form10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009

OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO .

COMMISSION FILE NO. 0-28218

AFFYMETRIX, INC.

(Exact name of Registrant as specified in its charter)

DELAWARE		77-0319159
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)

3420 CENTRAL EXPRESSWAY
SANTA CLARA, CALIFORNIA		95051
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (408) 731-5000

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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x		Accelerated filer o

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

COMMON SHARES OUTSTANDING ON OCTOBER 31, 2009: 71,058,947

AFFYMETRIX, INC.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION			3

	Item 1.	Financial Statements (Unaudited)	3

		Condensed Consolidated Balance Sheets at September 30, 2009 and December 31, 2008	3

		Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2009 and 2008	4

		Condensed Consolidated Statements of Cash Flows for the Three and Nine Months Ended September 30, 2009 and 2008	5

		Notes to Condensed Consolidated Financial Statements	6

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25

	Item 4.	Controls and Procedures	25

PART II. OTHER INFORMATION			25

	Item 1.	Legal Proceedings	25

	Item 1A.	Risk Factors	25

	Item 5.	Other Information	35

	Item 6.	Exhibits	35

SIGNATURES			36

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AFFYMETRIX, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

	September 30,			December 31,
	2009			2008
ASSETS:				(Note 1)
Current assets:
Cash and cash equivalents	$	62,487		$	113,292
Restricted cash—short-term portion		1,683			4,402
Available-for-sale securities—short-term portion		220,818			250,970
Accounts receivable, net		56,630			62,726
Inventories		50,556			51,333
Deferred tax assets—current portion		1,867			1,077
Prepaid expenses and other current assets		12,330			15,725
Total current assets		406,371			499,525
Available-for-sale securities—long-term portion		56,009			26,900
Property and equipment, net		70,870			89,345
Acquired technology rights, net		52,412			62,569
Deferred tax assets—long-term portion		4,410			4,764
Restricted cash—long-term portion		1,109			2,175
Other assets		25,788			28,032
Total assets	$	616,969		$	713,310

LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities:
Accounts payable and accrued liabilities	$	51,911		$	62,559
Deferred revenue—current portion		14,545			16,198
Total current liabilities		66,456			78,757
Deferred revenue—long-term portion		3,329			3,583
Other long-term liabilities		10,742			10,972
Convertible notes		247,201			316,341
Stockholders’ equity:
Common stock		710			703
Additional paid-in capital		728,822			721,641
Accumulated other comprehensive income (loss)		2,804			(2,296	)
Accumulated deficit		(443,095	)		(416,391	)
Total stockholders’ equity		289,241			303,657
Total liabilities and stockholders’ equity	$	616,969		$	713,310

Note 1:

The condensed consolidated balance sheet at December 31, 2008 has been derived from the audited consolidated financial statements at that date included in the Company’s Form 10-K for the fiscal year ended December 31, 2008.

See accompanying notes.

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AFFYMETRIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
REVENUE:
Product sales	$	66,172		$	65,952		$	198,198		$	203,780
Services		9,901			6,132			33,678			23,557
Royalties and other revenue		2,118			3,105			6,430			104,338
Total revenue		78,191			75,189			238,306			331,675
COSTS AND EXPENSES:
Cost of product sales		30,728			32,347			95,047			90,581
Cost of services and other		5,142			5,820			20,299			18,241
Research and development		18,764			20,739			60,408			59,098
Selling, general and administrative		30,608			28,409			96,276			92,782
Acquired in-process technology		-			5,100			-			5,900
Restructuring charges		(296	)		14,571			1,897			29,379
Total costs and expenses		84,946			106,986			273,927			295,981
(Loss) income from operations		(6,755	)		(31,797	)		(35,621	)		35,694
Interest income and other, net		774			1,672			1,290			10,830
Interest expense		(2,430	)		(3,497	)		(8,510	)		(10,634	)
Gain from repurchase of convertible notes		-			-			17,447			-
(Loss) income before income taxes		(8,411	)		(33,622	)		(25,394	)		35,890
Income tax (provision) benefit		(408	)		1,802			(1,310	)		(25,093	)
Net (loss) income	$	(8,819	)	$	(31,820	)	$	(26,704	)	$	10,797

Basic net (loss) income per common share	$	(0.13	)	$	(0.46	)	$	(0.39	)	$	0.16
Diluted net (loss) income per common share	$	(0.13	)	$	(0.46	)	$	(0.39	)	$	0.16

Shares used in computing basic net (loss) income per common share		68,799			68,582			68,569			68,542
Shares used in computing diluted net (loss) income per common share		68,799			68,582			68,569			68,650

See accompanying notes.

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AFFYMETRIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended
	September 30,
	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(26,704	)	$	10,797
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		24,612			24,424
Amortization of intangible assets		10,924			8,313
Charge for acquired in-process technology		-			5,900
Amortization of investment premiums, net		888			116
Stock-based compensation		7,867			6,618
Realized loss (gain) on equity investments		1,079			(47	)
Realized gain on the sales of investments		(132	)		450
Deferred tax assets		(436	)		18,445
Amortization of debt offering costs		942			1,583
(Gain) loss on disposal of property and equipment		(385	)		25,858
Gain on extinguishment of debt		(17,447	)		-
Changes in operating assets and liabilities:
Accounts receivable, net		6,096			21,502
Inventories		777			3,732
Prepaid expenses and other assets		7,349			(3,622	)
Accounts payable and accrued liabilities		(10,648	)		(20,879	)
Deferred revenue		(1,907	)		(4,476	)
Other long-term liabilities		(230	)		(520	)
Net cash provided by operating activities		2,645			98,194
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(7,567	)		(10,809	)
Purchases of available-for-sale securities		(322,769	)		(336,258	)
Proceeds from sales and maturities of available-for-sale securities		327,843			363,985
Acquisition of business, net of cash acquired		-			(88,213	)
Purchase of non-marketable equity investments		-			(311	)
Net cash used in investing activities		(2,493	)		(71,606	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock, net		(680	)		(35	)
Repayments of convertible notes		(50,669	)		-
Net cash used in financing activities		(51,349	)		(35	)

Effect of exchange rate changes on cash and cash equivalents		392			(46	)
Net (decrease) increase in cash and cash equivalents		(50,805	)		26,507
Cash and cash equivalents at beginning of period		113,292			288,644
Cash and cash equivalents at end of period	$	62,487		$	315,151

See accompanying notes.

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AFFYMETRIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009

(UNAUDITED)

NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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 U.S. generally accepted accounting principles (“GAAP”)for complete financial statements. The condensed consolidated financial statements include the accounts of Affymetrix, Inc. and its wholly owned subsidiaries (“Affymetrix” or the “Company”). 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. The Company has evaluated subsequent events through November 6, 2009, the date on which the financial statements being presented were filed with the Securities and Exchange Commission.

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 year ended December 31, 2008, as filed with the Securities and Exchange Commission on March 2, 2009.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates.

Revenue Recognition

Overview

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is reasonably assured. In instances where final acceptance of the product or system is required, revenue is deferred until all the acceptance criteria have been met.

The Company derives the majority of its revenue from product sales of probe arrays, reagents, and related instrumentation that may be sold individually or combined with any of the products, services or other sources of revenue listed below. When a sale combines multiple elements upon delivery or performance of multiple products, services and/or rights to use assets, the Company allocates revenue for transactions or collaborations that include multiple elements to each unit of accounting based on its relative fair value, and recognizes revenue for each unit of accounting when the revenue recognition criteria have been met. The price charged when the element is sold separately generally determines fair value. In the absence of fair value of a delivered element, the Company applies the residual method where revenue is first allocated to the fair value of the undelivered elements and the remaining residual revenue to the delivered elements. The Company recognizes revenue for delivered elements when the delivered elements have standalone value and the Company has objective and reliable evidence of fair value for each undelivered element. If the fair value of any undelivered element included in a multiple element arrangement cannot be objectively determined, revenue is deferred until all elements are delivered and services have been performed, or until fair value can objectively be determined for any remaining undelivered elements.

Product Sales

Product sales include sales of probe arrays, reagents and related instrumentation. Probe array, reagent and instrumentation 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. Accruals are provided for anticipated warranty expenses at the time the associated revenue is recognized.

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Also included in product sales is the instrument rental revenue associated with the Company’s reagent rental program available for certain instruments, including its new GeneTitanTM platform. Generally, the Company will loan the instrument free of charge when there is a minimum consumables purchase commitment. The Company recovers the cost of providing the instrumentation in the amount it charges for its consumables under these arrangements. The instrument rental revenue is recognized over the life of the contract, generally one to two years, based on the difference between the fair value of consumables shipped and the amount charged to the customer. The depreciation costs associated with an instrument are charged to cost of product sales on the greater of through-put or straight-line basis over the same contract period. The costs to maintain these instruments in the field are charged to cost of product sales as incurred.

Services

Services revenue is comprised of equipment service revenue; revenue from custom probe array design fees; and scientific services revenue, which includes associated consumables.

Revenue related to extended warranty arrangements is deferred and recognized ratably over the applicable periods. Revenue from custom probe array design fees associated with the Company’s GeneChip® CustomExpress™ and CustomSeq™ products are recognized when the associated products are shipped.

Revenue from scientific services is recognized upon shipment of the required data to the customer.

Royalties and Other Revenue

Royalties and other revenue include license revenue; royalties; subscription fees; research revenue; and non-recurring intellectual property payments.

License revenues are generally recognized upon execution of the agreement unless the Company has continuing performance obligations, in which case the license revenue is recognized ratably over the period of expected performance. Included in the Consolidated Statement of Operations for the period ended September 30, 2008 is a one-time, nonrefundable perpetual license to specified patents for $90 million. This license was due to the settlement of intellectual property litigation and includes no continuing or future obligations for the Company.

Royalty revenues are earned from the sale of products by third parties who have been licensed under the Company’s intellectual property portfolio. Revenue from minimum royalties is amortized over the term of the creditable royalty period. Any royalties received in excess of minimum royalty payments are recognized under the terms of the related agreement, generally upon notification of manufacture or shipment of a product by a licensee.

The Company enters into collaborative arrangements which generally include a research and product development phase and a manufacturing and product supply phase. These arrangements may include up-front nonrefundable license fees, milestones, the rights to royalties based on the sale of final product by the partner, product supply agreements and distribution arrangements.

Any up-front, nonrefundable payments from collaborative product development agreements are recognized ratably over the research and product development period, and at-risk substantive based milestones are recognized when earned. Any payments received which are not yet earned are included in deferred revenue.

Revenue from subscription fees earned under GeneChip® array access programs is recorded ratably over the related supply term.

Research revenues result primarily from research grants received from U.S. Government entities or from subcontracts with other life science research-based companies which receive their research grant funding from the U.S. Government. Revenues from research contracts are generated from the efforts of the Company’s technical staff and include the costs for material and subcontract efforts. The Company’s research grant contracts generally provide for the payment of negotiated fixed hourly rates for labor hours incurred plus reimbursement of other allowable costs. Research revenue is recorded in the period in which the associated costs are incurred, up to the limit of the prior approval funding amounts contained in each agreement. The costs associated with these grants are reported as research and development expense.

