Axcelis Technology: At an Inflection Point with Catalysts for Accelerated Earnings Growth

September 2013

Executive Summary

An old spinout of Eaton Corp (NYSE: ETN), Axcelis Technologies (Nasdaq: ACLS) designs, manufactures and services

ion implantation, dry strip and other processing equipment used in the fabrication of semiconductor chips. The

semiconductor capital equipment industry is very cyclical, and as a smaller player in the industry, ACLS has not been

immune, and gone through protracted periods of losses. In the past few years, the company has taken numerous

steps to reposition itself for the next cyclical upswing by listening to its customers and investing heavily in R&D to

revamp its product line to expand its addressable market opportunity, right-sizing its cost structure to substantially

lower its breakeven level, establishing new collaborative partnerships, and optimizing its balance sheet to unlock

value. Now with signs of a cyclical upswing occurring, and being led by memory, ACLS is poised for accelerating

earnings potential beginning in Q42013 that could drive its stock price substantially higher. However, with a few

nearer term catalysts on the horizon, investors may not want to wait too long before purchasing shares. As an early

indicator, investors should consider that insiders recently purchased stock in the open market in August at current

levels. These stock purchases coincide with the one year anniversary of ACLSs new Purion M product line entering an

evaluation period with a major customer. Sell-side analysts are starting to take notice and listening in to the

companys recent conference call, which at least opens the door to new broker initiations in the future. The downside

risk appears mitigated by ACLSs strengthened balance sheet, and dramatically improved operating financial model

that has stemmed further cash burn. As the company hits an inflection point with new customer contracts, and proof

its earnings cycle is under way, we expect ACLSs valuation discount to peers to narrow, and the stock to appreciate

substantially from its current price.

Imminent Customer Contract Announcement Would Open A New $35 - $70m Annual Revenue Opportunity

Axcelis offers a complete implant product portfolio, and has invested in excess of $310 million in R&D since 2007 to

build a platform of leading equipment used in the fabrication of semiconductor chips globally. Its single wafer, spot

beam ion implanters cover all traditional and emerging applications at 32nm and below. The annual implant revenue

opportunity is approximately $1 billion annually and split approximately 50%/35%/15% between the High Current,

Medium Current, and High Energy segments, respectively. Axcelis has historically dominated the High Energy

segment with the Purion XE product, but in order to serve its customers entire spectrum of needs and provide an

element of commonality, has developed a solution for the Medium Current market called Purion M. At the end of

August 2012, the company announced its first shipment of Purion M to one of the worlds leading chip

manufacturers. The product has been in an evaluation period with this customer in Asia for a year, where it is

undergoing qualification for DRAM and logic process flows. Two other evaluations have been announced in March

and May 2013 by a chipmaker in memory and flash device manufacturing, and a foundry for advanced logic devices.

The company has told investors it is confident in its ability to secure revenue opportunities based on the proceedings

of these evaluations to date, and expects to provide an additional update to investors in Q32013. Validation of the

http://investor.axcelis.com/phoenix.zhtml?c=121859&p=irol-newsArticle&ID=1720251&highlight=http://investor.axcelis.com/phoenix.zhtml?c=121859&p=irol-newsArticle&ID=1792867&highlight=http://investor.axcelis.com/phoenix.zhtml?c=121859&p=irol-newsArticle&ID=1824867&highlight=

Purion M product through a customer order announcement would be a significant milestone for Axcelis and open

the company to an entirely new market segment worth an estimated $350 - $400 million per year.

This medium current segment has traditionally been dominated by Varian Semiconductor, which was acquired by

Applied Materials in 2011. Axcelis has hired former Varian employees in product engineering and sales to bolster its

efforts to succeed in the market. Assuming ACLS can capture between 10 20% of this market would yield $35 - $70

million of new revenue opportunity that didnt exist in previous cycles.

