Annual Report 2007

Micronic

Laser Systems AB

Highlights of 2007
Comments by the CEO
The Micronic share
Micronic's markets
Micronic in everyday life
Micronic's long-term strategic model
Micronic's operations
Micronic's after market
Micronic's employees, environment and society
Micronic's technology
Micronic's product portfolio
Corporate governance report
Board of directors and auditor
Executive management and subsidiary presidents

FINANCIAL REPORTS

Financial overview
Report of the directors
Risks and risk management
Consolidated profit and loss account
Comments on the consolidated profit and loss account
Consolidated cash flow statement
Consolidated balance sheet
Comments on the consolidated balance sheet and cash flow statement
Consolidated statement of changes in equity
Parent Company profit and loss account
Parent Company cash flow statement
Parent Company balance sheet
Parent Company statement of changes in equity
Additional information and notes
Audit report
Micronic's history
Flap Glossary

FINANCIAL CALENDAR 2008

Year-end report, January 28
Annual General Meeting, April 3, 2008, 5:00 p.m. at Näsby Slott in Täby, Sweden
Interim report January–March, April 18
Interim report January–June, July 8
Interim report January–September, October 17

The annual report is sent to all registered shareholders. All financial reports and press releases can be viewed on Micronic's website: www.micronic.se.

It is also possible to order or subscribe for financial information and press releases via the website or directly from Micronic.

Micronic's symbol is a stylized image of a laser beam writing a complex pattern with extreme precision.

MICRONIC 2007

Micronic in brief

In many ways Micronic Laser Systems is a unique Swedish company with products that have been, and are still, of central importance to the display industry, high-tech operations and a majority of customers in Asia. The pattern generators manufactured by Micronic are used to make photomasks, a critical enabler for the mass production of displays and semiconductor components.

Electronic devices and displays are an integral part of our everyday lives. Displays show us the way, provide us with the latest news, take the place of brochures and demonstrations and are increasingly replacing keyboards in areas like flight check-in.

Many electronic devices contain components manufactured with a technology spearheaded by Micronic. In the fast-paced evolution of communication and media technology, increasingly large HDTV sets and super compact digital cameras with ever-growing pixel counts are two examples of how Micronic's products are contributing to the technological advances taking place around us.

MICRONIC'S OPERATIONS

Micronic is a high-tech company engaged in the development, manufacture and marketing of a series of extremely accurate laser pattern generators for the production of photomasks and metrology systems for display photomasks. Micronic's systems are used by the world's leading electronics companies in the manufacture of displays, semiconductor circuits and semiconductor packaging components.

DRIVERS

Micronic is affected by rapid developments in the market for electronic products, where powerful consumer demand is steering manufacturers towards large volumes at ever lower prices. This development is dependent on access to sophisticated and cost-effective production technologies and the producer companies behind this trend are all located in Asia. Micronic is well positioned and maintains a close dialogue with its customers in order to stay at the cutting edge of development. Parallel to this, there is an ongoing effort to improve the systems and processes for greater efficiency. A commitment to continuous improvement is one of Micronic's foremost drivers.

TECHNOLOGY

When a display is manufactured, the pattern on the photomask gives each product its unique characteristics and at the same time functions as a template for cost-effective volume production. The technology used to transfer the pattern is known as microlithography.

Precision and data integrity are critical, since any pattern error on the photomask will be transferred to every device being produced. Micronic's Sigma7500 can print features as small as 130 nanometers, or about 1/1,000th the width of a human hair, and place the pattern within less than 10 nanometers of the specified location. For reference, 10 nanometers is about the width of a row of 44 silicon atoms. The ability to quickly transfer vast amounts of data is also critical. Every second, the Sigma system handles 2 gigabytes of pattern data, a datapath capacity equal to thousands of PCs.

MARKETS AND PRODUCTS

The primary markets for Micronic's laser pattern generators are the display and semiconductor industries, with some 20 customers worldwide.

Micronic has a forefront position in the display market, where the company's pattern generators and metrology systems are the industry standard. This position has been achieved through patented state-of-the-art technology and an effective global customer service organization. Micronic's

competitive strengths are its strong technological lead, high writing quality and write speed.

In the semiconductor market, Micronic is an established supplier of pattern generators used in the manufacture of photomasks for both leading edge semiconductor devices and volume production of simpler IC designs. Write speed is the greatest competitive advantage for semiconductor products. At present, Micronic's share of

the semiconductor market is small.

A niche market is that for advanced electronic packaging systems, a technology used to seal and protect semiconductor chips, where Micronic has a strong position. Write speed and high quality are the key competitive advantages in this market, where Micronic has a market share of around 40 percent.

MICRONIC IS CLOSE TO ITS CUSTOMERS

The majority, 80 percent, of Micronic's customers are based in Asia. These can be divided into two categories. The first consists of

commercial or "merchant" mask shops that are subcontractors to electronic manufacturers, such as Toppan, DNP and Hoya. The second category is made up of large elec

tronics manufacturers with captive mask shops, like Intel, Samsung and LG.

Highlights of 2007

Net sales reached SEK 523 million.
The operating loss was SEK 291 million.
The operating loss adjusted for capitalization and amortization of development costs was SEK 210 million.
Order intake amounted to SEK 634 million.
Gross margin was 29 percent.
The Sigma7500-II laser pattern generator was launched, and is targeted for use on the majority of mask layers at the 65 nm technology node.
The Prevision pattern generator series was introduced for improved image quality in next-generation display manufacturing G10.