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Transactions with Distributors

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectability is reasonably assured. The Company’s agreements with distributors do not include rights of return.

Net (Loss) Income Per Share

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

The following table sets forth a reconciliation of basic and diluted net (loss) income per share (in thousands, except per share amounts):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
Numerator:
Net (loss) income - basic and diluted	$	(8,819	)	$	(31,820	)	$	(26,704	)	$	10,797

Denominator:
Weighted-average shares outstanding		70,823			70,249			70,544			69,682

Less: weighted-average shares of common stock subject to repurchase		(2,024	)		(1,667	)		(1,975	)		(1,140	)

Shares used in computing basic net (loss) income per common share		68,799			68,582			68,569			68,542
Add effect of dilutive securities:
Employee stock options		-			-			-			35
Common stock subject to repurchase		-			-			-			73

Shares used in computing diluted net (loss) income per common share		68,799			68,582			68,569			68,650

Basic net (loss) income per common share	$	(0.13	)	$	(0.46	)	$	(0.39	)	$	0.16

Diluted net (loss) income per common share	$	(0.13	)	$	(0.46	)	$	(0.39	)	$	0.16

The following securities were excluded from the computation of diluted net (loss) income per common share, on an actual outstanding basis, as they were anti-dilutive (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2009		2008		2009		2008
Employee stock options		6,370		6,302		6,370		6,156
Restricted stock subject to repurchase		2,266		1,624		2,266		589
Convertible notes		8,207		14,369		8,207		14,369
Total		16,843		22,295		16,843		21,114

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Cash Equivalents, Available-For-Sale Securities and Investments

Marketable Securities

The Company’s investments consist of U.S. government notes and bonds; corporate notes, bonds and asset-backed securities; mortgage-backed securities, municipal notes and bonds; and publicly traded equity securities. The Company reports all debt securities with maturities at the date of purchase of three months or less that are readily convertible into cash and have insignificant interest rate risk as cash equivalents. Cash equivalents and available-for-sale securities consist of marketable equity and debt securities. Management determines the appropriate classification of debt securities at the time of purchase. As of September 30, 2009 and December 31, 2008, the Company’s investments in debt securities are classified as available-for-sale and are carried at fair value with unrealized gains and losses reported in accumulated other comprehensive income (loss) in stockholders’ equity. The cost of debt securities is adjusted for amortization of premiums and discounts to maturity. This amortization is included in interest income and other, net. Realized gains and losses, as well as interest income, on available-for-sale securities are also included in interest income and other, net. The cost of securities sold is based on the specific identification method. The fair values of securities are based on quoted market prices. The Company includes its available-for-sale securities that have an effective maturity of less than twelve months as of the balance sheet date in current assets and those with an effective maturity greater than twelve months as of the balance sheet date in non-current assets. The Company monitors its investment portfolio for impairment on a periodic basis. In the event that the carrying value of an investment exceeds its fair value and the decline in value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis for the investment is established. Fair values for investments in public companies are determined using quoted market prices.

Non-marketable Securities

The Company also has investments in non-marketable securities issued by privately held companies. These investments are included in other assets in the Consolidated Balance Sheets and are primarily carried at cost. The Company periodically monitors the liquidity and financing activities of the respective issuers to determine if any impairment exists and accordingly writes down to the extent necessary, the cost basis of its non-marketable equity securities to their estimated fair values. In order to determine whether a decline in value is other-than-temporary, the Company evaluates, among other factors: the duration and extent to which the fair value has been less than the carrying value; the financial condition of and business outlook of the issuer for the company, including key operational and cash flow metrics, current market conditions; and the Company’s intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in estimated fair value.

Restructuring

The Company has in recent years engaged in, and may continue to engage in, restructuring actions, which require management to utilize significant estimates related to expenses for severance and other employee separation costs, lease cancellation, realizable values of assets that may become duplicative or obsolete, and other exit costs. If the actual amounts differ from the Company’s estimates, the amount of the restructuring charges could be materially impacted. For a full description of the Company’s restructuring actions, see Note 4.

Recent Accounting and Financial Reporting Developments

In June 2009, the Financial Accounting Standards Board (“FASB”) established the FASB Accounting Standards Codification ("FASB ASC") as the source of authoritative accounting principles recognized by the FASB. The FASB will issue new standards in the form of Accounting Standards Updates ("FASB ASUs"). FASB ASC is effective for financial statements issued for interim and annual periods ending after September 15, 2009 and therefore is effective for us in the third quarter of fiscal 2009. The issuance of FASB ASC does not change GAAP and therefore the adoption of FASB ASC only affects the specific references to GAAP literature in the notes to our consolidated financial statements.

In October 2009, the FASB issued FASB ASU No. 2009-13, Revenue Recognition (Topic 605): Multiple Deliverable Revenue Arrangements – A Consensus of the FASB Emerging Issues Task Force.” This update provides application guidance on whether multiple deliverables exist, how the deliverables should be separated and how the consideration should be allocated to one or more units of accounting. This update establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific or third-party evidence is available. The Company will be required to apply this guidance prospectively for revenue arrangements entered into or materially modified after January 1, 2011; however, earlier application is permitted. The Company is currently assessing the impact on its consolidated results of operations and financial condition.

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In August 2009, the FASB issued FASB ASU No. 2009-05, an update to ASC 820, Fair Value Measurements and Disclosures, which addressed the fair value measurements of liabilities when quoted prices in an active market for identical liabilities are not available. FASB ASU 2009-05 clarifies the concept that a fair value measurement should be based on hypothetical transfer at the measurement date, even for liabilities that are generally never transferred, but are settled directly with the creditor. Quoted prices of similar liability or of the liability when it is traded as an asset should also be considered when determining the liability’s fair value. The provisions of FASB ASU 2009-05 are effective for the first reporting period beginning after the issuance of the FASB ASU and are not expected to have an effect on its consolidated results of operations and financial condition.

In June 2009, the FASB issued guidance which amends certain FASB ASC concepts related to consolidation of variable interest entities (“VIE”). Among other accounting and disclosure requirements, this guidance replaces the quantitative-based risks and rewards calculation for determining which enterprise has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity and the obligation to absorb losses of the entity or the right to receive benefits from the entity. The primary beneficiary assessment must be performed on a continuous basis. It also requires additional disclosures about an entity’s involvement with a VIE, restrictions on the VIE’s assets and liabilities that are included in the reporting entity’s consolidated balance sheet, significant risk exposures due to the entity’s involvement with the VIE, and how its involvement with a VIE impacts the reporting entity’s consolidated financial statements. The Company will adopt this guidance in its first annual and interim reporting periods beginning after November 15, 2009. The Company is currently evaluating the impact of its pending adoption on its consolidated results of operations and financial condition.

NOTE 2—FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table represents the Company’s fair value hierarchy for its financial assets (cash equivalents and investments) measured at fair value on a recurring basis as of September 30, 2009 and December 31, 2008 (in thousands):

			Significant
	Quoted Prices		Other
	In Active		Observable
	Markets		Inputs
	(Level 1)		(Level 2)		Total
September 30, 2009:
U.S. government obligations and agencies	$	-	$	165,918	$	165,918
U.S. corporate debt		-		113,816		113,816
Non-U.S. equity securities		1,306		-		1,306
Total	$	1,306	$	279,734	$	281,040

December 31, 2008
U.S. government obligations and agencies	$	-	$	203,488	$	203,488
U.S. corporate debt		-		93,916		93,916
Non-U.S. equity securities		842		-		842
Total	$	842	$	297,404	$	298,246

As of September 30, 2009 and December 31, 2008, the Company had no financial assets or liabilities requiring Level 3 classification which have unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets and liabilities.

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Investments in Debt and Equity Securities

The fair values of all available-for-sale securities are based on quoted market prices and are included in cash and cash equivalents, available-for-sale securities—short-term and available-for-sale securities—long-term on the Company's Consolidated Balance Sheets based on the securities’ maturity. The following is a summary of available-for-sale securities as of September 30, 2009 (in thousands):

			Gross		Gross
	Adjusted		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
U.S. Government obligations and agency
securities	$	165,057	$	919	$	(58	)	$	165,918
U.S. corporate debt securities		113,795		481		(460	)		113,816
Non-U.S. equity securities		890		416		-			1,306
Total securities	$	279,742	$	1,816	$	(518	)	$	281,040
Amounts included in:
Cash equivalents	$	4,208	$	5	$	-		$	4,213
Available-for-sale securites		275,534		1,811		(518	)		276,827
Total securities	$	279,742	$	1,816	$	(518	)	$	281,040
Amounts mature in:
Less than one year	$	224,289	$	1,260	$	(518	)	$	225,031
One to two years		50,792		501		-			51,293
More than two years		4,661		55		-			4,716
Total securities	$	279,742	$	1,816	$	(518	)	$	281,040

The following is a summary of available-for-sale securities as of December 31, 2008 (in thousands):

			Gross		Gross
			Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
U.S. Government obligations and agency
securities	$	205,076	$	372	$	(134	)	$	205,314
U.S. corporate debt securities		95,755		32		(3,697	)		92,090
Non-U.S. equity securities		890		-		(48	)		842
Total securities	$	301,721	$	404	$	(3,879	)	$	298,246
Amounts included in:
Cash equivalents	$	21,979	$	20	$	-		$	21,999
Available-for-sale securites		279,742		384		(3,879	)		276,247
Total securities	$	301,721	$	404	$	(3,879	)	$	298,246
Amounts mature in:
Less than one year	$	271,402	$	11	$	(68	)	$	271,345
One to two years		30,319		393		(3,811	)		26,901
Total securities	$	301,721	$	404	$	(3,879	)	$	298,246

Realized gains and (losses) for the nine months ended September 30, 2009 and 2008 were $0.2 million and $(0.1) million, respectively, and $2.1 million and $(2.5) million, respectively. Realized gains and (losses) are included in interest income and other, net in the accompanying Consolidated Statements of Operations. The gross unrealized losses as of September 30, 2009 were primarily related to mortgage-backed securities that were impacted by the weakening of the global economy caused by a lack of liquidity in the credit markets.

The Company conducts a review of investment securities on a quarterly basis for the presence of impairment that is deemed to be other-than-temporary (“OTTI”). As part of its review, the Company is required to take into consideration current market conditions, fair value in relationship to cost, extent and nature of change in fair value, issuer rating changes and trends, volatility of earnings, current analysts’ evaluations, all available information relevant to the collectability of debt securities, its ability to hold investments until, and whether it will more likely than not be required to sell prior to, a recovery of fair value, which may be maturity, and other factors when evaluating for the existence of OTTI in its securities portfolio.

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During the period ended September 30, 2009, the Company assessed whether OTTI is present when the fair value of a debt security is less than its amortized cost basis at the balance sheet date. Under these circumstances, OTTI is considered to have occurred if (1) the Company intends to sell the security; (2) it is “more likely than not” that the Company will be required to sell the security before recovery of its amortized cost basis or (3) the present value of expected cash flows is not expected to recover the entire amortized cost basis. The “more likely than not” criteria is a lower threshold than the “probable” criteria used under the previous guidance.