Single Wafer Implant

High Current: Optima HDx

High Energy Purion XE

Medium Current Purion M

Market Opportunity ~$500-$600 million ~$120 - 150 million $350-$400 million

Avg. Selling Price of Unit $3.5 - $4.0 $4.5 - $5.0 ~$3.0m

Current Market Share 5 10% 50 70% 0%

Target Market Share 10 20% 50 70% 10 20%

Foundry Logic X X New Opportunity

Logic X NA

Memory DRAM X X New Opportunity

Memory - Flash X New Opportunity

Purion M Advantages Purion XE Advantages

Source: Axcelis Investor Presentation

Substantial Earnings Leverage with Numerous Costs Taken Out During The Last Cycle

Axcelis hired Jay Zager in January 2011 as its CFO to focus on the alignment of its cost structure and right-sizing of the

business to the current market. Previously, Mr. Zager had been CFO of 3Com Corp, where he oversaw the sale of the

company to Hewlett Packard (NYSE: HP). In the charts below, we can see the success he has had in dramatically

lowering the companys operating cost structure. In particular, SG&A expense has fallen by 52% since 2007, while

under Mr. Zagers watch, SG&A expense has fallen by 21% since 2011. These efforts have allowed the company to

lower its quarterly revenue breakeven point from $86.0m in Q12011 to just $56.7m in Q113.

http://www.appliedmaterials.com/newsroom/news/applied-materials-acquire-varian-semiconductor-equipment-associateshttp://investor.axcelis.com/phoenix.zhtml?c=121859&p=irol-newsArticle&ID=1514878&highlight=

In addition, the company announced in December 2012 that It entered a strategic collaboration agreement on ion

implant, dry-strip, etch processes, and photoresist strip applications, including material modification implants and

high-dose implant strip (HDIS) with Lam Research (Nasdaq: LRCX). Lam also agreed to acquire ACLSs dry strip

intellectual property and technology for $10.7m ($8.7m received immediately, and $2.0m based on milestones). ACLS

will indefinitely retain the entire service and support contracts of its dry strip installed base. In addition to the

immediate financial benefits, ACLS benefits from a partnership with Lam by getting better visibility into end customer

problems, and the ability to expand addressable market opportunities.

Axcelis also recently announced it strengthened its cash position even further in July with a $15m cash infusion from

the proceeds of a low interest rate loan secured by a mortgage against its headquarters in Beverly, Massachusetts.

This measure enhances the companys cash position to $50m, and increases its financial flexibility to fund growth

investments in the Purion ion implant platform as necessary. Most importantly, the company announced on its

Q213 conference call, that it is now projecting to achieve profitability by Q413 after 7 quarters of losses. Having

recently completed his objectives to financially strengthen the business, Mr. Zager recently retired to pursue Board

work, and ACLS named Kevin Brewer as the interim CFO.

Furthermore, the company has given early indications of what investors should expect in the upcoming cycle.

Management believes revenues will exceed what was achieved in the Q410 Q211 period of $93m per quarter. The

revenue gains are primarily forecasted to be a function of a strengthened product portfolio allowing for market share

gains, and the introduction of the Purion M system.

Axcelis Has Substantial Operating Leverage as it Enters the Mid Cycle Stage

Source: Axcelis Investor Presentation

$ in millions $ in millions

2013E is annualized from YTD figures Source: Axcelis Technologies

Quarterly Revenue Breakeven Point Down DramaticallyAnnual SG&A Expense Declines vs. Total Employees

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2007 2008 2009 2010 2011 2012 2013E$50.0

$55.0

$60.0

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$85.0

$90.0

Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12 Q1'13

Major Operating Expenses Down Over 50%

http://investor.axcelis.com/phoenix.zhtml?c=121859&p=irol-newsArticle&ID=1764122&highlight=http://investor.axcelis.com/phoenix.zhtml?c=121859&p=irol-newsArticle&ID=1836060&highlight=http://seekingalpha.com/article/1602152-axcelis-technologies-management-discusses-q2-2013-results-earnings-call-transcript?page=5http://investor.axcelis.com/phoenix.zhtml?c=121859&p=irol-newsArticle&ID=1831568&highlight=

In the Q410 Q211 period, Axcelis managed to earn a total of just $0.04c, and its stock reached $3.70 per share.

