Research and Development

As a high-technology company, AIXTRON maintains a strong research and development (R&D) infrastructure, with significant resources devoted to R&D projects. AIXTRON’s R&D activities are critical for the Company’s long-term strategy to position itself as one of the world’s leading provider of nano-deposition equipment for the manufacture of complex device structures for the semicon- ductor industry.

AIXTRON’s R&D organization works closely with its own global sales and service organization to develop systems, tailored to customers’ individual needs.

0 4 5

AIXTRON maintains its own R&D laboratories in Aachen, Germany and in Sunnyvale, California. These in-house laboratories are equipped with AIXTRON systems for researching new equipment and processes, as well as for producing reference samples of semiconductor material films. As part of the R&D efforts employed, AIXTRON regularly collaborates with well-known universities and research centers worldwide and participates in numerous government and European Union-funded development projects.

2006 2005 2004

R&D expenses (million 1) 23.9 30.5 20.4

R&D expenses, % of sales 14% 22% 15%

R&D employees (period average) 181 188 147

R&D employees, % of total headcount (period average) 32% 33% 35%

The decrease in R&D expense in 2006 compared to 2005 was largely due to the fact that p_{5.3 million}

in impairment charges incurred in 2005 were not incurred in 2006 as well as a more focused R&D project selection and control in light of the Company’s future strategy. In 2005, consolidated R&D expenses included R&D expenses from AIXTRON Inc. only for the period March 14, 2005 through December 31, 2005 while in 2006, R&D expenses included R&D expenses from AIXTRON Inc. for the entire twelve-month period. The increase in R&D expenses in 2005 compared to 2004 expenses was largely due to exceptional amortization charges totaling p_{5.3 million. Additionally, in 2005 the}

consolidation of AIXTRON Inc. into the AIXTRON Group added p_{5.6 million in R&D expenses to}

the AIXTRON R&D expenses since the date of acquisition (March 14, 2005).

Manufacturing-Oriented Research Laboratory, Taiwan

On June 1, 2006, AIXTRON announced that its Taiwanese subsidiary successfully completed its first R&D project funded by the Taiwanese government. This project entitled “Manufacturing-Oriented Research Lab” related to LED production technology, new material films for advanced nano-elec- tronics, such as the next generation of computer chips; transfer of nanotechnology into production; technology and process simulation tools for cost-effective semiconductor production; and OLED for display and lighting applications. As a result of the R&D project, which consisted of 17 joint research projects with local industry partners and 9 product developments, a number of important milestones were reached, including the reduction of operating costs in LED manufacturing and the development of red, blue, yellow, and white OLEDs with OVPD®_{production technology. AIXTRON considers the}

network of competence introduced by and the expertise developed on these projects as key assets for its future business in Taiwan.

0 4 6

m a n a g e m e n t r e p o r t

CHEMAPH, Europe

On August 9, 2006 AIXTRON announced its participation in the European Commission-funded CHEMAPH (Chemical Vapor Deposition of Chalcogenide Materials for Phase-change Memories- EU IST Project) project which has a duration of two years and is aimed at the development of chalco- genide-based phase change materials.

The consortium carrying out this study consists of three academic and three industrial partners from five European countries, namely CNR (National Lab MDM-INFM), Italy; ST Microelectronics, Italy; Epichem, United Kingdom; Consejo Superior de Investigaciones Cientificas (CSIC), Spain; Vilnius University, Lithuania; and AIXTRON AG, Germany.

Phase-change memories (PCM) are some of the most promising candidates for next-generation non-volatile memories, having the potential to improve the device performance, compared to Flash memories, as well as being potentially scalable beyond the current generation Flash technology for which one outstanding technological issue is the phase-change layer deposition process.

The project aims at demonstrating the feasibility of a film manufacturing process based on metal- organic chemical vapor deposition (MOCVD). This technique is known to enable the production of thin films with superior quality compared to those obtained by the currently most used method known as sputtering, a physical vapor deposition (PVD) technique.

AIXTRON’s participation in this project is expected to result in the more rapid development and refinement of the range of its MOCVD systems for chalcogenide materials.

OPAL 2008, Europe

On September 15, 2006, AIXTRON announced that it will participate in an R&D project with the Company’s Organic Vapor Phase Deposition (OVPD®_{) technology platform in a consortium together}

with OSRAM Opto Semiconductors GmbH, Philips GmbH, BASF Future Business GmbH and Applied Materials, Inc. (formerly Applied Films). The final goal of this project, called OPAL 2008 (Organic Phosphorescent lights for Applications in the Lighting market 2008), is the development of an OLED production technology capable of manufacturing a high performance white OLED device at a target cost of a few euro cents per cm2_{. To reach this target, the individual research activities of}

all partners within this group will be coordinated to maximize the feasible development synergy effects.

The specialized organic materials required will be developed by BASF Future Business GmbH. The device architecture for the lighting modules and the adapted OLED processing technology will be developed by OSRAM Opto Semiconductors GmbH and Philips GmbH.

AIXTRON’s contribution to the project will be to improve the production capabilities of the OVPD®

process by designing equipment for large area material deposition for OLED devices. The research will be carried out in Aachen, Germany at the Philips production site in Aachen Rothe Erde where a prototype OVPD®_{system is already installed and running. Additional scientific support is provided}

0 4 7

OLED 2015, Europe

The German Ministry of Science and Technology (BMBF) has indicated its support for the develop- ment of organic light emitting diodes (OLED) for lighting applications with p100 million for the next 5 years (OLED 2015). The involved companies in Germany, 33 partners within the OLED initiative, including AIXTRON AG, will collectively contribute an additional p500 million to achieve the technical targets. The stated scope of the initiative is the introduction of new OLED lighting technology into the market. The OPAL 2008 project is funded by the BMBF under the OLED 2015 initiative.