Any credit-related OTTI is to be recognized in earnings while noncredit-related OTTI on securities not expected to be sold is to be recognized in other comprehensive income (“OCI”). Noncredit-related OTTI is based on other factors, including illiquidity. Presentation of OTTI is made in the statement of income on a gross basis with an offset for the amount of OTTI recognized in OCI. Noncredit-related OTTI recognized in earnings previous to January 1, 2009 is reclassified from retained earnings to accumulated OCI as a cumulative effect adjustment.

No significant facts or circumstances have arisen to indicate that there has been any deterioration in the creditworthiness of the issuers of the Company’s securities. Based on its review of these securities, including the assessment of the severity of the related unrealized losses, the Company has not recorded any other-than-temporary impairments on these securities.

Additionally, the Company did not have any noncredit-related OTTI on securities not expected to be sold, and for which it is not more likely than not that it will be required to sell the securities, before recovery of their amortized cost basis, that was recognized in OCI during the period ended September 30, 2009. The Company did not record any cumulative effect adjustments for noncredit-related portion of OTTI losses previously recognized in earnings.

Other Financial Instruments

The carrying amounts and estimated fair values of financial instruments, other than those discussed above, were as follows (in thousands):

	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
Assets:
Non-marketable equity securities	$	11,847	$	11,847	$	13,009	$	13,009
Liability:
Convertible notes		247,201		192,817		316,341		101,290

The fair value estimates provided above for the Company's convertible notes were based on quoted market prices available at September 30, 2009 and December 31, 2008, respectively. All other fair values were based on current market rates, liquidation and net realizable values. During the first nine months ended September 30, 2009, the Company determined that the declines in estimated fair values of certain investments in non-marketable equity securities were other-than-temporary. Accordingly, the Company recorded net impairment losses on the investments of approximately $1.1 million. No impairment was recognized for the nine months ended September 30, 2008. Net investment losses are included in interest income and other, net in the Consolidated Statements of Operations. Depending on market conditions, the Company may incur additional charges on this investment portfolio in the future.

NOTE 3—STOCK-BASED COMPENSATION

Stock-Based Compensation Plans

The Company has a stock-based compensation program that provides the Board of Directors broad discretion in creating equity incentives for employees, officers, directors and consultants. This program includes incentive and non-qualified stock options and non-vested stock awards (also known as restricted stock) granted under various stock plans. Stock options are generally time-based, vesting 25% on each annual anniversary of the grant date over four years and expire 7 to 10 years from the grant date. Non-vested stock awards are generally time-based, vesting 25% on each annual anniversary of the grant date over four years. As of September 30, 2009, the Company had approximately 1.8 million shares of common stock reserved for future issuance under its stock-based compensation plans. New shares are issued as a result of stock option exercises and non-vested restricted stock awards.

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The Company recognized stock-based compensation expense is as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2009		2008		2009		2008
Costs of product sales	$	479	$	498	$	1,318	$	1,086
Research and development		695		625		1,522		1,489
Selling, general and administrative		2,255		2,229		5,027		4,044
Total stock-based compensation expense	$	3,429	$	3,352	$	7,867	$	6,619

As of September 30, 2009, $24.4 million of total unrecognized stock-based compensation expense related to non-vested awards is expected to be recognized over the respective vesting terms of each award through 2013. The weighted average term of the unrecognized stock-based compensation expense is 2.9 years.

Stock Options

The fair value of options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
Risk free interest rate		1.9	%		3.0	%		1.7	%		3.2	%
Expected dividend yield		0.0	%		0.0	%		0.0	%		0.0	%
Expected volatility		70	%		42	%		70	%		42	%
Expected option term (in years)		4.1			4.5			4.1			4.5

The risk free interest rate for periods within the contractual life of the Company’s stock options is based on the U.S. Treasury yield curve in effect at the time of grant. The expected term is derived from an analysis of the Company’s historical exercise trends over ten years. The expected volatility is based on a blend of historical and market-based implied volatility. The Company incorporated a significant increase in the expected volatility assumption for the periods ended September 30, 2009 as compared to the periods ended September 30, 2008 due to the increased net losses of the Company and the overall impact of the deterioration of the global economy over the period. Using the assumptions above, the weighted average grant date fair value of options granted during the three months ended September 30, 2009 and 2008 was $4.48 and $3.51, respectively, and for the nine months ended September 30, 2009 and 2008 was $3.02 and $4.55, respectively.

NOTE 4—RESTRUCTURING

Fiscal 2008 Restructuring Plan

In February 2008, the Company committed to a restructuring plan (the “2008 Plan”) designed primarily to optimize its production capacity and cost structure and improve its future gross margins. The plan involves the closure of its West Sacramento manufacturing facility after which all of the Company’s products will be manufactured at its Singapore and Ohio facilities, as well as by third parties. The Company substantially completed the closure of the West Sacramento facility during the second quarter of 2009.

The Company estimates the total restructuring expenses to be incurred in connection with the 2008 Plan will be approximately $45.1 million. Of this total, approximately $8.4 million of cash outlays relates to employee severance and $36.7 million relates to non-cash charges associated with the abandonment and impairment of certain long-lived manufacturing assets. The impaired assets primarily consisted of a building, leasehold improvements, mask aligners and synthesizer equipment utilized in the manufacture of probe arrays. The costs relating to employee severance are being recognized as expense over the remaining service periods of the employees.

For the three months ended September 30, 2009, a restructuring benefit of $0.3 million was recognized as certain employee termination benefits were not paid out as had previously been estimated. During the first nine months of 2009, the Company recognized approximately $2.5 million of expenses for employee termination benefits associated with the 2008 Plan. During the first nine months of 2008, the Company recognized approximately $25.8 million of non-cash charges related to the abandonment and impairment of certain manufacturing assets and $2.9 million of expense for employee termination benefits. These expenses are presented as a component of “Restructuring charges” in the Company’s Consolidated Statements of Operations.

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Fiscal 2007 Restructuring Plan

In July 2007, the Company announced that it was consolidating an administrative facility located in Sunnyvale, California into its main campus in Santa Clara, California (the “2007 Plan”). Additionally, in August and December 2007, the Company terminated certain employees in the research and development and selling, general and administrative functions. The Sunnyvale, California facility was vacated during the fourth quarter of 2007. The estimated cash outlays to be incurred in connection with these restructuring activities are estimated to be approximately $4.6 million. During the nine months ended September 30, 2009 and 2008, the amount of expense recognized associated with the 2007 Plan was not material.

Fiscal 2006 Restructuring Plan

In 2006, the Company initiated a restructuring plan (the “2006 Plan”) to better align certain of its expenses with the Company’s business outlook. The Company’s primary focus of the 2006 Plan was in the general and administrative functions and included rationalizing its facilities. Cash outlays incurred in connection with these restructuring activities were estimated to be approximately $16.8 million. During the nine months ended September 30, 2009 and 2008, the amount of expense recognized associated with the 2006 Plan was not material.

The activity for the restructuring plans above for the nine months ended September 30, 2009 and estimated costs for the amounts expected to be recognized as “Restructuring charges” in the Company’s Consolidated Statements of Operations is as follows (in thousands):

														As of
														September 30, 2009
	Balance as of											Balance as of		Total		Total
	December 31,		2009			Cash			Non-Cash			September 30,		costs		expected
	2008		Charges			Payments			Settlements			2009		to date		costs
Fiscal 2008 Restructuring Plan:
Employee severance and relocation benefits	$	3,178	$	2,510		$	(4,898	)	$	(418	)	$	372	$	8,303	$	8,400
Abandonment and impairment of certain long-lived manufacturing assets		-		(425	)		565			(140	)		-		36,664		36,664
Fiscal 2007 Restructuring Plan:
Employee severance and relocation benefits		-		-			-			-			-		2,888		2,888
Contract termination costs		487		(1	)		(357	)		42			171		1,503		1,600
Other restructuring costs		-		-			-			-			-		113		113
Fiscal 2006 Restructuring Plan:
Employee severance and relocation benefits		-		-			-			-			-		20,197		20,197
Contract termination costs		1,239		(187	)		(270	)		283			1,065		2,580		2,900
Other restructuring costs		-		-			-			-			-		2,194		2,194
Total	$	4,904	$	1,897		$	(4,960	)	$	(233	)	$	1,608	$	74,442	$	74,956

NOTE 5—INVENTORIES

Inventories consist of the following (in thousands):

	September 30,		December 31,
	2009		2008
Raw materials	$	20,247	$	22,799
Work-in-process		9,427		12,192
Finished goods		20,882		16,342
Total	$	50,556	$	51,333

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NOTE 6—ACQUIRED TECHNOLOGY RIGHTS

Acquired technology rights are comprised of licenses to technology covered by patents to third parties and are amortized over the expected useful life of the underlying patents, which range from one to fifteen years. Accumulated amortization of these rights amounted to approximately $56.2 million and $52.4 million at September 30, 2009 and December 31, 2008, respectively.

The expected future annual amortization expense of the Company’s acquired technology rights and other intangible assets is as follows (in thousands):

	Amortization
For the Year Ending December 31,	Expense
2009, remainder thereof	$	3,056
2010		12,212
2011		12,031
2012		10,257
2013		7,749
Thereafter		7,107
Total	$	52,412

NOTE 7—COMPREHENSIVE (LOSS) INCOME

The components of comprehensive (loss) income are as follows (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
Net (loss) income	$	(8,819	)	$	(31,820	)	$	(26,704	)	$	10,797
Foreign currency translation adjustment		465			(342	)		392			(46	)
Unrealized gain (loss) on debt securities		404			(2,034	)		4,708			(4,228	)
Unrealized hedging contracts gain		-			15			-			15
Comprehensive (loss) income	$	(7,950	)	$	(34,181	)	$	(21,604	)	$	6,538

NOTE 8—RELATED PARTY TRANSACTIONS

Perlegen Sciences, Inc.

As of September 30, 2009, the Company, and certain of its affiliates, including certain members of the Board of Directors, held approximately 22% ownership interest in Perlegen Sciences, Inc. (“Perlegen”), a privately-held biotechnology company. In addition, two members of Perlegen’s Board of Directors are also members of the Company’s Board of Directors.

The Company accounts for its ownership interest in Perlegen using the equity method as the Company and its affiliates do not control the strategic, operating, investing and financing activities of Perlegen; however, the Company does have significant influence over Perlegen’s operating activities. Further, the Company 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. As of June 30, 2005, the Company had reduced the carrying value of its investment to zero through the recording of its proportionate share of Perlegen’s operating losses.

The Company has concluded that Perlegen is a variable interest entity in which the Company holds a variable interest, and that the Company is not the primary beneficiary.

NOTE 9—COMMITMENTS AND CONTINGENCIES

Legal Proceedings

The Company has been in the past, and continues to be, a party to litigation which has consumed, and may continue to consume, substantial financial and managerial resources.