However, this coming upcycle is poised to deliver much more dramatic earnings gains for investors. In the table

below, Ive modeled a conservative, base, and upside case. In the conservative case, Ive assumed that revenues

approach 2011 peak levels under the new cost structure of $21m per quarter, but gross margin ranges do not expand

much. Under base and upside case scenarios, Ive assumed slightly more revenue, and the benefit from gross margin

expansion. A wide range of quarter EPS possibilities result from $0.11 - $0.23c of earnings per share.

Investors will also benefit from the companys large Net Operating Loss (NOL) position of $118m. Approximately 75%

of sales are to foreign customers, but the revenue is booked in the US, which will allow the company to offset future

taxable earnings with a portion of the NOLs.

Numerous Bullish Indicators Include Insider Buying, Heavy Options Activity and New Sell-Side Analyst Interest

For long-term shareholders of Axcelis, achieving a return on investment has been a daunting and frustrating

experience. The company missed a key shift in customer preference over a decade ago (from implanting batch wafers

to single wafer systems). In February 2008, the company turned down an unsolicited offer for $6 per share from TPG

and Sumitomo Heavy Industries. The timing for rejecting the offer couldnt have been worse, as the financial crisis

would later force the company to restructure and attempt to refinance its debt in a frozen credit environment. After

missing an interest payment on its convertible sub notes, Axcelis announced an agreement to sell its interest in its

joint venture with Sumitomo for $133m, allowing it pay off its debt and retain value for shareholders, who had once

discarded the stock at prices under $0.20 cents per share.

Very recently, there have been numerous bullish indicators suggesting that dramatic upside exists, even after the

year-to-date rally in the stock from a low of $1.10 in March 2013. For example, on July 16th executive managers were

award stock options as illustrated here under the 2012 Equity Incentive Plan with a strike price set at $1.99 per share.

The options vest ratably over the next four years. However, the options vesting will accelerate according to the

following triggers 1) 50% of options shall be exercisable if ACLSs stock hits $2.50 for 20 consecutive trading days and;

2) 100% shall vest and be exercisable if the stock hits $3.00 for 20 consecutive trading days. Reading between the

lines, it appears management views $3.00 as an achievable target where both they and shareholders can be

rewarded.

In early August, after reporting second quarter results that were in line with expectations, the companys share price

swiftly declined from $2.23 to $1.81 per share. By the following week, a group of four ACLS directors purchased

60,000 shares at an average price of $1.88 per share. This is another bullish indicator that shows support by insiders

Potential Quarterly Earnings Scenarios in an Upcycle

$ in millions

Conservative Base Case Upside Case

Revenues $95.0 $95.0 $95.0 $100.0 $100.0 $100.0 $110.0 $110.0 $110.0

Gross Margin 35.0% 36.0% 37.0% 38.0% 39.0% 40.0% 40.0% 41.0% 42.0%

Gross Profit $33.3 $34.2 $35.2 $38.0 $39.0 $40.0 $44.0 $45.1 $46.2

Costs ($21.0) ($21.0) ($21.0) ($21.0) ($21.0) ($21.0) ($21.0) ($21.0) ($21.0)