Order intake

Net sales and operating margin

FINANCIAL OVERVIEW

	2007	2006	2005	2004	2003	2002	2001
Net sales	523	1,204	1,276	839	428	496	699
Gross margin, %	29.3	54.3	54.4	55.8	38.4	47.8	56.2
Operating profit/loss, SEK million	-291	123	172	126	-194	-90	17
Operating margin, %	-55.6	10.2	13.5	15.0	-45.3	-18.1	2.4
Adjusted operating margin, %	-40.2	18.2	22.3	5.2	-86.0	-44.2	2.4
Order intake, including service	634	604	1306	945	1,086	459	633
Order backlog, December 31	332	200	871	794	764	231	279
Basic earnings per share, SEK	-5.30	2.37	3.00	2.77	-5.59	-3.3	0.37
Average number of employees	416	462	415	359	312	299	284

This annual report is in all respects a translation of the Swedish annual report prepared in accordance with Swedish laws and regulations. In the event of any difference between this translation and the Swedish original, the Swedish annual report shall have precedence.

Net sales in 2007 by geographical market

Net sales in 2007 by application

MICRONIC 2007

Comments by the CEO

Although 2007 was weak in terms of both sales and profit, the violent ups and downs weathered by the company over the past three-year period are fairly typical for an equipment supplier to the electronics industry. From a technological perspective, on the other hand, 2007 was a strong year and our product portfolio is now ready for the next technology level. In the display market Micronic further consolidated its leading position with the launch of tools for the next generation of display manufacturing, G10.

Micronic entered 2007 in the knowledge that both display and chip manufacturers had radically scaled back their spending on new capacity and more advanced production processes. This is the harsh reality for an equipment supplier to the electronics industry – periods of buoyant growth followed by steep down-cycles. For an equipment supplier like Micronic, these movements in the market must be handled.

At the end of 2006 we therefore decided to launch a cost-cutting program that was expected to generate annual savings of SEK 100 million, a target we succeeded in meeting. At the turn of the year from 2006 to 2007 we also introduced a functional organization that has resulted in clearer structures and greater flexibility.

2007 RESULTS

Sales declined from the prior year's level and reached SEK 523 million, down by 57 percent. Since the drop in sales was largely attributable to the display market, where we have our highest margins, this strongly contributed to driving down our gross margin to 29 percent. We were also impacted by the negative effects of movements in the foreign exchange market. As a result, Micronic posted an operating loss of SEK 291 million despite cost cuts during the year. Adjusted for net amortization of capitalized development costs of SEK 81 million, the operating loss was SEK 210 million.

Development expenditure in 2007 fell by 12 percent, mainly reflecting the fact that we have already completed development of semiconductor and electronic packaging products for the next technology node. Our previously capitalized expenses for the Sigma project are now fully amortized.

MODEST RECOVERY IN THE DISPLAY MARKET

Growth in the display market slowed dramatically in the second half of 2006 due to the excess capacity built up when many display makers set out to capture market shares by investing in new production facilities, causing a sharp drop in capacity spending during 2007. Thanks to resumed growth in the display market there is now a better balance between production capacity and demand, although the need for photomasks has not yet revived to the same extent. Demand for pattern generators is more closely linked to the introduction of new production lines and the development of new models and technologies than to display unit volumes.

The market is moving toward even larger display panels with higher image quality. In the autumn of 2007 Micronic received orders for two systems for next generation display manufacturing, G10. In connection with this, Micronic launched its latest pattern generator, Prexision, which is available in two models. The Prexision-10 is optimized for production of advanced photomasks up to and including G10 and the Prexision-8 is designed for manufacturing of photomasks up to and including G8. Both offer major performance enhancements and higher productivity, which is expected to stimulate demand for new pattern generators.

Over time, we anticipate a shift in the pattern generator market towards fewer systems with higher complexity and productivity, but at a higher price per system.

FLAT SEMICONDUCTOR MARKET IN 2007

2007 began with flat growth in the semiconductor market. The expected upswing in the second half turned out to be modest and several customers announced postponements to their investment plans. Indications from the industry indicate a decrease in the market for pattern generators during the year, from what has been around 20 units down to 10–15 units, a decrease that has strongly affected laser-based tools.

Although the top chip makers are maintaining the same rapid rate of development as earlier, the number of companies building leading-edge fabs has declined in pace with the rising cost of developing and manufacturing advanced ICs. The number of designs that can initially bear the massive investments required for the advanced technology nodes is decreasing, which means that fewer designs are being made for these nodes and new designs for these nodes are tending to be released at a slower rate.

Micronic's business opportunities are linked to faster growth in demand for leading-edge photomasks than we have seen so far.

In 2007 Micronic continued its collaboration with leading photomask makers to qualify the Sigma system for the $65\mathrm{nm}$ node. Our primary strategy is to qualify Sigma for leading-edge photomasks at $65\mathrm{nm}$ and $45\mathrm{nm}$, so that it will be positioned in mask shops when the ramp-up to volume production begins.

In the electronic packaging area, we have completed development of the FPS series and delivered three systems during the year.

AFTER MARKET GAINING IMPORTANCE

The after market, consisting of service contracts, add-on products and consulting services, is gaining importance for Micronic. Service contracts are a stable source of rev

MICRONIC 2007

enue even in periods with weaker system sales. However, sales of add-on products and consulting services have been affected by a weak photomask market. The total after market grew slightly during the year and accounted for 35 percent of sales.

R&D activities in 2007 were focused on maximizing the uptime (the time during which a system can be utilized for production) of installed systems through improved performance and stability. We see increased uptime as the single most important factor for maintaining our good customer relationships.

IMPROVED OPERATIONAL MANAGEMENT AND COMMUNICATION

The introduction of a functional organization at the beginning of 2007 was also aimed at tying the subsidiaries closer to the head office. These are now even more involved in Micronic's sales and marketing activities.

