others may independently develop similar or alternative technologies, duplicate any of our technologies, or design around or invalidate our patented technologies. These developments would reduce the value of our intellectual property assets. Additional litigation regarding our intellectual property rights could consume substantial portions of our financial and managerial resources.

We intend to continue to expand our international presence in order to increase our export sales. Export sales to international customers entail a number of risks, including:

We are 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 we have not to date experienced any material adverse effect on our operations as a result of such regulatory, geopolitical and other factors, we cannot assure investors that such factors will not adversely affect our operations in the future or require us to modify our current business practices. We cannot assure the investors that one or more of the foregoing factors will not have a material adverse effect on our business, financial condition and operating results or require us to modify our current business practices.

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

Although we have expanded our customers base, our revenues are generated from a small number of pharmaceutical and biotechnology companies, academic research centers and clinical reference laboratories. We expect that these customers will in aggregate continue to account for a substantial portion of revenues for the foreseeable future.

IF WE ARE UNABLE TO MAINTAIN OUR RELATIONSHIPS WITH COLLABORATIVE PARTNERS, WE MAY HAVE DIFFICULTY SELLING OUR PRODUCTS AND SERVICES.

We believe that our success in penetrating our target markets depends in part on our ability to develop and maintain collaborative relationships with key companies as well as with key academic researchers. Our 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 our potential products developed under these collaborations.

Currently, our significant collaborative partners include Agilent Technologies in the making of our scanners, Amersham Biosciences K.K. and Takara Shuzo Co., Ltd. in distributing our products in Japan, Millennium Pharmaceuticals, Inc. in the development of a new generation of GeneChip® technology applications for use in drug discovery and development, Hyseq, Inc. in the development and commercialization of a high speed DNA sequencing chip, and Roche Molecular Systems and bioMérieux in the development of our diagnostic chip products. Relying on these or other collaborative relationships is risky to our future success because:

OUR CURRENT SALES, MARKETING AND TECHNICAL SUPPORT ORGANIZATION MAY LIMIT OUR ABILITY TO SELL OUR PRODUCTS.

We currently have limited international sales, marketing and technical support services. To assist our sales and support activities, we entered into distribution agreements through certain distributors, principally in Japan and the Asia Pacific region. In addition, we also have in place with several third parties a series of distribution agreements covering our spotted array instruments product line that was acquired in the GMS acquisition. These and other third parties, such as Amersham Biosciences K.K. on whom we rely for sales, marketing and technical support in parts of Asia may decide to develop and sell competitive products or otherwise become our competitors, which could harm our business. Although we have invested significant other resources to expand our direct sales force and our technical and support staff, we may not be able to establish a sufficiently sized global sales, marketing or technical support organization to sell, market or support our products globally.

BECAUSE OUR BUSINESS IS HIGHLY DEPENDENT ON KEY EXECUTIVES AND SCIENTISTS, OUR INABILITY TO RECRUIT AND RETAIN THESE PEOPLE COULD HINDER OUR BUSINESS EXPANSION PLANS.

We are highly dependent on our officers and our senior scientists and engineers, including scientific advisors. Our product development and marketing efforts could be delayed or curtailed if we lose the services of any of these people.

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

To expand our research, product development and sales efforts we need 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. We will not be able to expand our business if we are unable to hire, train and retain a sufficient number of qualified employees.

We have previously engaged in acquisitions and expect to continue to do so in order to exploit technology or market opportunities. If we acquire another company, we may not be able to successfully integrate the acquired business into our existing business in a timely and non-disruptive manner or at all. Furthermore, an acquisition may not produce the revenues, earnings or business synergies that we anticipate. If we fail 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 our expectations could cause our 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 our results of operations.

THE MARKET PRICE OF OUR COMMON STOCK IS EXTREMELY VOLATILE, AND THE VALUE OF OUR COMMON STOCK MAY DECREASE SUDDENLY.

The market price of our common stock is extremely volatile, and the value of our common stock may be significantly less than the market value of that stock today. To demonstrate the volatility of our stock price, during the twelve-month period ending on June 30, 2002, the volume of our common stock traded on any given day has ranged from 17,659,500 to 381,200 shares, a 4,533% difference. Moreover, during that period, our common stock has traded as low as $14.50 per share and as high as $39.95 per share, a 176% difference. Based on the reported high and low prices, the market price of our common stock has changed as much as $5.81 per share in a single day and its market price has changed more than $5 per share 3 times in a single day during the twelve-month period ending June 30, 2002.