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Illumina Lawsuit

On May 4, 2009, the Company was named as a defendant in a complaint filed by plaintiff Illumina, Inc. in the U.S. District Court for the Western District of Wisconsin. In the complaint, plaintiff alleges that the Company is infringing Patent No. 7,510,841 by making and selling certain of the GeneChip® products. Plaintiff seeks a permanent injunction enjoining the Company from further infringement and unspecified monetary damages. The case has been set for trial in Wisconsin on October 4, 2010. On November 3, 2009, Illumina filed a second complaint in the Court of Western District of Wisconsin, alleging that the Company is infringing Patent No. 7,612,020 by making and selling certain of the GeneChip® products. The Company will vigorously defend against all of plaintiff’s claims.

E8 Pharmaceuticals LLC

On July 1, 2008, the Company was named as a defendant in a complaint filed by plaintiffs E8 Pharmaceuticals LLC and Massachusetts Institute of Technology ("MIT") in the United States District Court of Massachusetts. In the complaint, the plaintiffs allege that the Company is infringing one patent owned by MIT and licensed to E8 Pharmaceuticals by making and selling the Company’s GeneChip® products to customers and teaching its customers how to use the products. The plaintiffs seek a permanent injunction enjoining the Company from further infringement, unspecified monetary damages, enhanced damages pursuant to 35 U.S.C. § 284, costs, attorneys’ fees and other relief as the court deems just and proper. The Company will vigorously defend against plaintiffs’ claims.

Enzo Litigation

On October 28, 2003, Enzo Life Sciences, Inc., a wholly-owned subsidiary of Enzo Biochem, Inc. (collectively “Enzo”), filed a complaint against the Company that is now pending in the United States District Court for the Southern District of New York for breach of contract, injunctive relief and declaratory judgment. The Enzo complaint relates to a 1998 distributorship agreement with Enzo under which the Company served as a non-exclusive distributor of certain reagent labeling kits supplied by Enzo. In its complaint, Enzo seeks monetary damages and an injunction against the Company from using, manufacturing or selling Enzo products and from inducing collaborators and customers to use Enzo products in violation of the 1998 agreement. Enzo also seeks the transfer of certain Affymetrix patents to Enzo. In connection with its complaint, Enzo provided the Company with a notice of termination of the 1998 agreement effective on November 12, 2003.

On November 10, 2003, the Company filed a complaint against Enzo in the United States District Court for the Southern District of New York for declaratory judgment, breach of contract and injunctive relief relating to the 1998 agreement. In its complaint, the Company alleges that Enzo has engaged in a pattern of wrongful conduct against it and other Enzo labeling reagent customers by, among other things, asserting improperly broad rights in its patent portfolio, improperly using the 1998 agreement and distributorship agreements with others in order to corner the market for non-radioactive labeling reagents, and improperly using the 1998 agreement to claim ownership rights to the Company’s proprietary technology. The Company seeks declarations that it has not breached the 1998 agreement and that nine Enzo patents that are identified in the 1998 agreement are invalid and/or not infringed by it. The Company also seeks damages and injunctive relief to redress Enzo’s alleged breaches of the 1998 agreement, its alleged tortuous interference with the Company’s business relationships and prospective economic advantage, and Enzo’s alleged unfair competition. The Company filed a notice of related case stating that its complaint against Enzo is related to the complaints already pending in the Southern District of New York against eight other former Enzo distributors. The U.S. District Court for the Southern District of New York has related the Company’s case. There is no trial date in the actions between Enzo and the Company.

Administrative Proceedings

The Company’s intellectual property is subject to a number of significant administrative actions. These proceedings could result in the Company’s patent protection being significantly modified or reduced, and the incurrence of significant costs and the consumption of substantial managerial resources.

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NOTE 10—INCOME TAXES

The provision for income tax for the third quarter of 2009 and the first nine months of 2009 was approximately $0.4 million and $1.3 million, respectively. The provision for income tax primarily consists of foreign taxes and state taxes offset by a federal Refundable Research Credit.

Due to the Company’s history of cumulative operating losses, management concluded that, after considering all the available objective evidence, it is not more likely that not that all the Company’s net deferred tax assets will be realized. Accordingly, all of the U.S. deferred tax assets, net of reserves for “open” tax positions, continue to be subject to a valuation allowance as of September 30, 2009.

As of September 30, 2009, there have been no material changes to the total amount of unrecognized tax benefits.

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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 September 30, 2009 and for the three and nine months ended September 30, 2009 and 2008 should be read in conjunction with our financial statements and accompanying notes thereto included in this Quarterly Report on Form 10-Q and 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, 2008.

All statements in this quarterly report that are not historical are “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act as amended, including statements regarding our “expectations,” “beliefs,” “hopes,” “intentions,” “strategies” or the like. Such statements are based on our current expectations and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Actual results or business conditions may differ materially from those projected or suggested in such forward-looking statements as a result of various factors, including, but not limited to, risks associated with our ability to offer new products and technologies; our capacity to identify and capitalize upon emerging market opportunities; market acceptance of our products versus those of our competitors; uncertainties related to cost and pricing of Affymetrix products; fluctuations in overall capital spending in the academic and biotechnology sectors; changes in government funding policies; our dependence on collaborative partners; the size and structure of our current sales, technology and technical support organizations; uncertainties relating to our suppliers and manufacturing processes; our ability to achieve and sustain higher levels of revenue, improved gross margins and reduced operating expenses; personnel retention; global credit and financial market conditions; uncertainties relating to Federal and Drug Administration (“FDA”) and other regulatory approvals; risks relating to intellectual property of others and the uncertainties of patent protection and litigation; volatility of the market price of our common stock; and unpredictable fluctuations in quarterly revenues.

Overview

We are engaged in the development, manufacture, sale and service of consumables and systems for genetic analysis in the life sciences and clinical healthcare markets. There are a number of factors that influence the size and development of our industry, including: the availability of genomic sequence data for human and other organisms, technological innovation that increases throughput and lowers the cost of genomic and genetic analysis, the development of new computational techniques to handle and analyze large amounts of genomic data, the availability of government and private funding for basic and disease-related research, the amount of capital and ongoing expenditures allocated to research and development spending by biotechnology, pharmaceutical and diagnostic companies, the application of genomics to new areas including molecular diagnostics, agriculture, human identity and consumer goods, and the availability of genetic markers and signatures of diagnostic value.

We have established our GeneChip® system as the platform of choice for acquiring, analyzing and managing complex genetic information. Our integrated GeneChip® platform includes disposable DNA probe arrays (chips) consisting of gene sequences set out in an ordered, high density pattern; certain reagents for use with the probe arrays; a scanner and other instruments used to process the probe arrays; and software to analyze and manage genomic information obtained from the probe arrays. We currently sell our products directly to academic research centers, government research laboratories, private foundation laboratories and clinical reference laboratories, as well as to pharmaceutical, biotechnology, agrichemical, diagnostics and consumer products companies in North America and Europe. We also sell our products through life science supply specialists acting as authorized distributors in Latin America, India, the Middle East and Asia Pacific regions, including China. The following overview describes three of the key elements of our business strategy and our goals:

Expanding into new markets. We intend to generate top-line revenue growth by successfully commercializing our technologies and expanding our customer base, including by leveraging our established and newly acquired technologies to enter new markets. We believe that the genotyping market will continue to be one of the most attractive growth opportunities in life sciences and that new content packaged in versatile formats will drive growth. Other opportunities include emerging cytogenetic and copy number and our Drug Metabolizing Enzymes and Transporters product which we believe addresses a significant unmet need for our pharmaceutical partners. We see opportunities in applications that are downstream from genome-wide analysis, particularly in validation and routine testing.

Re-engineering our technology platform. We intend to combine automated instrumentation, powerful new biological assays, and new array designs and content to significantly expand our product line. The new GeneTitanTM System, our next generation mid-to-high end instrumentation platform enables significantly increased efficiency and throughput for researchers conducting array-based experiments. This fully automated solution enables higher data quality by removing or minimizing many of the sources of variation in the laboratory. In addition to our cartridge based formats, we are transitioning many of our legacy products to the new “peg” array format. We intend to provide ann expanded menu of gene expression and genotyping applications.

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Improving operating leverage. Starting in February 2008, we implemented a restructuring plan in order to optimize our production capacity and cost structure to enable us to decrease our cost of manufacturing and operating expenses. We have substantially completed the move of our probe array manufacturing to our Singapore facility and our reagent manufacturing to our Cleveland facility, as well as the outsourcing of our instrument manufacturing operations.

Critical Accounting Policies & Estimates

Management's Discussion and Analysis of Financial Condition and Results of Operations is based upon our Condensed Consolidated Financial Statements, which we have prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management has discussed the development, selection and disclosure of significant estimates with the Audit Committee of our Board of Directors. Actual results may differ from these estimates under different assumptions or conditions.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably likely to occur could materially impact the financial statements. There have been no significant changes during the nine months ended September 30, 2009 in our critical accounting policies and estimates compared to the disclosures in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2008.

Recent Accounting and Financial Reporting Developments

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Results of Operations

The following discussion compares the historical results of operations for the three and nine months ended September 30, 2009 and 2008, respectively.

Product Sales (in thousands, except percentage amounts)

The components of product sales are as follows:

	Three Months Ended				Dollar			Percentage			Nine Months Ended				Dollar			Percentage
	September 30,				change			change from			September 30,				change			change from
	2009		2008		from 2008			2008			2009		2008		from 2008			2008
Consumables	$	62,000	$	59,804	$	2,196			4	%	$	183,809	$	187,420	$	(3,611	)		(2	) %
Instruments		4,172		6,148		(1,976	)		(32	)		14,389		16,360		(1,971	)		(12	)
Total product sales	$	66,172	$	65,952	$	220			0		$	198,198	$	203,780	$	(5,582	)		(3	)

Total product sales increased in the third quarter of 2009 as compared to 2008. Consumables, which include probe arrays and reagents, increased primarily due to an increase in volume of sales of reagents developed by Panomics, Inc., which we acquired in December 2008, partially offset by lower average sales price and lower volume of sales in our probe arrays. The increase in consumables was partially offset by a decrease in instruments primarily due to lower average sales prices and lower volume of sales in our Probe Array systems and GeneChip® Scanners during the quarter compared to prior year.

For the nine months ended September 30, 2009, total product sales decreased. Consumables decreased primarily due to lower average sales prices and lower volume of sales of our probe arrays and a negative impact from foreign currency, partially offset by an increase in the volume of sales of reagents developed by Panomics, Inc., which we acquired in December 2008. Instrument sales decreased primarily due to lower unit sales of our Probe Array systems and GeneChip® Scanners.