In the past year we also refined our strategic model to ensure that the company's business is steered toward technological innovations with strong growth and profitability.

We have taken steps to improve our internal communication so that we can more effectively reach all employees and create new channels for dialogue. The revised values introduced during the year have given the company greater clarity and will be used as a tool to support decisions.

THE FUTURE

Although 2007 was demanding from an earnings standpoint, the company's solid finances, more flexible structure and unflagging cost-awareness provide a good starting point for 2008 – a necessity for an equipment supplier to the highly cyclical electronics industry.

In view of our status as the sole supplier of pattern generators to a continuously growing display industry, we look forward to a pick-up in activity as the commissioning of new production lines accelerates demand for photomasks. The launch of

the Prevision series will also open up opportunities in applications requiring larger or more advanced photomasks.

Although trends in the semiconductor market are difficult to predict, our Sigma system will become increasingly competitive as volumes at the leading-edge nodes expand and the need for cost-efficiencies becomes more acute.

In 2008 we expect to see increased sales in our existing markets, which will be strengthened by the launch of our new systems. We will also seek inroads into new business areas in markets with growth potential where Micronic can contribute to the development of new manufacturing processes.

One key goal for 2008 is to once again achieve a gross margin of at least 50 percent. Our long-term operating margin target of 15 percent stands firm.

I would like to thank our customers and partners for their invaluable cooperation during the year. Efforts to strengthen our customer relationships will continue to be a top priority.

Thanks to the contributions of all of our employees, together we continue to develop systems that pave the way for the electronic products of the future.

Sven Löfquist
President and CEO

MICRONIC 2007

The Micronic share

The Micronic share has been listed on the stock exchange since 2000 and since October 2006 on the Nordic Mid Cap List, Information Technology sector, of the OMX Nordic Stock Exchange in Stockholm. A trading block consists of 100 shares. The ticker symbol is MICR and the ISIN code is SE0000375115. Micronic's share capital amounts to SEK 39.2 million and is divided between 39,166,616 shares of the same class, each of which carries one vote.

SHARE PRICE TREND

The closing price of the Micronic share in 2007 was SEK 32.20, compared to SEK 77 at year-end 2006, a decrease of 58 percent. Over the same period, the SIX General Index fell by 7 percent and the Philadelphia Semiconductor Index SOX by 13 percent.

The year's highest bid price was quoted at SEK 76.75 on January 2 and the lowest at SEK 30.30 on December 27. Micronic's market capitalization at the end of 2007 was SEK 1,261 million, down from SEK 3,015 million at year-end 2006.

TRADING AND LIQUIDITY

A total of 30.4 million (41.5) Micronic shares were traded in 2007. The traded volume corresponds to 77 percent (105) of the total number of shares in Micronic, for a combined value of SEK 1,585 million (3,855). The average daily trading volume for the Micronic share in 2007 was 121,414 (165,231), equal to an average daily value of SEK 6.3 million (15.4).

DIVIDEND POLICY

The Board of Directors and CEO propose that no dividend be paid for 2007, nor has the company paid dividends in earlier years. Micronic has instead reinvested the generated profits to finance ongoing development activities and thereby create growth for the company.

EMPLOYEE STOCK OPTION PROGRAM

The Annual General Meeting of Micronic on March 29, 2007, resolved to approve an employee stock option program running from 2007 to 2012. Under the program Micronic may issue 1,540,000 warrants for subscription to shares, whereby the maximum dilutive effect is 4 percent. The share capital may be increased by no more than SEK 1,540,000.

The terms of the program have been drawn up in collaboration with the company's largest shareholders and have involved allocation to the employees in Sweden on three occasions, after the publication of the interim reports for the second, third and fourth quarters of 2007. The strike price is equal to 115 percent of the average market value on the ten trading days following publication of the respective quarterly reports. The members of the executive management together hold 224,000 stock options. The terms of the program are also described in the section "Accounting policies and notes".

OWNERSHIP STRUCTURE

The number of shareholders at the end of the year was 5,472 (6,141), a decrease of 11 percent compared to December 31, 2006. The 10 largest shareholders held 59.6 percent of the total number of shares, compared to 61.2 percent in 2006. The 100 largest shareholders held 74.8 percent of the total number of shares, compared to 75.1 percent in 2006.

At year-end 2007, foreign investors held 25 percent (23) of the share capital and votes. Private investors held 13.5 percent (12), while the remainder was held by equity funds and institutions. The Board of Directors and executive management control a combined 0.2 percent (0.3) of the number of shares and votes.

The Annual General Meeting was held in Täby on March 29, 2007. More than 51 percent of the shareholders were represented at the meeting.

Ownership structure at December 31, 2007

SHARE OF FOREIGN OWNERSHIP	%
2007	25
2006	23
2005	28
2004	28
2003	41

MICRONIC 2007

The Micronic share

MICRONIC'S TEN LARGEST SHAREHOLDERS AT DEC 31, 2007

Shareholder	No. of shares	Holding, %
AMF Pension and Fonder	3,906,100	10.0
Catella Fonder	3,591,800	9.2
Fjärde AP-fonden	3,524,400	9.0
Alecta	3,175,000	8.1
Swedbank Robur Fonder	2,839,184	7.2
Morgan Stanley Fonder	2,018,684	5.2
Hakuto	1,391,800	3.6
Skandia Fonder	1,097,436	2.8
Banco Fonder	964,900	2.5
SEB Fonder	843,000	2.2
Total, 10 largest shareholders	23,352,304	59.6
Others	15,814,312	40.4
Total number of shares outstanding	39,166,616	100.0