Furthermore, volatility in the stock price of other companies has often led to securities class action litigation against those companies. Any such securities litigation against us could result in substantial costs and divert management's attention and resources, which could seriously harm our business, financial condition and results of operations.

Exhibit Number		Description of Document
3.1(1)		Restated Certification of Incorporation.
3.2(2)		Bylaws.
3.3(3)		Amendment No. 1 to the Bylaws dated as of April 25, 2001.
4.1(4)		Rights Agreement dated October 15, 1998 between Affymetrix, Inc. and American Stock Transfer & Trust Company, as Rights Agent.
4.2(5)		Indenture dated as of September 22, 1999, between Affymetrix, Inc. and The Bank of New York, as Trustee.
4.3(6)		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(7)		Indenture, dated as of February 14, 2000 between Affymetrix, Inc. and The Bank of New York, as Trustee.
4.5(8)		Registration Rights Agreement, dated as of February 14, 2000, between Affymetrix, Inc. and certain purchasers listed on the signature page thereto.

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)	3
		Condensed Consolidated Balance Sheets at June 30, 2002 and December 31, 2001	3
		Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2002 and 2001	4
		Condensed Consolidated Statements of Cash Flows for Six Months Ended June 30, 2002 and 2001	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	18
PART II. OTHER INFORMATION
	Item 1.	Legal Proceedings	20
	Item 4.	Submission of Matters to a Vote of Security Holders	21
	Item 5.	Other Information	22
	Item 6.	Exhibits and Reports on Form 8-K	31
SIGNATURES			33

			June 30, 2002			December 31, 2001
						(Note 1)
ASSETS
Current assets:
	Cash and cash equivalents		$	134,791		$	58,795
	Available-for-sale securities			218,732			310,028
	Accounts receivable			47,867			44,812
	Inventories			29,544			28,812
	Prepaid expenses			3,816			2,937
	Other current assets			463			339

		Total current assets		435,213			445,723
Net property and equipment				75,777			72,728
Acquired technology rights				16,479			17,636
Goodwill				18,601			18,601
Other intangible assets				1,500			2,062
Notes receivable from employees				1,432			1,404
Other assets				21,427			21,861

			$	570,429		$	580,015

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable and accrued liabilities		$	46,966		$	53,428
	Deferred revenue			19,750			19,577

		Total current liabilities		66,716			73,005

Obligation to Beckman Coulter, Inc.				5,000			5,000
Convertible subordinated notes				370,000			370,000
Common stock purchase rights				3,000			3,000
Stockholders' equity:
	Common stock			582			580
	Additional paid-in capital			351,875			349,375
	Notes receivable from stockholders			(677	)		(634	)
	Deferred stock compensation			(10,762	)		(14,873	)
	Accumulated other comprehensive income			1,174			5,876
	Accumulated deficit			(216,479	)		(211,314	)

		Total stockholders' equity		125,713			129,010

			$	570,429		$	580,015

			Three Months Ended June 30,						Six Months Ended June 30,
			2002			2001			2002			2001
Revenue:
	Product		$	58,645		$	41,970		$	115,856		$	92,459
	Revenue from Perlegen			5,615			2,865			11,586			2,865
	Research			1,396			1,332			3,036			2,432
	License fees and royalties			5,010			3,382			8,324			6,680

		Total revenue		70,666			49,549			138,802			104,436

Costs and expenses:
	Cost of product revenue			21,032			15,743			41,726			34,940
	Cost of Perlegen revenue			5,615			2,865			11,586			2,865
	Research and development			17,326			16,466			34,015			35,809
	Selling, general and administrative			22,995			21,642			46,485			45,655
	Amortization of deferred stock compensation(1)			1,934			3,178			5,641			6,356
	Amortization of purchased intangibles			281			1,565			562			3,138

		Total costs and expenses		69,183			61,459			140,015			128,763

Income (loss) from operations				1,483			(11,910	)		(1,213	)		(24,327	)
Interest and other (expense) income, net				(2,866	)		2,803			(3,551	)		4,657

Loss before income taxes				(1,383	)		(9,107	)		(4,764	)		(19,670	)
Income tax provision				(201	)		—			(401	)		(200	)

Net loss			$	(1,584	)	$	(9,107	)	$	(5,165	)	$	(19,870	)