Earnings $12.3 $13.2 $14.2 $17.0 $18.0 $19.0 $23.0 $24.1 $25.2

Shares o/s 108.8 108.8 108.8 108.8 108.8 108.8 108.8 108.8 108.8

Qtr EPS Potential $0.11 $0.12 $0.13 $0.16 $0.17 $0.17 $0.21 $0.22 $0.23

http://investor.axcelis.com/phoenix.zhtml?c=121859&p=irol-newsArticle&ID=1111686&highlight=http://investor.axcelis.com/phoenix.zhtml?c=121859&p=irol-newsArticle&ID=1215989&highlight=http://investor.axcelis.com/phoenix.zhtml?c=121859&p=irol-newsArticle&ID=1260344&highlight=http://www.sec.gov/Archives/edgar/data/1113232/000118143113040039/xslF345X03/rrd385578.xmlhttp://finance.yahoo.com/q/it?s=ACLS+Insider+Transactions

for the current share price. These open market share purchases were in addition to the option grants that directors

received just one month earlier.

We also note the observance of a significant open interest in the $2.50 strike for December 21, 2013 expiration.

Currently there are almost 13,400 contracts open which equates to 1.3 million shares, or 1.2% of the total shares

outstanding. At a price of $0.15 cents per contract, a bullish investor is wagering that ACLSs stock price will be at

least $2.65 per share by the end of the year to break-even on the position. Such a large open interest in a microcap

stock is a highly unusual and a very bullish indicator.

Lastly, we note that just one sell-side analyst at Craig Hallum research covers Axcelis, and has a buy rating with a

$3.50 price target. In reviewing the estimates for 2014, it appears the analyst is giving significant room for upside

revisions to sales and earnings estimates. We note that quarterly revenue and earnings peak at just $80.1m and

$0.06 cents per quarter. If management can deliver on its promises of revenue exceeding its prior cyclical peak of

$93m, and capturing medium current market share, the likelihood of further price target increases appears skewed

to the upside.

In reviewing the recent Q213 investor conference call, Edwin Mok, semiconductor capital equipment analyst from

Needham & Company, asked questions of management. In the prior quarter, not even a single analyst joined the call

to ask a question. Meanwhile, the company has kick-started its investor relations campaign, and presented earlier

this year at investor conferences hosted by Stifel Nicolaus, UBS, and Piper Jaffray. The company will continue to

present at additional investor conferences in September and through the remainder of the year. Given the renewed

interest by the analyst community, there is an above average likelihood of broker research initiations in the

coming months.

Person Role Shares Price % Inc in Share Ownership

Brian Thompson Director 20,000 $1.95

John Fletcher Director 10,000 $1.84

William Jennings Director 10,000 $1.85

Stephen Hardis Director 20,000 $1.85

Total as a Group 60,000 $1.88

Source: Google Finance

3.1%

12.2%

Massive Call Option Open Interest for Dec 2013 Recent Insider Purchases Post Earnings

23.8%

23.8%

Clo

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ock

Pri

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e (mm

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)

Long-Term Stock Price Performance Year-to-Date Performance

0.00

0.50

1.00

1.50

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2.50

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$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

$16.00

$18.00

$20.00

Receives $6/sh unsolicited offer

from TPG and

Sumitomo Heavy Industries

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$2.30

Directors/Mgmt grants options stuck at $2.00

4 Directors make open market

purchases of stock

http://seekingalpha.com/article/1602152-axcelis-technologies-management-discusses-q2-2013-results-earnings-call-transcript?page=6&p=qanda&l=lasthttp://investor.axcelis.com/phoenix.zhtml?c=121859&p=irol-newsArticle&ID=1779616&highlight=http://investor.axcelis.com/phoenix.zhtml?c=121859&p=irol-newsArticle&ID=1787116&highlight=http://investor.axcelis.com/phoenix.zhtml?c=121859&p=irol-newsArticle&ID=1792503&highlight=

Strong Balance Sheet and Global Service Business Offers Downside Protection

Axcelis offers investors a clean and strong balance sheet that offers downside protection at the current share price.

After receiving an immediate $8.7m cash infusion from the sale of its dry strip business, and $15m in proceeds from

the recent mortgage debt financing, the company has approximately $50 million in the bank, and is expected to be

cash flow breakeven this quarter.