OWNERSHIP STRUCTURE

Holding by size	No. of shareholders	No. of shares	%
1–500	3,427	679,631	1.7
501–1,000	882	773,925	2.0
1,001–10,000	970	3,149,041	8.0
10,001–50,000	106	2,442,821	6.2
50,001–100,000	24	1,636,055	4.2
100,001–	63	30,485,143	77.8
Total	5,472	39,166,616	100.0

ANALYSTS THAT CONTINUOUSLY MONITOR MICRONIC

Investment bank/Research company	Analysts
Carnegie	Martin Nilsson
Credit Agricole Indosuez Cheuvreux	Johan Eliason
SEB Enskilda	Petter Hjertstedt
Evli	Anders Berg
Handelsbanken Capital Markets	Fredrik Agardh
Kaupthing Bank	Mikael Laséen
Nordea	Mats Bergström
Redeye	Greger Johansson
Swedbank	Håkan Wranne

CHANGES IN THE SHARE CAPITAL

Year	Transaction	Increase in no. of shares	Total no. of shares	Total share capital, SEK thousands
1989	Company founded		500	50
1989	New issue	9,500	10,000	1,000
1989	New issue	6,000	16,000	1,600
1990	New issue	3,300	19,300	1,930
1994	New issue	1,801	21,101	2,110
1997	100-for-1 share split	2,088,999	2,110,100	2,110
1997	5-for-1 bonus issue	8,440,400	10,550,500	10,551
1997	Exercise of warrants	1,450,000	12,000,500	12,001
1998	New issue	2,000,083	14,000,583	14,001
2000	New issue	4,500,000	18,500,583	18,501
2000	Exercise of warrants	600,000	19,100,583	19,101
2001	Exercise of warrants	102,000	19,202,583	19,203
2002	Exercise of warrants	12,700	19,215,283	19,215
2003	New issue	19,215,283	38,430,566	38,431
2003	Exercise of warrants	736,050	39,166,616	39,167

MICRONIC 2007

Micronic's markets

Micronic is the market-leader in pattern generators for display photomask applications. In 2007 Micronic launched the new Prevision series of pattern generators for next-generation display manufacturing, G10. Micronic also supplies the semiconductor industry with systems for volume production of photomasks for both leading-edge and mature technologies. In the market for electronic packaging, Micronic offers flexible and accurate systems primarily targeting the most advanced applications.

Display market

Liquid crystal displays (LCDs) are used in flat panel TVs, desktop monitors, notebook computers and portable consumer devices such as cell phones, music players and digital cameras. The largest and fastest-growing segment is flat panel TVs, which have gained enormous popularity among consumers in recent years. This market is subject to a combination of price pressure and changing consumer tastes and preferences. Furthermore, consumer markets are typically price elastic. This combination of factors makes it difficult to predict market size and growth for products containing LCD displays.

Display manufacturers are seeking to cut costs and differentiate their product lines. In the quest for differentiation, display makers are positioning their brands by offering unique designs or panel sizes.

Growth in the display market slowed dramatically in the second half of 2006 due to the excess capacity built up when a number of display makers set out to capture market shares by investing in new production facilities. This led to a focus on optimizing capacity utilization and, in certain cases, to postponement of new fabs. In the second half of 2007, the display market recovered.

Total annual sales of LCD display panels in 2007 reached SEK 94 billion, an increase of 26 percent from 2006, and are expected to grow to USD 111 billion in 2008 (DisplaySearch, January 2008).

THE MARKET FOR DISPLAY MANUFACTURING EQUIPMENT

Display industry manufacturing equipment spending fell to USD 8.3 billion in 2007, down by 35 percent compared to 2006. The total capital equipment market is estimated to grow to USD 11.6 billion in 2008 (DisplaySearch, January 2008).

The equipment market is driven mainly by capacity expansion, i.e. the addition of new production lines, which in turn is linked to the volume of LCD display panels. Capacity expansion is started when utilization of the existing production lines reaches a high level. This takes

A summary of different drivers for display manufacturers and their effects on Micronic

DRIVER	RESPONSE	EFFECT	EFFECT ON MICRONIC
Volume growth in the display market	New production lines for displays are built	A need for photomasks	Increased basic demand for photomasks
Cost focus	Longer series and fewer models	More displays per photomask, weaker link between display volumes and photomasks	Longer series lead to slower growth in Micronic's market
Cost focus	Introduce advanced photomasks to decrease the number of process steps in display fabrication	Increased demand for advanced photomasks (gray tone and half tone masks)	Prevision is best for production of gray tone masks. Half tone masks drive sales of add-on products
Cost focus	Produce color filters with inkjet instead of traditional lithography methods	Fewer photomasks per finished panel	Reduces the market for color filter photomasks
Higher production yields	More advanced photomasks	Fewer repairs and rejects	Demand for more complex pattern generators – Prevision and certain add-on products
Differentiation to combat price erosion	Introduce own “unique” TV size or advanced technical design	Fewer displays per photomask. A need for high-performance photomasks	General growth in demand. Increased demand for Prevision's high image quality
Customer preference for larger TV sets	Invest in G10 to enable industrial-scale production of larger LCD TVs	A need for larger photomasks	Opens the market for Prevision
Customer preference for higher resolution	Produces and distributes material with higher resolution than “Full HD”	LCD TVs steal additional market shares from PDP TVs	Drives the market for Prevision

MICRONIC 2007

place almost simultaneously throughout the industry, which means that a number of display manufacturers order equipment for new production lines at around the same time. When the new equipment is installed, global production capacity increases markedly and there is a risk that the industry will move back into period of excess capacity and very low investment. In the display industry this is known as the "crystal cycle". For equipment suppliers, like Micronic, this creates an uneven and highly cyclical market.