Services (in thousands, except percentage amounts):

	Three Months Ended				Dollar		Percentage			Nine Months Ended				Dollar		Percentage
	September 30,				change		change from			September 30,				change		change from
	2009		2008		from 2008		2008			2009		2008		from 2008		2008
Services	$	9,901	$	6,132	$	3,769		61	%	$	33,678	$	23,557	$	10,121		43	%

Total services revenue increased in the third quarter, and for the first nine months, of 2009 as compared to 2008, primarily due to an increase of $3.8 million in our scientific services business associated with several genotyping projects, including the Wellcome Trust Case Control Consortium and the National Institutes of Health.

Royalties and Other Revenue (in thousands, except percentage amounts):

	Three Months Ended				Dollar			Percentage			Nine Months Ended				Dollar			Percentage
	September 30,				change			change from			September 30,				change			change from
	2009		2008		from 2008			2008			2009		2008		from 2008			2008
Royalties and other revenue	$	2,118	$	3,105	$	(987	)		(32	) %	$	6,430	$	104,338	$	(97,908	)		(94	) %

Royalties and other revenue decreased in the third quarter as compared to 2008 primarily due to a decrease in grant funding of $1.1 million which was partially offset by an increase in royalty fees of $0.3 million. For the first nine months of 2009, the decrease, as compared to 2008, is primarily attributable to the recognition of a one-time, non-refundable perpetual license to specified patents for $90 million in 2008. This license was due to the settlement of intellectual property litigation and includes no continuing or future obligations for the Company.

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Product and Services Gross Margins (in thousands, except percentage/point amounts):

	Three Months Ended						Dollar/Point		Nine Months Ended						Dollar/Point
	September 30,						change		September 30,						change
	2009			2008			from 2008		2009			2008			from 2008
Total gross margin on product sales	$	35,444		$	33,605		$	1,839	$	103,151		$	113,199		$	(10,048	)
Total gross margin on services		4,759			341			4,418		13,448			5,397			8,051

Product gross margin as a percentage of products sales		54	%		51	%		3		52	%		56	%		(4	)
Service gross margin as a percentage of services		48	%		6	%		43		40	%		23	%		17

The increase in product gross margin in the third quarter of 2009 as compared to 2008 is primarily due to lower product costs from factory consolidations and non recurring plant consolidations costs incurred in Q3’08 attributable to the restructuring activities from the closing of the West Sacramento facility which was completed in the second quarter of 2009. This increase was partially offset by lower average selling prices in the third quarter of 2009.

For the first nine months of 2009, the decrease in product gross margin as compared to 2008 is primarily due to a 5.5 point decrease associated with closing our West Sacramento facility partially offset by higher factory utilization of 1.0 points and lower product costs. The remaining margin differential was primarily driven by a shift in revenue mix to lower margin products and a decline in average selling price of our consumables.

The increase in services gross margin in the third quarter, and for the first nine months ended, of September 30, 2009 as compared to 2008 is primarily due to higher revenue and lower costs per sample due to favorable overhead utilization.

Research and Development Expenses (in thousands, except percentage amounts):

	Three Months Ended				Dollar			Percentage			Nine Months Ended				Dollar		Percentage
	September 30,				change			change from			September 30,				change		change from
	2009		2008		from 2008			2008			2009		2008		from 2008		2008
Research and development	$	18,764	$	20,739	$	(1,975	)		(10	) %	$	60,408	$	59,098	$	1,310		2	%

The decrease in research and development expenses in the third quarter of 2009 as compared to 2008 was primarily due to lower headcount and a decrease in spending for masks, chips and supplies.

The increase for the first nine months of 2009 as compared to 2008 was primarily due to higher headcount and increased spending in supplies associated with our acquisitions in the second half of 2008.

Selling, General and Administrative Expenses (in thousands, except percentage amounts):

	Three Months Ended				Dollar		Percentage			Nine Months Ended				Dollar		Percentage
	September 30,				change		change from			September 30,				change		change from
	2009		2008		from 2008		2008			2009		2008		from 2008		2008
Selling, general and administrative	$	30,608	$	28,409	$	2,199		8	%	$	96,276	$	92,782	$	3,494		4	%

The increase in selling, general and administrative expenses in the third quarter of 2009 as compared to 2008 was primarily due to increases of $0.8 million in compensation and benefits expense and $1.7 million in legal expenses. These increases were partially offset by decreases in facilities, utilities and rent expenses of $0.3 million as a result of site consolidation efforts and staff-related expenses of $0.4 million.

For the first nine months of 2009, selling, general and administrative expenses increased as compared to 2008, primarily due to increases of $1.0 million in stock-based compensation and $6.1 million in legal expenses, partially offset by decreases of $1.3 million in consulting and purchased services, $0.7 million in compensation and benefits expense and $1.0 million in staff-related expenses.

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Restructuring charges (in thousands, except percentage amounts):

	Three Months Ended					Dollar			Percentage			Nine Months Ended				Dollar			Percentage
	September 30,					change			change from			September 30,				change			change from
	2009			2008		from 2008			2008			2009		2008		from 2008			2008
Restructuring charges	$	(296	)	$	14,571	$	(14,867	)		(102	) %	$	1,897	$	29,379	$	(27,482	)		(94	) %

In February 2008, we committed to a restructuring plan (the “2008 Plan”) designed primarily to optimize our production capacity and cost structure and improve our future gross margins. The plan involved the closure of our West Sacramento manufacturing facility after which all of our products will be manufactured at our Singapore and Ohio facilities, as well as by third parties. We substantially completed the closure of the West Sacramento facility in the second quarter of 2009.

During the three months ended September 30, 2009, a restructuring benefit of $0.3 million was recognized as certain employee termination benefits were not paid out as had previously been estimated. This is compared to the three months ended September 30, 2008 in which we recognized $14.6 million in restructuring charges, which were primarily related to the abandonment and impairment of certain manufacturing assets in connection with the 2008 Plan. These expenses are presented as a component of “Restructuring charges” in our Consolidated Statements of Operations.

During the nine months ended September 30, 2009, we recognized a total of $2.5 million in restructuring expenses, primarily related to employee termination benefits, partially offset by approximately $0.6 million in restructuring credit related to the 2006 and 2008 restructuring plans, compared to $29.4 million in 2008, of which $25.8 million is related to non-cash charges associated with the abandonment of certain long-lived assets. These expenses are presented as a component of “Restructuring charges” in our Consolidated Statements of Operations.

We estimate the total restructuring expenses to be incurred in connection with the 2008 Plan will be approximately $45.1 million. Of this total, approximately $8.4 million relates to employee severance and $36.7 million relates to non-cash charges associated with the abandonment and impairment of certain long-lived manufacturing assets. The costs relating to employee severance and relocation are being recognized as expense over the remaining service periods of the employees. Through September 30, 2009, we have recognized total restructuring costs of $45.0 million.

Interest Income and Other, Net (in thousands, except percentage amounts):

The components of interest income and other, net, are as follows (in thousands, except percentage amounts):

	Three Months Ended						Dollar			Percentage			Nine Months Ended						Dollar			Percentage
	September 30,						change			change from			September 30,						change			change from
	2009			2008			from 2008			2008			2009			2008			from 2008			2008
Interest income	$	910		$	3,442		$	(2,532	)		(74	) %	$	3,538		$	11,739		$	(8,201	)		(70	) %
Realized (loss) gain on equity investments, net		135			(491	)		626			127			(946	)	$	1,219			(2,165	)		(178	)
Currency (loss) gain, net		(344	)		(1,268	)		924			73			(2,177	)	$	(2,154	)		(23	)		(1	)
Other		73			(11	)		84			764			875		$	26			849			3,265
Total interest income and other, net	$	774		$	1,672		$	(898	)		(54	)	$	1,290		$	10,830		$	(9,540	)		(88	)

Interest income and other, net decreased in the third quarter, and for the first nine months, of 2009 as compared to 2008 primarily due to decreased interest income resulting from lower average cash balances and lower rates of return.

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Interest Expense (in thousands, except percentage amounts):

	Three Months Ended						Dollar			Percentage			Nine Months Ended						Dollar			Percentage
	September 30,						change			change from			September 30,						change			change from
	2009			2008			from 2008			2008			2009			2008			from 2008			2008
Interest expense	$	(2,430	)	$	(3,497	)	$	(1,067	)		(31	) %	$	(8,510	)	$	(10,634	)	$	(2,124	)		(20	) %

Interest expense decreased in the third quarter, and for the first nine months, of 2009 as compared to 2008, primarily due to the lower aggregate principal balance of the senior convertible notes resulting from our repurchases of $119.9 million in aggregate principal amount of our 0.75% senior convertible notes due 2033 in December 2008 and $69.1 million in aggregate principal amount of our 3.50% senior convertible notes due 2038 during the second quarter of 2009.

Income Tax (Provision) Benefit (in thousands, except percentage amounts):

	Three Months Ended					Dollar		Percentage			Nine Months Ended						Dollar			Percentage
	September 30,					change		change from			September 30,						change			change from
	2009			2008		from 2008		2008			2009			2008			from 2008			2008
Income tax (provision) benefit	$	(408	)	$	1,802	$	2,210		(123	) %	$	(1,310	)	$	(25,093	)	$	(23,783	)		(95	) %

The provision for income tax increased approximately $2.2 million in the third quarter of 2009 and decreased approximately $24.0 million in the first nine months of 2009. For the first nine months of 2009, the decrease is due to lower profitability. The provision for income tax for the third quarter of 2009 and the first nine months of 2009, primarily consists of foreign taxes and state taxes offset by a federal Refundable Research Credit.

Due to our history of cumulative operating losses, management concluded that, after considering all the available objective evidence, it is not more likely that not that all our net deferred tax assets will be realized. Accordingly, all of our U.S. deferred tax assets, net of reserves for “open” tax positions, continue to be subject to a valuation allowance as of September 30, 2009.

As of September 30, 2009, there have been no material changes to our total amount of unrecognized tax benefits.

Liquidity and Capital Resources

Cashflow (in thousands):

	Nine Months Ended
	September 30,
	2009			2008
Net cash provided by operating activities	$	2,645		$	98,194
Net cash used in by investing activities		(2,493	)		(71,606	)
Net cash used in financing activities		(51,349	)		(35	)
Effect of foreign currency translation on cash and cash equivalents		392			(46	)
Net (decrease) increase in cash and cash equivalents	$	(50,805	)	$	26,507

Net Cash Provided by Operating Activities

Cash provided by operating activities is net (loss) income adjusted for certain non-cash items and changes in operating assets and liabilities. Cash provided by operating activities for the first nine months of 2009 was primarily comprised of a net loss of $26.7 million and non-cash charges that included depreciation and amortization of $35.5 million, stock-based compensation expense of $7.9 million, a loss of $1.1 million on equity investments and a gain of $17.4 million on the repurchase of convertible notes. Significant changes in assets and liabilities are as follows:

Our total accounts receivable was $56.6 million at September 30, 2009, a decrease of $6.1 million from December 31, 2008. The decrease is primarily due to continued focus on collection efforts.

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Our prepaid expenses and other assets and restricted cash balances were $12.3 million and $2.8 million, respectively, at September 30, 2009, an aggregate decrease of $7.2 million from December 31, 2008. The decrease is primarily related to the cash receipt of a non-trade receivable during the second quarter of 2009 and the release of restricted cash balances due to the settlement of obligations during the third quarter of 2009.