In the table below, weve carefully analyze the balance sheet and made adjustments to the book value to mark the

balance sheet to market. ACLS owns its headquarters, land and property outright. In the course of doing our checks

on these assets, weve determined that its currently appraised value is approximately $50m, however, the assets sit

on the balance sheet at a depreciated value of just $33m. Therefore, weve adjusted the PP&E book value higher

accordingly.

Furthermore, we note that the company may have significant value in its patent and intellectual property portfolio

that is not captured on the balance sheet. According to the companys May 2013 investor presentation, Axcelis has

an IP portfolio with > 800 patents.

Source: Cra ig Hal lum research

Only 1 Wall St. Analyst Leaves Significant Room for Upside

Rev

enu

es (

$m

m)

Qu

arterly EPS

$66.1

$73.4

$80.1 $80.1

$0.02

$0.04

$0.06 $0.06

$0.00

$0.02

$0.04

$0.06

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$30.0

$40.0

$50.0

$60.0

$70.0

$80.0

$90.0

Q1'14 Q2'14 Q3'14 Q4'14

Constant 36% Gross Margin

$ in mi l l ions

Book Value Adjustments Pro Forma

Cash and Equivalents $34.6 $15.0 $49.6

Acct's Receivable $30.2 -- $30.2

Inventories $96.4 -- $96.4

Restricted Cash $0.1 -- $0.1

Ppd expenses $6.0 -- $6.0

Total Current Assets $167.4 -- $182.4

PP&E, net $33.0 $17.0 $50.0

Other Assets $13.4 -- $13.4

Total Assets $213.8 $32.0 $245.8

Accounts Payable $16.2 -- $16.2

Accrued Compensation $6.6 -- $6.6

Deferred Revenue $5.7 -- $5.7

Warranty $1.4 -- $1.4

Other $4.7 -- $4.7

Total Current Debt $34.6 -- $34.6

Other Long Term Debt $6.1 -- $6.1

Mortgage Debt $0.0 $15.0 $15.0

Total Debt $40.6 -- $55.6

Net Book Value $173.1 -- $190.1

Shares o/s 108.8 -- 108.8

Working Capital Per Share $1.22 $1.36

Book Value Per Share $1.59 -- $1.75

Source: Company financia ls , Spruce Point estimates

We also should point out that Axcelis has a stable and growing aftermarket business called Global Service and

Solutions (GSS), which is a contractual and annuity-like business that mitigates industry downturns. The company

offers customers extensive aftermarket service and support throughout the lifecycle of the equipment they

manufacture as well as equipment previously manufactured. Approximately 3,000 of its products are in use globally.

The service and support provided includes spare parts, equipment upgrades, and maintenance services. Revenue

generated through this service and support business represented about 51.7%, 46.2%, and 61.0% of revenues in

2010-2012. Naturally, GSSs percentage of total revenue increases through a downcycle, but the company is now

focused on growing this business even in an upcycle. They recently hired a former Varian employee who is solely

focused on business development and growing GSS.

Valuation Scenarios Point to Considerable Upside Share Price Potential

Because Axcelis is not widely followed by investors and sell-side analysts, the stock is not receiving a valuation

commensurate with its above average revenue and earnings growth potential. The shares currently trade at 0.6x and

11.0x 2014E revenues and EPS (all based on one conservative analysts estimates). Moreover, weve previously

illustrated the stock trades at a negligible premium to book value, which also doesnt capture the companys robust

IP patent portfolio or value of the large NOLs.