NEXT GENERATION DISPLAY MANUFACTURING

In 2007 the display industry made decisions regarding investments in next generation LCD fabs (G10). By using significantly larger substrates, it is possible to manufacture 65 inch displays on an industrial scale. Furthermore, the move to larger substrates provides the opportunity to further reduce production costs for 42 inch displays, one of the most popular sizes for TV sets.

MICRONIC IN THE DISPLAY MARKET

Micronic manufactures pattern generators that are used by customers to produce photomasks for delivery to display panel makers. Micronic's superior technology has earned the LRS systems a position as the industry standard in pattern generators for display applications. Micronic systems are used by all manufacturers of LCD photomasks. At present, there are no competing systems for advanced LCD photomask production.

In 2007 Micronic launched a new platform, Prevision, which is available in two models. The Prevision-10 is optimized for

production of advanced photomasks through G10. The Prevision-8 is designed to meet market requirements for high writing accuracy and productivity for the manufacturing of photomasks through G8.

Demand for photomasks is influenced by several factors. Although each photomask has a virtually unlimited life, every display design requires its own specific photomask set. Among other things, the basic volume demand for photomasks is driven by the number of new display designs. Volume demand for photomasks is better reflected by the number of new display production lines than by display volumes. When display manufacturers introduce new technology to produce more advanced displays or reduce manufacturing costs, this stimulates demand for larger and more advanced photomasks. Demand for pattern generators is driven not only by the need for volume photomask capacity, but also by new technical requirements such as larger or more advanced photomasks.

A geographic expansion of photomask manufacturing took place in 2004–2006 as Japanese and South Korean photomask makers built new fabrication plants in South Korea and Taiwan. Each photomask fab requires at least two pattern generators and one metrology system to achieve efficient industrial production. This had a positive impact on Micronic's sales during this period.

MARKET OUTLOOK

Display manufacturing equipment spending is set to rise by 35 percent in 2008 (DisplaySearch, January 2008), which is predicted to generate increased demand for photomasks. Micronic anticipates a

shift in the market for pattern generators towards systems with higher complexity and productivity. Over time, the company also expects to sell fewer pattern generators than previously, but at a higher price per system.

As a result, the lower number of system units will be compensated by higher overall order values.

2006–2011 FPD, revenues by application

2006–2011 Number of TV units by technology

MICRONIC 2007

Semiconductor market

Semiconductors are increasingly found in our everyday lives – not only in computers, but also in a wide array of consumer electronic products, cars and even in home appliances. The year began with weak development in the semiconductor market and the expected upswing in the second half turned out to be modest. Total semiconductor sales in 2007 reached USD 220 billion, equal to an increase of 5 percent from 2006 (VLSI Research, January 2008).

The semiconductor industry is continuing its relentless push to increase functionality, and as a consequence the number of transistors on leading-edge

chips has doubled every two years over the past four decades. This phenomenon is commonly referred to as Moore's Law. Although the top chip makers are maintaining the same rapid pace of development as earlier, the number of companies building leading edge fabs has declined as a consequence of the rising costs of developing and manufacturing leading edge ICs in recent years. Instead, chip companies are increasingly outsourcing their production to contract chip makers, known as "wafer foundries". The underlying reason for this is the massive investment that is required for the latest technology nodes, at 90 nm and below. Furthermore, fewer designs are being made for the advanced nodes and new designs for these nodes are tending to be released at a slower rate.

The ramp-up to volume production of photomasks for the advanced technology nodes has started, but has not yet filled the available capacity of already installed e-beam systems, which have been needed for the previous technological development.

THE PHOTOMASK - A CRITICAL COMPONENT

Photomasks are a key element in the continued scaling of semiconductor devices. However, total demand for photomasks has been nearly flat at 700,000 a year for the past 20 years, despite the growth in chip production. This is due to an increase in the number of chips made on a single design, at the same time that the number of custom chip designs is decreasing. Because of rising photomask complexity, sales for photomask makers have increased

Photomasks for different groundrules

A set of photomasks with varying complexity is needed to manufacture an IC chip. The example at right shows a mask set for a chip at the 65 nm technology node, requiring around 40 mask layers. Of these, only 5 contain the smallest 65 nm structures, 15 contain structures at 90 nm and 20 are relatively simple photomasks with structures at 130 nm or higher. In this case, only those with the smallest structures require e-beam printing. It is the remaining masks that are targeted by Micronic's Sigma and Omega systems. The graph shows volumes of photomasks with different structure sizes. While photomasks at the 90 nm node are now ramping up to higher volumes, production of photomasks with smaller structures is still very limited. Sources: VLSI Research, May 2007, and Micronic.

MICRONIC 2007

by an average of 5 percent annually since 2000 despite market fluctuations, and are estimated at USD 3.2 billion in 2007 (VLSI Research, September 2007).

The three dominant merchant photomask manufacturers – Toppan Printing, Dai Nippon Printing and Photronics – account for nearly 60 percent of the market. Of the remaining market share, about 35 percent is distributed among captive mask shops. The market share for captive mask shops has been expanding, due to the competitive value of close integration between chip design and production.

THE MARKET FOR PATTERN GENERATORS

Both laser and electron beam systems compete for the pattern generator market. The main advantage of laser pattern generators is that write time is not dependent on pattern complexity, which results in higher throughput and a constant production time. E-beam systems can write the smallest structures, but are comparatively slow.

Micronic is the only company in the world actively developing laser pattern generators for advanced semiconductor photomasks. Applied Materials is continuing to sell its existing laser tools. The market is dominated by NuFlare and JEOL, which manufacture the e-beam tools that are used for critical mask writing. Micronic had a small share of the market in 2007.