Our accounts payable and accrued liabilities balance was $51.9 million at September 30, 2009, a decrease of $10.6 million from December 31, 2008. The decrease is primarily due to the net decrease of semi-annual interest on our convertible debt of $3.3 million, timing of payments for operating costs of $4.2 million, payment of $3.5 million related to the shareholders’ lawsuit settlement, timing of compensation and benefits and release of accrued severance related to the 2008 restructuring activities totaling $4.2 million, partially offset by the increase in annual variable compensation of $3.3 million.

Net Cash Used in Investing Activities

Our investing activities, other than purchases, sales and maturities of available-for-sale securities, primarily consist of capital expenditures. In the prior period, our investing activities also included the acquisition of USB Corporation in January 2008 and True Materials, Inc. in July 2008. No acquisitions have been made in 2009.

Cash used for capital expenditures was $7.6 million and $10.8 million in the first nine months of 2009 and 2008, respectively. Our capital expenditures in 2009 primarily related to the transition of manufacturing operations from West Sacramento to Singapore and Ohio as well as investments in the re-engineering of our technology platforms.

Net Cash Used in Financing Activities

Our financing activities generally consist of transactions under our convertible senior notes and stock option exercise activity under our employee stock plan. Cash used in financing activities for the first nine months of 2009 is primarily related to the repurchase of $69.1 million of aggregate principal amount of our 3.50% senior convertible notes for a total of $50.6 million in the second quarter of 2009.

Liquidity

We have financed our operations primarily through product sales, sales of equity and debt securities, collaborative agreements, interest income, and licensing of our technology. As of September 30, 2009, we had cash, cash equivalents, and available-for-sale securities of approximately $342.1 million, including restricted cash. We anticipate that our existing capital resources along with the cash to be generated from operations will enable us to maintain currently planned operations, acquisitions and capital expenditures, for the foreseeable future. Capital expenditures are estimated to be approximately $12.0 to $15.0 million for the year ending December 31, 2009.

However, this expectation is based on our current operating and financing plans, which are subject to change, and therefore we could require additional funding. Factors that may cause us to require additional funding may include: future acquisitions; our ability to maintain existing collaborative and customer arrangements and establish and maintain new collaboration and customer arrangements; the progress of our research and development programs; initiation or expansion of research programs and collaborations; the costs involved in preparing, filing, prosecuting, defending and enforcing intellectual property rights; the effectiveness of product commercialization activities and arrangements; the purchase of patent licenses; and other factors.

As of September 30, 2009, we have no credit facility or other committed sources of capital. To the extent capital resources are insufficient to meet future capital requirements; we will have to raise additional funds to continue the development of our technologies. There can be no assurance that such funds will be available on favorable terms, or at all. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities could result in dilution to our stockholders. If adequate funds are not available, we may be required to curtail operations significantly or to obtain funds by entering into collaboration agreements on unattractive terms. Our inability to raise capital would have a material adverse effect on our business, financial condition and results of operations.

From time to time, we may seek to retire, repurchase, or exchange our convertible securities in open market purchases, privately negotiated transactions subject to market conditions, liquidity, contractual obligations and other factors.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

There have been no significant changes in our off-balance sheet arrangements and aggregate contractual obligations as compared to the disclosures in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2008.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Exchange Rate Risk

We derive a portion of our revenues in foreign currencies, predominantly in Europe and Japan. In addition, a portion of our assets are held in nonfunctional currencies of our subsidiaries. We use currency forward contracts to manage a portion of the currency exposures created from our activities denominated in foreign currencies. Our hedging program is designed to reduce, but does not entirely eliminate, the impact of currency exchange rate movements.

There have been no significant changes in our market risk compared to the disclosures in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2008.

ITEM 4. CONTROLS AND PROCEDURES

(a) Disclosure controls and procedures.

Affymetrix’s management carried out an evaluation, as required by Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)), as of the end of our last fiscal quarter. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q, such that the information relating to Affymetrix and its consolidated subsidiaries required to be disclosed in our Exchange Act reports filed with the SEC (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to Affymetrix’s management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in internal control over financial reporting.

Affymetrix’s management carried out an evaluation, as required by Rule 13a-15(d) of the Exchange Act, with the participation of our Chief Executive Officer and our Chief Financial Officer, of changes in Affymetrix’s internal control over financial reporting. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that there were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Information pertaining to legal proceedings can be found in Note 9. Commitments and Contingencies to our condensed, consolidated financial statements elsewhere in this 10-Q, and is incorporated by reference herein.

ITEM 1A. RISK FACTORS

In evaluating our business, you should carefully consider the following risks, as well as the other information contained in this quarterly report on Form 10-Q. If any of the following risks actually occurs, our business could be harmed.

Risks Related to the Growth of Our Business

We must continually offer new products and technologies to be successful.

Our success depends in large part on continuous, timely development and introduction of new products that address evolving market requirements and are attractive to customers. The RNA/DNA probe array field is undergoing rapid technological changes. New technologies, techniques or products could emerge which might allow the packaging and analysis of genomic information at densities similar to or higher than our microarray technology. Other companies may begin to offer products that are directly competitive with, or are technologically superior, to our products. Standardization of tools and systems for genetic research is still ongoing and we cannot assure you that our products will emerge as the standard for genetic research. If we do not appropriately innovate and invest in new technologies, then our technologies will become dated and our customers could move to new technologies offered by our competitors.

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As a result, we are continually looking to develop, license or acquire new technologies and products to further broaden and deepen our product line. Some of the factors affecting market acceptance of our products include:

availability, quality and price as compared to competitive products;

the functionality of new and existing products;

the timing of introduction of our products as compared to competitive products;

the existence of product defects;

scientists’ and customers’ opinions of the product’s utility and our ability to incorporate their feedback into future products;

citation of the products in published research; and

general trends in life sciences research and life science informatics software development.

As we introduce new or enhanced products, we must successfully manage the transition from older products to minimize disruption in customers’ ordering patterns, avoid excessive levels of older product inventories and provide sufficient supplies of new products to meet customer demands. Risks relating to product transitions include the inability to accurately forecast demand and difficulties in managing different sales and support requirements due to the type or complexity of the new products.

Failure to integrate acquired businesses into our operations successfully will adversely impact our results of operations.

As part of our strategy to develop and identify new products and technologies, we have made and may continue to make acquisitions. Our integration of the operations of acquired businesses requires significant efforts, including the coordination of information technologies, research and development, sales and marketing, operations, manufacturing and finance. These efforts result in additional expenses and divert significant amounts of management’s time from other projects. Our failure to manage successfully and coordinate the growth of the combined company could also have an adverse impact on our business. In addition, there is no guarantee that some of the businesses we acquire will become profitable or remain so. If our acquisitions do not reach our initial expectations, we may record impairment charges, such as those recorded in 2008.

Factors that will affect the success of our acquisitions include:

our ability to retain key employees of the acquired company;

the ability of the combined company to achieve synergies among its constituent companies, such as increasing sales of the combined company’s products, achieving expected cost savings and effectively combining technologies to develop new products;

disruption in order fulfillment due to integration processes and therefore loss of sales;

presence or absence of adequate internal controls and/or significant fraud in the financial systems of acquired companies; and

any decrease in customer and distributor loyalty and product orders caused by dissatisfaction with the combined companies’ product lines and sales and marketing practices, including price increases.

Emerging market opportunities in molecular diagnostics may not develop as quickly as we expect and we depend on the efforts of our partners to be successful.

The clinical applications of GeneChip® technologies for diagnosing and enabling informed disease management options in the treatment of disease is an emerging market opportunity in molecular diagnostics. At this time, we cannot be certain that molecular diagnostic markets will develop as quickly as we expect. Although we believe that there will be clinical applications of our GeneChip® technologies that will be utilized for diagnosing and enabling informed disease management options in the treatment of disease, there can be no certainty of the technical or commercial success our technologies will achieve in such markets.

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Our success in the molecular diagnostics market depends to a large extent on our collaborative relationships and the ability of our collaborative partners to (1) achieve regulatory approval for such products in the United States and in overseas markets; and (2) successfully market and sell products using our GeneChip® technologies.

Risks Related to Our Sales

We face significant competition.

The markets for our products are characterized by rapidly changing technology, evolving industry standards, changes in customer needs, emerging competition, new product introductions and strong price competition. We face significant competition as existing companies develop new or improved products and as new companies enter the market with new technologies.

For example, companies such as Illumina, Agilent Technologies and Life Technologies have products for genetic analysis which are directly competitive with certain of our products. 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.

Many of our current and potential competitors have significantly greater financial, technical, marketing and other resources than we do. In addition, many current and potential competitors have greater name recognition, more extensive customer bases and access to proprietary genetic content.

In the molecular diagnostics 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. Further, in the event that we develop new technology and products that compete with existing technology and products of well established companies, there can be no guarantee that the marketplace will readily adopt any such new technology and products that we may introduce in the future.

The market for molecular diagnostics products is currently limited and highly competitive, with several large companies already having significant market share. Companies such as Beckman Coulter, Becton Dickinson, bioMérieux, Celera Diagnostics, Johnson & Johnson and Roche Diagnostics have made strategic commitments to diagnostics, have financial and other resources to invest in new technologies, and have 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 systems we offer 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.

Reduction or delay in research and development budgets and government funding adversely impact our sales.

We expect that our revenues in the foreseeable future will be derived primarily from products and services provided to a relatively small number of academic, governmental and other research institutions, as well as pharmaceutical and biotechnology companies. Our operating results may fluctuate substantially due to reductions and delays in research and development expenditures by these customers.

Factors that could affect the spending levels of our customers include:

weakness in the global economy and changing market conditions that affect our customers;

changes in the extent to which the pharmaceutical industry may use genetic information and genetic testing as a methodology for drug discovery and development;

changes in government programs that provide funding to companies and research institutions;

changes in the regulatory environment affecting life science companies and life science research;

impact of consolidation within the pharmaceutical industry; and

cost reduction initiatives of customers.

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The American Recovery and Reinvestment Act of 2009 (the Recovery Act) was enacted in February 2009 to provide stimulus to the U.S. economy in the wake of the economic downturn. As part of the Recovery Act legislation, over $10 billion in funding was provided to the National Institutes of Health (“NIH”) through September 2010 to support the advancement of scientific research. In October 2009, we announced that we entered into an agreement with the Kaiser Permanente Research Program on Genes, Environment and Health and the University of California at San Francisco to support genome-wide analyses of DNA samples from over 100,000 Kaiser Permanente members. The program is funded by a grant from the NIH. While stimulus funding may support the analysis of genetic variation and biological function and have a positive impact on our business, in the short-term our customers may delay or reduce their purchases of our products as they wait to learn whether, and to what extent, they will receive stimulus funding. Additionally, if our customers are unable to obtain stimulus funding they may reduce their research and development budgets, resulting in a decrease in demand for our products. A reduction or delay in demand will reduce our revenues and adversely affect our profitability.