In the table below, weve listed a sample of small cap semiconductor capital equipment stocks such as Entegris

(Nasdaq: ENTG), Advanced Energy Industries (Nasdaq: AEIS), ATMI Inc. (Nasdaq: ATMI), MKS Instruments (Nasdaq:

MKSI), Photronics Inc. (Nasdaq: PLAB), Rudolph Technologies (Nasdaq: RTEC), FormFactor (Nasdaq: FORM) and

Mattson Technology (Nasdaq: MTSN). The peers trade at approximately 1.0x and 15.5x 2014E revenues and EPS,

respective. Furthermore, the average peer trades at 2.1x tangible book value. However, these multiples are based on

average 2014E industry revenue and earnings growth of 18% and 119%, respectively. Axcelis is poised to grow at a

rate substantial above the industry average.

Small Cap Semiconductor Test Equipment Companies

($ in millions, except per share figures)

Stock % of '13E-'14E LTM Enterprise Value / Price /

Price 52-wk Ent. Revenue EPS Gross EBITDA FCF P / E EBITDA Revenue Tang.

Name Ticker 9/4/2013 High Value Growth Growth Margin Margin Margin 2013E 2014E 2013E 2014E 2013E 2014E Book Value

Entegris ENTG $9.62 90% $995 9.0% 21.8% 42.2% 18.7% 8.6% 17.5x 14.4x 7.1x 6.0x 1.4x 1.3x 2.0x

Adv Energy AEIS $18.33 80% $644 20.0% 38.4% 37.2% 12.6% 5.4% 13.3x 9.6x 7.9x 5.8x 1.2x 1.0x 3.3x

ATMI ATMI $24.61 89% $661 9.0% 28.0% 48.4% 22.2% 2.9% 19.7x 15.4x 7.9x 6.6x 1.6x 1.5x 1.9x

MKS Instrument MKSI $25.53 87% $776 17.0% 110.7% 39.4% 8.8% 7.8% 34.0x 16.2x 10.9x 5.7x 1.2x 1.0x 1.6x

Photronics PLAB $7.51 85% $458 14.8% 74.9% 23.1% 24.9% 9.6% 18.5x 10.6x 3.6x 2.8x 1.0x 0.9x 0.9x

Rudolph Tec RTEC $10.66 76% $242 25.0% 163.3% 52.4% 14.2% 1.1% 35.5x 13.5x 10.6x 4.6x 1.3x 1.0x 1.5x

FormFactor FORM $6.42 83% $196 13.6% 344.4% 14.9% NM -12.8% NM 27.9x 27.2x 6.3x 0.8x 0.7x 1.6x

Mattson Tech MTSN $2.17 85% $123 35.8% 170.6% 32.0% NM -28.1% NM 18.1x NM 9.5x 1.1x 0.8x 4.2x

Max 35.8% 344.4% 52.4% 24.9% 9.6% 35.5x 27.9x 27.2x 9.5x 1.6x 1.5x 4.2x

Average 18.0% 119.0% 36.2% 16.9% -0.7% 23.1x 15.7x 10.7x 5.9x 1.2x 1.0x 2.1x

Min 9.0% 21.8% 14.9% 8.8% -28.1% 13.3x 9.6x 3.6x 2.8x 0.8x 0.7x 0.9x

Axcelis ACLS $2.00 90% $185 48.2% 263.6% 32.6% NM -5.0% NM 11.1x NM 6.3x 0.9x 0.6x 1.1x

Source: CapitalIQ and Company Filings

From a historical valuation perspective, ACLS still trades well below its average valuation throughout each of its

previous cycles. Furthermore, we analyzed the share price performance during previous cycles where revenues and

EPS exceeded $100m and $0.10c EPS and find that its stock price easily reached targets of $6.50 per share,

representing 225% upside from the current price.