Micronic's assessment is that the number of pattern generators shipped in 2007 has fallen from the earlier level of around 20 systems to between 10 and 15 units. Laser tools have been more strongly impacted by this than e-beam tools, where sales have targeted the most critical mask layers.

MICRONIC IN THE SEMICONDUCTOR MARKET

The Sigma7500-II laser pattern generator, launched in April 2007, is targeted for use on the majority of the mask layers at the 65 nm technology node. In 2007 Micronic continued its collaboration with leading

photomask makers to qualify the system for the 65 nm node. Micronic's strategy is to qualify the Sigma systems for the majority of leading-edge photomasks at 65 nm and 45 nm, so that they will be positioned in mask shops when the ramp-up to volume production begins.

Only 10 percent of all photomasks currently produced are used for technology nodes at 90 nm and beyond (SEMATECH, September 2007). Micronic's Omega6000 series of pattern generators is targeted at the other 90 percent of the market, consisting of mainstream ICs and image sensors for digital cameras and camera phones. Most photomasks today are produced by aging systems with rising maintenance costs, which make investments in new high productivity laser systems profitable.

MARKET OUTLOOK

The market for semiconductor chips is expected to grow by 7 percent in 2008, while semiconductor equipment spending is forecast to decline by 5 percent (VLSI Research, January 2008). However, the advantages of the Sigma7500 will become increasingly important as production volumes for sub-100 nm mask production accelerate over the next few years. Micronic expects the market for Sigma to expand in pace with rising photomask volumes and cost-effectiveness requirements for the leading edge technology nodes.

Older pattern generators are costly to keep online and the ongoing decommissioning of these tools is creating a demand for new capacity. The Omega series is well positioned for the replacement market and is continuing to sell for mainstream photomask applications.

Market for electronic packaging

Electronic packaging technology is used to bond an IC chip to a printed circuit board. There is considerable variety in the range of technologies and photomasks used for the most advanced packages. These are found in portable consumer electronics such as cell phones and MP3 players, as well as gaming consoles and PCs.

Rising demand for thinner and more lightweight portable consumer products is driving the trend towards miniaturization of electronic packaging. The challenge for the industry is to meet these increased technological requirements while maintaining low costs for manufacturing and materials.

An important application is advanced IC substrates which are expected to grow from USD 5.6 billion in 2007 to USD 9.7 billion in 2011 (Japan Marketing Survey, May 2007).

Micronic's electronic packaging products are also used in many other applications such as MEMS, SAW filters, discrete components and simpler display panels. These applications require different photomask sizes, ranging from 127 x 127 mm² to 800 x 800 mm². The first FPS5100 systems went into production in the Autumn of 2007.

MARKET OUTLOOK

The number of pattern generators sold in 2007 was on par with 2006, at around 10 units. Micronic has a market share of just over 40 per cent and competes with Dai Nippon Screen and Heidelberg (Micronic, January 2008). The outlook for 2008 indicates a drop in system sales compared to 2006–2007, which can be attributed to weak growth in the semiconductor market during 2007. Micronic's FPS5100 is well-positioned to meet future technology requirements and remains the most advanced system on the market.

Micronic in everyday life

All electronic devices contain semiconductor chips and the majority also contain some kind of display. Micronic's systems are used to manufacture semiconductor chips and all LCD displays for TVs, flat panel computer monitors and laptop computers.

LCD-TV

LCD-TV is taking over as the dominant TV technology and accounts for the majority of new TV sales. The standard size for living room TVs today is around 40 inches. The largest displays currently in volume production measure around 55 inches, but plans are underway for production of displays up to 65 inches. Micronic's Prevision-10 is designed for these larger displays.

MUSIC PLAYERS

Music players like iPod are a consumer product that is benefiting from the rapid development of so-called flash memory. A music player with 8 GB of memory can store up to 2,000 songs, and the cost is falling steadily. Micronic's semiconductor systems are capable of producing photomasks for flash memory and other IC circuits used in the players. Size is a critical parameter in portable electronic devices, which is driving the use of more advanced technologies to package the chips. Micronic's FPS system can be used to make photomasks for packaging the IC chips found in these devices.

COMPUTERS

Due to the enhanced performance of laptop computers and growing availability of wireless Internet, laptops models are gaining ground at the expense of traditional desktop computers. Micronic's display systems are used to make photomasks for flat panel displays within increasingly high quality and in many cases larger size. A pervasive trend in the market is a transition to wide format, i.e. with width and height proportions similar to an LCD TV. Micronic's Sigma systems are also used to manufacture the latest generation of processors, the component that functions as the brain of a computer.

DIGITAL CAMERAS

Digital cameras have now almost completely replaced traditional film-based photography, largely due to the emergence of image sensors with higher pixel counts. Micronic's semiconductor systems are used in the manufacturing of image sensors.

MOBILE PHONES

Around 1 billion mobile phones are manufactured every year. These devices contain both displays and IC chips, and often also a camera with an image sensor. Micronic's systems can be used to manufacture all of these components.

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Flat panel TVs currently dominate the market and a full 86 million LCD TVs were manufactured in 2007. The majority are made in South Korea and Taiwan, each of which accounts for around 40 percent of the total.

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Micronic's long-term strategic model

Micronic's long-term strategic model is designed to steer the company's business toward technological innovations with strong growth and profitability. The focus in Micronic's offering is on meeting customer needs and market demands for precision, quality, productivity and service.

The foundational elements of Micronic's operations are the vision, the mission and the long-term objectives. The company's values, work principles and leadership strategy govern the actions of the employees and the way their work is led and implemented in order to realize the objectives and vision. The annual business planning process is shaped by these elements and is also based on the company's long-term assessments and plans. See Micronic's strategic model on the opposite page.