Basic and diluted net loss per common share			$	(0.03	)	$	(0.16	)	$	(0.09	)	$	(0.35	)

Shares used in computing basic and diluted net loss per common share				57,922			57,340			57,869			57,168

						Six Months Ended June 30,
						2002			2001
Cash flows from operating activities:
	Net loss					$	(5,165	)	$	(19,870	)
		Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
			Depreciation and amortization				10,665			6,467
			Amortization of intangible assets				1,719			3,409
			Amortization of investment premiums, net				1,911			3,053
			Stock compensation				5,641			6,371
			Non-cash write down of equity investment				3,189			—
			Realized loss (gain) on sales of investments				(2,818	)		(3,148	)
			Amortization of debt offering costs				883			895
			Accretion of interest on notes receivable from stockholders				(43	)		(339	)
			Changes in operating assets and liabilities:
				Accounts receivable			(3,055	)		5,897
				Inventories			(732	)		(13,154	)
				Prepaid expenses			(879	)		(5,255	)
				Other current assets			(124	)		15
				Other assets			510			(1,609	)
				Accounts payable and accrued liabilities			(6,813	)		(30,671	)
				Deferred revenue			173			984

					Net cash used in operating activities		5,062			(46,955	)

Cash flows from investing activities:
	Purchases of non-marketable equity investments						(1,000	)		—
	Capital expenditures						(13,721	)		(18,079	)
	Purchases of available-for-sale securities						(173,158	)		(221,500	)
	Proceeds from the sales or maturities of available-for-sale securities						257,841			309,178

					Net cash provided by (used in) investing activities		69,962			69,599

Cash flows from financing activities:
	Issuance of common stock						972			5,758
	Principal payments on capital lease obligations						—			(82	)
	Repayment of notes receivable from stockholders						—			686

					Net cash provided by financing activities		972			6,362

Net increase in cash and cash equivalents							75,996			29,006
Cash and cash equivalents at beginning of period							58,795			7,263

Cash and cash equivalents at end of period						$	134,791		$	36,269

	Remainder of
	Total		2002		2003-2004		2005-2006		After 2006
Convertible subordinated notes	$	370,000	$		$		$	150,000	$	220,000
BCI commitment (See Note 3 to our Consolidated Financial Statements from our Form 10-K for the fiscal year ended December 31, 2001)		5,000						5,000
Operating leases		62,540		2,965		12,299		10,775		36,501

Total contractual obligations	$	437,540	$	2,965	$	12,299	$	165,775	$	256,501

	2002			2003			2004			2005			2006			Thereafter			Total		Fair Value at June 30, 2002
	(Dollar amounts in thousands)
ASSETS:
Available-for-sale debt securities	$	186,392		$	113,581		$	36,996		$	6,300		$	—		$	—		$	343,269	$	348,349
Average interest rate		2.25	%		4.69	%		4.42	%		2.32	%
Loan receivable	$	—		$	—		$	—		$	—		$	4,000		$	—		$	4,000	$	4,000
Average interest rate														7.5	%
LIABILITIES:
5% convertible subordinated notes due 2006	$	—		$	—		$	—		$	—		$	150,000		$	—		$	150,000	$	132,750
Average interest rate														5.0	%
4.75% convertible subordinated notes due 2007	$	—		$	—		$	—		$	—		$	—		$	220,000		$	220,000	$	182,479
Average interest rate																	4.75	%

		For	Against	Withheld
1.	To elect directors to serve until the next annual meeting of stockholders or until their successors are elected.
	Stephen P.A. Fodor, Ph.D.	41,856,892	0	4,275,244
	Susan E. Siegel	45,573,829	0	558,307
	Paul Berg, Ph.D.	45,619,340	0	512,796
	John D. Diekman, Ph.D.	45,573,829	0	558,307
	Vernon R. Loucks, Jr.	45,619,340	0	512,796
	David B. Singer	45,573,829	0	558,307
	John A. Young	45,619,340	0	512,796
		For	Against	Withheld
2.	To ratify the appointment of Ernst & Young LLP as independent auditors of the Company for the fiscal year ending December 31, 2002	45,320,238	792,329	19,569

	AFFYMETRIX, INC.
	By:	/s/ GREGORY T. SCHIFFMAN

	Name:	Gregory T. Schiffman
	Title:	Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
August 9, 2002