Enterprise Value / 2014E Revenues Price / 2014E EPS

2014E Revenue Growth Price to Tangible Book Value

0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

AEIS PLAB ACLS RTEC ENTG ATMI MKSI MTSN FORM

Group Average

0.0x

0.2x

0.4x

0.6x

0.8x

1.0x

1.2x

1.4x

1.6x

1.8x

2.0x

ACLS FORM MTSN PLAB AEIS MKSI RTEC ENTG ATMI

Group Average

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

ENTG ATMI FORM PLAB MKS AEIS RTEC MTSN ACLS

Group Average

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

4.0x

4.5x

PLAB ACLS RTEC FORM MKSI ATMI ENTG AEIS MTSN

Group Average

Last Time Quarterly Revenues > $100m

Financial Stats During This Period: June 2006 - June 2007

Max and Avg Stock Price $8.00 and $6.50

EV/NTM Sales (max/avg) 1.8x / 1.4x

P/NTM EPS (max/avg) 28.5x / 15.3x

P/Tang. Book (max/avg) 2.0x / 1.7x

Last Time Quarterly EPS > $0.10/share:

During This Period: March - Sept 2004 June - Dec 2006

Max and Avg Stock Price $12.50 / $10.00 $7.80 / $6.50

EV/NTM Sales (max/avg) 4.5x / 2.9x 1.5x / 1.3x

P/NTM EPS (max/avg) 56x / 15x 28x / 14.6x

P/Tang. Book (max/avg) 4.7x / 3.4x 2.0x / 1.6x

Source: CapitalIQ

Historical Quarterly Avg. Ent. Value to Next 12 Months Revenues Historical Price to Tangible Book

Historical Quarterly Avg. Price to Next 12 Months EPS Key Observations

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

4.0x

Jun-

28-2

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Jun-

30-2

008

Dec

-31-

2008

Jun-

30-2

009

Dec

-30-

2009

Jun-

30-2

010

Dec

-31-

2010

Jun-

30-2

011

Dec

-30-

2011

Jun-

29-2

012

Dec

-31-

2012

Jun-

28-2

013

Long-term AverageLong-term Average

0.0x

10.0x

20.0x

30.0x

40.0x

50.0x

60.0x

70.0x

80.0x

90.0x

Long-term Average

We also note there has been a healthy pace of M&A consolidation in the semiconductor capital equipment industry

in the past few years. For example, ASML Holdings (Nasdaq: ASML) recently acquired Cymer and Tokyo Electron Ltd.

(TYO: 8038) acquired FSI International. Lastly, we noted previously that Applied Materials (Nasdaq: AMAT) acquired

Varian Semiconductor in 2011, a close competitor to Axcelis. Our analysis suggests that the minimum valuation for a

company in the industry is 1.2x, 11.0x and 2.2x revenues, EPS, and tangible book value, respectively. Furthermore,

the average premium paid to the stock price has been a minimum of 35%.

In summary, we believe that when the market begins to realize that a new earnings cycle is upon ACLS, the valuation

disconnect to peers will begin to narrow. Looking at current trading valuations and minimum M&A values paid in the

industry, we believe ACLS will trade closer to 1.0x 2.0x revenues, 2.0x 3.0x tangible book value, and 14.0x 18.0x

EPS. The share price scenarios and price targets are illustrated in the table below.

Recent Semiconductor Capital Equipment M&A Deals$ in millions

Enterprise NFY NFY EBITDA Ent. Value / NTM Price/ Price/ 30d Share

Announced Acquiror Target Form Value Sales EBITDA Margin Sales EBITDA NTM EPS Tang BV Premium

10/17/2012 ASML Cymer Cash/Stock $2,400 $750 $70 9.3% 3.2x 34.3x 34.3x 3.0x 52%

8/13/2012 Tokyo Electric FSI Int'l Cash $202 $187 $31 16.8% 1.2x 6.4x 11.0x 2.3x 36%

12/14/2011 Lam Research Novellus Stock $3,300 $1,450 $400 27.6% 2.3x 8.3x 16.5x 3.3x 35%

5/4/2011 Applied Mat. Varian Semi Cash $4,300 $1,194 $350 29.3% 3.6x 12.3x 17.2x 5.6x 38%

12/5/2010 Advantest Verigy Cash $741 $570 $66 11.5% 1.3x 11.3x 15.0x 2.2x 64%

9/29/2010 Danaher Keithley Cash $300 $121 $23 18.7% 2.5x 13.3x 18.0x 6.5x 103%

Max 3.6x 34.3x 34.3x 6.5x 103%

Average 2.3x 14.3x 18.7x 3.8x 55%

Min 1.2x 6.4x 11.0x 2.2x 35%

Source: SEC filings and public information. Note: Values based on announced deal price.