BUSINESS PLANNING PROCESS

To meet its business objectives, Micronic uses a planning process based on five perspectives: finances, customers, operations, products and employees. Every year, the strategic focus is reviewed and new goals are formulated for each perspective. External demands on the products and services from customers and the market are balanced against the internal capacity to develop, produce and deliver these.

FINANCES

To ensure attainment of the company's long-term financial targets, all commercial opportunities must be weighed against the technical, market-based and financial risks. Through a high level of conscientiousness in financial control, continuous improvements are pursued to achieve higher efficiency and lower costs in products and execution.

CUSTOMERS

Micronic has an explicit customer focus and strives to meet the high expectations of its customers through disciplined execution at the highest operational speed. Fast time-to-market is essential in enabling customers to meet their own launch schedules.

OPERATIONS

Continuous improvement programs are carried out in development, purchasing, administration, production, installation and service to optimize efficiency and quality throughout the company. These improvements are ultimately aimed at increasing customer benefit and shareholder value.

PRODUCTS

Technological innovation is not only the backbone of Micronic's business, it is also critical in satisfying customer needs and requirements. This innovative climate is fostered by close partnership with customers and an integrated approach to product development that spans across all functions in the company.

EMPLOYEES

Micronic is characterized by a high level of innovation and knowledge in a wide range of areas. Continuous development of employee expertise, in both breadth and depth, is decisive for the company's ability to meet customer requirements.

MICRONIC'S VALUES

Micronic's values serve to strengthen the organization by providing guidelines for the conduct of all employees. Because Micronic is a global company with units in geographically widespread locations, it is vital that its work is steered by common values and that decisions are made on the basis of a common ground. Aside from creating a uniform identity, the values contribute to greater efficiency and support the decision-making process.

MICRONIC'S LEADERSHIP PROFILE

Micronic's leadership profile is based on a consistent platform and approach to lead-

Micronic's values

Micronic has defined four corporate values:

PUSHING THE LIMITS

We are always pushing the limits of current technologies. We are exploring new ideas for the future. In daily operation, we challenge our limit in every aspect and outperform where we were yesterday.

CAPTURING THE HEART OF THE CUSTOMER

We meet each customer's unique needs through lasting win-win partnerships that combine technology, teamwork and innovation.

TEAMWORK AND CLARITY

We build success through the contribution of each employee and collaborate with clear roles and responsibilities.

RESPECTFUL INTERACTION

We respect each other independent of gender, cultural or ethnic background.

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Micronic's strategic model

ership, and is a tool that provides managers with guidance in their professional roles. The profile is designed to promote skilled leadership that fosters diversity and expertise in the organization.

ORGANIZATION

Since January 2007, Micronic has an organizational structure with joint R&D, marketing and sales for all products. In addition, after market management has been reinforced and tied more closely to the group management team. The purpose of the new organization is to achieve greater clarity and boost efficiency.

Micronic has a headquarters for development, production and marketing in Täby, just outside Stockholm, and a strategic development unit in Gothenburg. Micronic has subsidiaries in Japan, South Korea and the USA whose role, aside from providing customer service and support, is to work closely with the Parent Company in activities such as marketing, sales and installation. Micronic has a small subsidiary in Taiwan and a local office in China, and works via an agent in these countries.

Micronic's operations

For several years Micronic has been pursuing a long-term operational development program to maximize efficiency and quality. In the past year, efficiency has been raised in areas like product development through closer interfunctional integration and a sharper focus on requirements throughout the product life cycle.

CUSTOMER-DRIVEN PRODUCT DEVELOPMENT

Close partnership with customers has always been Micronic's strategy for product development. This closeness to the world's leading electronics manufacturers gives the marketing and sales department insight into customer requirements.

The development of Micronic's systems requires special expertise in a number of areas, such as optics, mechanics, laser technology, interferometry and data processing. One of the most critical competencies is system design, where all of the various subsystems are integrated to achieve the extremely high performance expected by customers. The systems are subject to rigorous quality and performance standards that must be met cost-effectively despite small volumes. Quality systems must be defined to guarantee consistent quality starting from the very first unit of each new model. In recent years Micronic has worked intensively to improve product quality, for example through a revised development model and product data management throughout the product life cycle. The product development process was further improved during the year through closer interfunctional cooperation.

MARKET AND SALES

Micronic's customers are found in a narrow group of advanced manufacturing companies. Because the products represent a sizeable investment for the customer, sales are carried out with a large degree of customer contact. In addition to customer meetings, the products are presented at a number of conferences and industry trade shows where it is also possible to reach photomask end-users. This target group,

the customers of Micronic's customers, is of major importance for marketing and future product needs.

This autumn, for the third consecutive year, Micronic held technical seminars in Taiwan, South Korea, Japan and China. The seminars have become an important forum for Micronic to present its entire product portfolio and update its customers and their customers about the latest technological advances. The seminars were well attended and attracted more than 200 participants.

PRODUCTION OF COMPLEX SYSTEMS IN SMALL VOLUMES WITH HIGH QUALITY

When an order is received it is followed by production, which is broken down into planning, purchasing, assembly and setup. The manufacture of pattern generators, carried out at Micronic's facility in Täby,

places stringent demands on the skill, precision and technical expertise of those who build and calibrate the systems.

A pattern generator must be placed in a cleanroom during assembly of critical optics, calibration of sub-systems and testing of finished systems. These cleanrooms also contain all the necessary tools and equipment such as process laboratories for development and etching of photomasks and metrology systems for verification of writing accuracy.

SETUP, SHIPMENT AND INSTALLATION

In the next phase, the installation department takes over responsibility for setup, calibration and acceptance testing at Micronic's facility in Täby. Once a system has been approved it is shipped to the customer, first by climate-controlled truck and then by airplane. Vibration, position and

This autumn, for the third consecutive year, Micronic held technical seminars in Taiwan, South Korea, Japan and China.