If we are unable to maintain our relationships with collaborative partners, we may have difficulty developing and 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. Relying on our collaborative relationships is risky to our future success because:

our partners may develop technologies or components competitive with our products;

our existing collaborations may preclude us from entering into additional future arrangements;

our partners may not obtain regulatory approvals necessary to continue the collaborations in a timely manner;

some of our agreements may terminate prematurely due to disagreements between us and our partners;

our partners may not devote sufficient resources to the development and sale of our products;

our partners may be unable to provide the resources required for us to progress in the collaboration on a timely basis;

our collaborations may be unsuccessful; or

some of our agreements have expired and we may not be able to negotiate future collaborative arrangements on acceptable terms.

The size and structure of our current sales, marketing and technical support organizations may limit our ability to sell our products.

Although we have invested significant resources to expand our direct sales force and our technical and support staff, we may not be able to establish a global sales, marketing or technical support organization that is sufficient to sell, market or support our products globally. To assist our sales and support activities, we have entered into distribution agreements through certain distributors, principally in markets outside of North America and Europe. These and other third parties on whom we rely for sales, marketing and technical support may decide to develop and sell competitive products or otherwise become our competitors, which could harm our business.

Risks Related to the Manufacturing of Our Products

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.

We depend on our suppliers to provide components of our products in required volumes, at appropriate quality and reliability levels, and in compliance with regulatory requirements. Key parts of the product lines, including components of our manufacturing equipment and certain raw materials used in the manufacture of our products are currently available only from a single source or limited sources.

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If 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 products in a timely fashion or in sufficient quantities. Furthermore, our business is dependent on our ability to forecast the needs for components and products in the product lines and our suppliers’ ability to deliver such components and products in time to meet critical manufacturing and product release schedules. Our business could be adversely affected, for example, if suppliers fail to meet product release schedules, if we experience supply constraints, if we fail to negotiate favorable pricing or if we experience any other interruption or delay in the supply chain which interferes with our ability to manufacture our products or manage our inventory levels.

We may need to adjust our manufacturing capacity based on business requirements or improvements made to our technological capabilities and there are risks associated with such adjustment.

If demand for our products is reduced or if we implement technologies that increase the density or yields of our wafers, our manufacturing capacity could be under-utilized, and some of our long-lived assets including facilities and equipment may be impaired, which would increase our expenses. In addition, factory planning decisions may shorten the useful lives of long-lived assets including facilities and equipment, and cause us to accelerate depreciation. These changes in demand for our products, and changes in our customers’ product needs, could have a variety of negative effects on our competitive position and our financial results, and, in certain cases, may reduce our revenue, increase our costs, lower our gross margin percentage or require us to recognize impairments of our assets. In addition, if demand for our products is reduced or we fail to accurately forecast demand, we could be required to write down inventory, which would have a negative impact on our gross margin.

We have in the past, and may in the future, adjust our capacity based on business requirements, which may include the rationalization of our facilities, including the abandonment of long-lived manufacturing assets and additional charges related to a reduction in capacity. In 2008, we implemented a restructuring plan in order to optimize our production capacity and cost structure to enable us to increase our gross margins. Our restructuring plan included the closure of our West Sacramento, California facility and the consolidation of our manufacturing to three locations which were substantially completed in the second quarter of 2009. Manufacturing and product quality issues may arise as we launch new products in our Singapore and Ohio facilities. We may lose customers if we are unable to manufacture products or if we experience delays in the manufacture of our products as a result of this transition.

We may lose customers or experience lost sales if we are unable to manufacture or experience delays in the manufacture of our products, or if we are unable to ensure their proper performance and quality.

We produce our products in an innovative and complicated manufacturing process which has the potential for significant variability in manufacturing yields. We have encountered and may in the future encounter difficulties in manufacturing our products and, due to the complexity of our products and our manufacturing process, we may experience delays in the manufacture of our products or fail to ensure their proper performance or quality.

We base our manufacturing capabilities on our forecasted product mix for the quarter. If the actual product mix varies significantly from our forecast, we may not be able to fill some orders during that quarter, which could adversely impact our financial results. Difficulties in meeting customer, collaborator and internal demand could also cause us to lose customers or require us to delay new product introductions, which could in turn result in reduced demand for our products.

We rely on internal quality control procedures to verify our manufacturing processes. Due to the complexity of our products and manufacturing process, however, it is possible that probe arrays that do not meet all of our performance specifications may not be identified before they are shipped. If our products do not consistently meet our customers’ performance expectations, demand for our products will decline. In addition, we do not maintain any backup manufacturing capabilities for the production of our products. Any interruption in our ability to continue operations at our existing manufacturing facilities could delay our ability to develop or sell our products, which could result in lost revenue and seriously harm our business, financial condition and results of operations.

We may not be able to deliver acceptable products to our customers due to the rapidly evolving nature of genetic sequence information upon which our products are based.

The genetic sequence information upon which we rely to develop and manufacture our products is contained in a variety of public databases throughout the world. These databases are rapidly expanding and evolving. In addition, the accuracy of such databases and resulting genetic research is dependent on various scientific interpretations and it is not expected that global genetic research efforts will result in standardized genetic sequence databases for particular genomes in the near future.

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Although we have implemented ongoing internal quality control efforts to help ensure the quality and accuracy of our products, the fundamental nature of our products requires us to rely on genetic sequence databases and scientific interpretations which are continuously evolving. As a result, these variables may cause us to develop and manufacture products that incorporate sequence errors or ambiguities. The magnitude and importance of these errors depends on multiple and complex factors that would be considered in determining the appropriate actions required to remedy any inaccuracies. Our inability to timely deliver acceptable products as a result of these factors would likely adversely affect our relationship with customers, and could have a material adverse effect on our business, financial condition and results of operations.

Risks Related to Our Operations

We may not achieve sustained profitability.

Although we were profitable for the year ended December 31, 2007, we incurred losses each year from our inception through the year ended December 31, 2002 and also for the years ended December 31, 2006 and December 31, 2008. As a result, we had an accumulated deficit of approximately $443.1 million on September 30, 2009. We expect to continue experiencing fluctuations in our operating results and cannot assure sustained profitability.

If our revenues grow more slowly than we anticipate, or if our operating expenses increase more than we expect or cannot be reduced in the event of lower revenues, our business will be materially and adversely affected.

If we do not attract and retain key employees, our business could be impaired.

To be successful, we must attract and retain qualified scientific, engineering, manufacturing, sales, marketing and management personnel. 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. If we are unable to hire, train and retain a sufficient number of qualified employees, we will not be able to expand our business or our business could be adversely affected.

We also 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.

We may not realize the expected benefits of our initiatives to reduce costs across our operations.

We are pursuing and may continue to pursue a number of initiatives to reduce costs across our operations. These initiatives include workforce reductions in certain areas and the rationalization of our facilities. In 2008, we implemented a restructuring plan in order to optimize our production capacity and cost structure to enable us to increase our gross margins, including the closure of our West Sacramento, California facility which was substantially completed during the second quarter of 2009.

We may not realize the expected benefits of our current and future initiatives to reduce costs. As a result of these initiatives, we expect to incur restructuring or other charges and we may experience disruptions in our operations, a loss of key personnel and difficulties in delivering products in a timely manner.

The recent financial crisis could negatively affect our business, results of operations, and financial condition.

The recent financial crisis affecting the banking system and financial markets and the going concern threats to investment banks and other financial institutions have resulted in a tightening in the credit markets, a low level of liquidity in many financial markets, and extreme volatility in fixed income, credit and equity markets. Continued market turbulence may adversely affect our liquidity and financial condition and that of our customers. If these market conditions persist, they may limit our ability, and the ability of our customers, to obtain short-term financing or to access the capital markets to meet liquidity needs and invest in new technologies. In addition, there could be a number of follow-on effects from the credit crisis on our business, including:

·	insolvency of key suppliers resulting in product delays;

·	inability of customers to finance purchases of our products and/or customer insolvencies, for example, some of our customers are academic institutions who have experienced significant decreases in income derived from endowment funds;

·	counterparty failures negatively impacting our treasury operations; and

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·	increased impairments on our investment in companies who cannot obtain financing.

Due to the international nature of our business, political or economic changes or other factors could harm our business.

A significant amount of our revenue is currently generated from sales outside the United States. Though such transactions are primarily denominated in both U.S. dollars and foreign currencies, our future revenue, gross margin, expenses and financial condition are still affected by such factors as changes in foreign currency exchange rates; unexpected changes in, or impositions of, legislative or regulatory requirements, including export and trade barriers and taxes; longer payment cycles and greater difficulty in accounts receivable collection. 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. We cannot assure 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.

Our effective tax rate may vary significantly.

Our operations are subject to income and transaction taxes in the United States and in multiple foreign jurisdictions. Significant estimates and judgments are required in determining our worldwide provision for income taxes. Some of these estimates are based on interpretations of existing tax laws or regulations. The ultimate amount of tax liability may be uncertain as a result.

Certain jurisdictions have lower tax rates, and the amount of earnings in these jurisdictions may fluctuate. If we do not have profitable operations in these jurisdictions, our effective tax rate could be adversely impacted. Changes in tax laws and regulatory requirements in the countries in which we operate could have a material impact on our tax provision. To the extent that we are unable to continue to reinvest a substantial portion of our profits in our foreign operations, we may be subject to additional effective income tax rate increases in the future. Tax authorities may challenge the allocation of profits between our subsidiaries and we may not prevail in any such challenge. If we were not to prevail, we could be subject to higher tax rates or double tax.

We rely on our ability to project future taxable income to assess the likelihood that our net deferred tax asset will be realized. To the extent we believe that realization is not more likely than not, we establish a valuation allowance. Significant estimates are required in determining any valuation allowance to be recorded against our net deferred tax assets. Changes in the amount of valuation allowance required may adversely impact our financial results of operations.

Risks Related to Our Investments

Our strategic equity investments may result in losses.

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. Other-than-temporary declines in the market price and valuations of the securities that we hold in other companies would require us to record losses relative to our ownership interest. 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.

Global credit and financial market conditions could negatively impact the value of our current portfolio of cash equivalents or short-term investments and our ability to meet our financing objectives.

Our cash and cash equivalents are maintained in highly liquid investments with remaining maturities of 90 days or less at the time of purchase. Our short-term investments consist primarily of readily marketable debt securities with remaining maturities of more than 90 days at the time of purchase. While as of the date of this filing, we are not aware of any downgrades, material losses, or other significant deterioration in the fair value of our cash equivalents or short-term investments since December 31, 2008, we cannot assure you that further deterioration in conditions of the global credit and financial markets would not negatively impact our current portfolio of cash equivalents or short-term investments or our ability to meet our financing objectives. Other-than-temporary declines in the market price and valuation of any of our short-term investments would require us to adjust the carrying value of the investment through an impairment charge.

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Risks Related to Government Regulation and Litigation

We and our customers are subject to various government regulations, and we may incur significant expenses to comply with, and experience delays in our product commercialization as a result of, these regulations.