$ in mi l l ions

Enterprise Value / Revenues Price / Tangible Book Value

1.0x -- 2.0x 2.0x -- 3.0x

Current Book Value $1.75 -- $1.75

2014E Revenue $310 -- $310

Enterprise Value $310 -- $620 Price Target $3.50 -- $5.24

Less: Total Debt $15 -- $15 Upside to Share Price 75% 162%

Plus: Cash $50 -- $50

Equity Value $345 -- $655 Price / 2014E EPS

Shares outstanding 108.8 -- 108.8 14.0x -- 18.0x

2014E EPS $0.20 -- $0.20

Equity Value / Share $3.17 -- $6.02 Price Target $2.80 -- $3.60

Upside to Share Price 59% -- 201% Upside to Share Price 40% 80%

Conclusion

Axcelis Technolgies is strategically well positioned at the early stage of the next upcycle in the semiconductor capital

equipment market. Having removed substantial fixed operating costs during the last cycle, bolstered its balance

sheet, and invested significant R&D resources into positioning its Purion platform to take share in the medium

current market, the company is poised for accelerated earnings growth in 2014. Its share price trades at a substantial

discount to intrinsic value as investors and sell-side analysts had written off the company from missing a key industry

shift many years ago. However, insiders, certain investors and analysts, appear to be taking a different view on the

stock. Insiders recently purchased shares, new analysts are starting to dial-in to conference calls, and a large option

position is being built, which implies a substantial move to the upside. Its easy to see why some these increasingly

bullish indicators are emerging. The risk/reward of owning ACLS stock at this level is attractive. The company trades

at little more than its book value, which is supported by lots of cash and property value, but captures none of the

value from its 800+ patent/IP portfolio. Furthermore, looking at trading values for peers and very recent M&A

transactions in the industry, would conservatively suggest a minimum of 50% - 70% upside to the current price.

Disclaimer: This research report expresses Spruce Point Capital Management LLC's ("Spruce Point") opinions. Use of the research

produced by Spruce Point is at your own risk. This is a long-biased article and you should assume the author of this report and its

clients and/or investors hold a long position and derivatives tied to the security of Axcelis Technologies Inc. that will benefit from a

rise in the price of the common stock. Following publication of the report, the author (including members, partners, affiliates,

employees, and/or consultants) along with its clients and/or investors intend to continue transacting in the securities covered

therein, and may be long, short, or neutral at any time hereafter regardless of the initial recommendation. The author of this

report has obtained all information contained herein from sources believed to be accurate and reliable and has included references

where available and practical. However, such information is presented "as is," without warranty of any kind- whether express or

implied. The author of this report makes no representation, express or implied, as to the accuracy, timeliness, or completeness of

any such information or with regard to the results to be obtained from its use. Forward looking statement and projections are

inherently susceptible to uncertainty and involve many risks (known and unknown) that could cause actual results to differ

materially from expected results. For a list of the risk factors specific to Axcelis and its industry, review the companys Risk Factors

in its financial filings at the SEC. All expressions of opinion are subject to change without notice, and the author does not undertake

to update or supplement this report or any of the information contained herein. Spruce Point is not a broker/dealer or financial

advisor and nothing contained herein should be construed as an offer or solicitation to buy or sell any investment or security

mentioned in this report. You should do your own research and due diligence before making any investment decision with respect

to securities covered herein, including, but not limited to, the suitability of any transaction to your risk tolerance and investment

objectives and consult your own tax, financial and legal experts as warranted.