The FDA must approve certain in-vitro diagnostic products before they can be marketed in the U.S. Certain in-vitro diagnostic products must also be approved by the regulatory agencies of foreign governments or jurisdictions before the product can be sold outside the U.S. Commercialization of our and our collaborative partners’ in-vitro diagnostic products outside of the research environment may depend upon successful completion of clinical trials. Clinical development is a long, expensive and uncertain process and we do not know whether we, or any of our collaborative partners, will be permitted to undertake clinical trials of any potential in-vitro diagnostic products. It may take us or our collaborative partners many years to complete any such testing, and failure can occur at any stage. Delays or rejections of potential products may be encountered based on changes in regulatory policy for product approval during the period of product development and regulatory agency review. Moreover, if and when our projects reach clinical trials, we or our collaborative partners may decide to discontinue development of any or all of these projects at any time for commercial, scientific or other reasons. Any of the foregoing matters could have a material adverse effect on our business, financial condition and results of operations.

Many of our products are labeled for research only. Even where a product is exempted from FDA clearance or approval, the FDA may impose restrictions as to the types of customers to which we can market and sell our products. Such restrictions may materially and adversely affect our business, financial condition and results of operations.

The FDA, the U.S. Department of Health and Human Services and foreign government regulators are increasingly focused on genetic analysis tools, including the use of arrays that are labeled for research use only by cytogenetics labs, including labs certified under the Clinical Laboratory Improvement Amendments (“CLIA”). We cannot predict the extent of the FDA’s future efforts in regulation and policies with respect to the sale and use of arrays for the development of assays by CLIA laboratories, which are referred to as laboratory developed tests (“LDTs”). If new regulations restrict our customers’ development of LDTs using our products labeled for research use only, or if we otherwise are required to obtain FDA premarket clearance or approval prior to commercializing these products, our ability to generate revenue from the sale of our products may be delayed or otherwise adversely affected. Moreover, our failure to comply with governmental rules and regulations related to our products could cause us to incur significant adverse publicity, or subject us to investigations and notices of non-compliance or lead to fines or restrictions upon our ability to sell our products.

Medical device laws and regulations are also in effect in many countries, ranging from comprehensive device approval requirements to requests for product data or certifications. The number and scope of these requirements are increasing. We may not be able to obtain regulatory approvals in such countries or may incur significant costs in obtaining or maintaining our foreign regulatory approvals. In addition, the export by us of certain of our products which have not yet been cleared for domestic commercial distribution may be subject to FDA or other export restrictions.

We have agreements relating to the sale of our products to government entities and, as a result, we are subject to various statutes and regulations that apply to companies doing business with the government. A failure to comply with these regulations might result in suspension of these contracts or administrative penalties, and could have a material adverse effect on our ability to compete for future government grants, contracts and programs.

Healthcare reform and restrictions on reimbursements may limit our returns on molecular diagnostic products that we may develop with our collaborators.

We are currently collaborating with our partners to develop diagnostic and therapeutic products. The ability of our collaborators to commercialize such products may depend, in part, on the extent to which reimbursement for the cost of these products will be available under U.S. and foreign regulations that govern reimbursement for clinical testing services by government authorities, private health insurers and other organizations. In the U.S., third-party payer price resistance, the trend towards managed health care and legislative proposals to reform health care or reduce government insurance programs could reduce prices for health care products and services, adversely affect the profits of our customers and collaborative partners and reduce our future royalties.

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Risks related to handling of hazardous materials and other regulations governing environmental safety.

Our operations are subject to complex and stringent environmental, health, safety and other governmental laws and regulations that both public officials and private individuals may seek to enforce. Our activities that are subject to these regulations include, among other things, our use of hazardous and radioactive materials and the generation, transportation and storage of waste. We could discover that we or an acquired business is not in material compliance. Existing laws and regulations may also be revised or reinterpreted, or new laws and regulations may become applicable to us, whether retroactively or prospectively, that may have a negative effect on our business and results of operations. It is also impossible to eliminate completely the risk of accidental environmental contamination or injury to individuals. In such an event, we could be liable for any damages that result, which could adversely affect our business.

We may be exposed to liability due to product defects.

The risk of product liability claims is inherent in the testing, manufacturing, marketing and sale of human diagnostic and therapeutic products and we may be subjected to such claims. We may seek to acquire additional insurance for clinical or product liability risks. We may not be able to obtain such insurance or general product liability insurance on acceptable terms or in sufficient amounts. A product liability claim or recall could have a serious adverse effect on our business, financial condition and results of operations.

Ethical, legal and social concerns surrounding the use of genetic information could reduce demand for our products.

Genetic testing has raised ethical issues regarding privacy and the appropriate uses of the resulting information. For these reasons, governmental authorities may call for limits on or regulation of the use of genetic testing or prohibit testing for genetic predisposition to certain conditions, particularly for those that have no known cure. Similarly, such concerns may lead individuals to refuse to use genetics tests even if permissible. Any of these scenarios could reduce the potential markets for our molecular diagnostic products, which could have a material adverse effect on our business, financial condition and results of operations.

Risks Related to Our Intellectual Property

We may be unable to effectively protect or enforce our intellectual property, which could harm our competitive position.

Maintaining a strong patent position is critical to our business. Patent law relating to the scope of claims in the technology fields in which we operate is uncertain, so we cannot assure you that the patent rights that we have or may obtain will be valuable. 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 may have to participate in interference proceedings declared by the United States Patent and Trademark Office that could result in substantial costs in legal fees and could substantially affect the scope of our patent protection. We cannot assure you that our patent applications will have priority over those filed by others. Also, our intellectual property may be subject to significant administrative and litigation proceedings such as opposition proceedings against our patents in Europe, Japan and other jurisdictions.

Legal actions to enforce our patent rights can be expensive and may involve the diversion of significant management time. In addition, these legal actions could be unsuccessful and could also result in the invalidation of our patents or a finding that they are unenforceable. We may or may not choose to pursue litigation or interferences against those that have infringed on our patents, or used them without authorization, due to the associated expense and time commitment of monitoring these activities. If we fail to protect or to enforce our intellectual property rights successfully, our competitive position could suffer, which could harm our results of operations.

In addition to patent protection, we also rely upon copyright and trade secret protection for our confidential and proprietary information. Such measures may not provide adequate protection for our proprietary information.

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Litigation or other proceedings or third party claims of intellectual property infringement could require us to spend significant time and money and could prevent us from selling our products or services or impact our stock price.

Third parties have asserted and may in the future assert that we are employing their proprietary technology without authorization. We are currently engaged in litigation with third parties who allege that we have infringed their intellectual property rights. See Note 9 to our condensed, consolidated financial statements elsewhere in this Form 10-Q for further information. In addition, we are aware of third-party patents that may relate to our technology. We routinely receive notices claiming infringement from third parties as well as invitations to take licenses under third party patents.

As we enter new markets, we expect that competitors will claim that our products infringe their intellectual property rights as part of business strategies designed to impede our successful entry into those markets. In addition, third parties may have obtained, and may in the future obtain, patents allowing them to claim that the use of our technologies infringes these patents. We could incur substantial costs and divert the attention of our management and technical personnel in defending ourselves against any of these claims. Any adverse ruling or perception of an adverse ruling in defending ourselves against these claims could have a material adverse impact on our stock price, which may be disproportionate to the actual import of the ruling itself. Furthermore, parties making claims against us may be able to obtain injunctive or other relief, which effectively could block our ability to develop further, commercialize and sell products, and could result in the award of substantial damages against us. In the event of a successful claim of infringement against us, we may be required to pay damages and obtain one or more licenses from third parties, or be prohibited from selling certain products. In addition, we may be unable to obtain these licenses at a reasonable cost, if at all. We could therefore incur substantial costs related to royalty payments for licenses obtained from third parties, which could negatively affect our gross margins. In addition, we could encounter delays in product introductions while we attempt to develop alternative methods or products. Defense of any lawsuit or failure to obtain any of these licenses on favorable terms could prevent us from commercializing products, and the prohibition of sale of any of our products could materially affect our ability to grow and maintain profitability.

Risks Related to Our Common Stock

The market price of our common stock has been volatile.

The market price of our common stock is volatile. During the twelve-month period ending September 30, 2009, the daily volume of our common stock fluctuated from 209,700 to 11,815,300 shares. Moreover, during that period, our common stock traded as low as $1.78 per share and as high as $9.69 per share.

Furthermore, volatility in the stock price of other companies has often led to securities class action litigation against those companies. Any future 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.

Our quarterly results have historically fluctuated significantly and may continue to do so. Failure to meet financial expectations may disappoint securities analysts or investors and result in a decline in our stock price.

Our revenues and operating results may fluctuate significantly due in part to factors that are beyond our control and which we cannot predict. The timing of our customers’ orders may fluctuate from quarter to quarter. Historically, we have experienced customer ordering patterns for instrumentation and consumables where the majority of the shipments occur in the last month of the quarter. These ordering patterns may limit management’s ability to accurately forecast our future revenues or product mix. Additionally, license revenue may also be unpredictable and may fluctuate due to the timing of payments of non-recurring licensing fees. Because our expenses are largely fixed in the short to medium term, any material shortfall in revenues will materially reduce our profitability and may cause us to experience losses.

Because of this difficulty in predicting future performance, our operating results may fall below our own expectations and the expectations of securities analysts or investors in some future quarter or quarters. Our failure in the past to meet these expectations has adversely affected the market price of our common stock and may continue to do so.

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In addition to factors that affect the spending levels of our customers described above, additional factors could cause our operating results to fluctuate, including:

· competition;

· our inability to produce products in sufficient quantities and with appropriate quality;

· the frequency of experiments conducted by our customers;

· our customers’ inventory of products;

· the receipt of relatively large orders with short lead times; and

· our customers’ expectations as to how long it takes us to fill future orders.

ITEM 5. OTHER INFORMATION

On August 5, 2009, our Board of Directors adopted the Amended and Restated Bylaws of the Company (the “Restated Bylaws”), effective immediately upon adoption. The Restated Bylaws effected majority voting for the Board of Directors, requiring each nominee to the Board of Directors to submit an irrevocable resignation that becomes effective if votes cast for such director or nominee does not exceed votes cast against such nominee. In the event of a contested election, that is, if the number of nominees exceeds the number of directors to be elected, the directors shall be elected by the vote of a plurality of the shares present in person or represented by proxy and entitled to vote on the election.

The foregoing description of the Restated Bylaws is qualified in its entirety by the copy of the Amended and Restated Bylaws that is filed as Exhibit 3.2 with our Quarterly Report for the period ended June 30, 2009 and is incorporated herein by reference.

ITEM 6. EXHIBITS

Exhibit Number		Description of Document

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002

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SIGNATURES

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.

	By:	/s/ JOHN C. BATTY
	Name:	John C. Batty
	Title:	Executive Vice President and Chief Financial Officer

November 6, 2009

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AFFYMETRIX, INC.

EXHIBIT INDEX

September 30, 2009

Exhibit Number		Description of Document

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002