MICRONIC 2007

One example of Micronic's continuous improvement measures is the so-called pulse method, which is carried out at weekly meetings and involves visualization of project status and integrated product development to ensure high quality in the design process.

temperature sensors are enclosed within the shipment to ensure that the system is not exposed to potentially damaging conditions.

This is followed by setup at the customer's site, where the system is fine-tuned and final acceptance testing is carried out. After this, the system is integrated into the customer's production.

FULL-SCALE PRODUCTION AT THE CUSTOMER SITE

When the system has been accepted by the customer, a new phase begins as the system is made ready to function in the customer's production environment. The customers place rigorous requirements on system uptime.

Micronic's service organization then continues its close cooperation with the customer to adjust and optimize the system for maximum performance. The systems are normally covered by a warranty during the first year, after which most customers sign a service contract to maintain high equipment performance. An efficient spare parts supply is essential to ensure optimal system functionality.

The year's focus on improvements in the installed base and spare parts supply

was successful, as indicated by a general increase in system uptime to a stable level of over 95 percent.

QUALITY MANAGEMENT

As part of the operational development program, Micronic works continually to improve the company's quality management system. The goals for the system are to increase organizational efficiency, support the employees in their day-to-day work and further improve product quality.

Improvement measures are carried out in close cooperation with customers for whom Micronic, as a supplier, must live up to exacting requirements. Micronic strives to systematically base its improvement decisions on measurable targets and trend analyses. The quality management system is being formulated according to ISO 9001 and other relevant industry standards. For example, the industry organization SEMATECH has established the PBET (Performance-Based Equipment Training) method for the semiconductor industry, to ensure high quality and effectiveness in equipment training. Micronic applies this standard in the training and certification of service and installation personnel.

More than one billion mobile phones were manufactured in 2007. Mobile phones contain components from all of Micronic's markets: displays, semiconductors, image sensors and electronic packaging.

Source: Nokia, December 2007

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Micronic's after market

As a global high-tech supplier, Micronic has subsidiaries in its key markets where activities including after market, sales support and marketing must be conducted locally and regionally. In 2007 Micronic continued its efforts to increase the uptime of the installed systems, which is the single most important factor in creating good customer relationships.

MORE FOCUSED SALES OF AFTER MARKET PRODUCTS

In connection with the reorganization in 2007, Micronic created a new Customer Operations unit to better focus and support its service and after market activities and to clarify the difference between after market and system sales. The after market consists of service contracts, add-on products and consulting services. Service contracts, which make up the majority, are a stable source of revenue even in periods with weak system sales. The after market is becoming an increasingly important part of Micronic's operations as the installed base expands, which is leading to rising revenues in this market. Today the average useful life of Micronic's systems exceeds 10 years.

The add-on products provided by Micronic consist of new features and/or better performance. A number of new add-on products were offered to the market in 2007. These products have been developed for new systems but are also sold to the installed system base after adaptation as add-ons. Aside from this, Micronic offers consulting services such as extra system training, system calibration and other types of application support.

REINFORCEMENT OF SERVICE OPERATIONS IN ASIA

Micronic's Asian expansion is part of an ambitious long-term drive to strengthen the company's position as a global technology and service provider. Around 80 percent of the installed systems are found in Asia and this share is expected to grow. Micronic established companies in Japan in 1997, the USA in 1999 and South Korea in 2006. In 2005 Micronic opened the ATAC tech center in Japan to serve the entire Asian region. In the past year, ATAC was given more advanced equipment through the installation of an LRS15000 system. The aim is to provide opportunities for local training of Asian service technicians in the latest technology, and thereby support the long-term commitment to continuous knowledge transfer. In addition, Micronic launched Second Line Support – a support team with more in-depth technical expertise that will work in parallel with a similar team in Sweden, enabling Micronic to expand its Second Line Support to 18 hours a day. This change has

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been very well received by customers and will allow Micronic to offer expert support in the same time zone where the Asian customers are based.

HIGH LEVEL OF SERVICE

The industry in which Micronic operates is complex and demanding. The company's local and regional service network helps customers to get the most from their systems. Micronic strives for the utmost quality in its products and offers regular preventive service to maintain optimal system performance. The systems are fine-tuned and worn parts are replaced before system impairment occurs.

Another important aspect of preventive maintenance is to ensure that all systems are equipped with the latest verified software release. For both Micronic and its customers, there are many advantages in having the latest release on the system as a guarantee for better and more stable system support. In the past year the uptime of Micronic's systems, measured as the time when a system can be used in production, improved by 3 percentage points and has now surpassed 95 percent.

MARKET OUTLOOK

Micronic anticipates continued positive development in the after market due to the increasing number of systems covered by service contracts. Market trends are relatively easy to predict, since new service contracts are typically signed after the warranty period for a new system, which normally lasts for one year. Sales of add-on products and consulting services are expected to increase in pace with the number of products and services. Some parts of the after market are affected by the business cycle for new sales.

SUBSIDIARIES

MICRONIC IN JAPAN

Micronic Japan K.K. was founded in 1997 and has 42 employees. The head office is located in Tokyo and there are six regional service offices in Kyoto, Kusatsu, Kumamoto, Kagoshima, Omiya and Kanazawa.

Japan is Micronic's largest market, accounting for more than 40 percent of the company's total installed base.

MICRONIC IN THE USA

Micronic Laser Systems Inc., founded in 1999, has 11 employees. The head office is located in San Jose, California, and there are three regional offices in Massachusetts, New York and Texas.

Twelve percent of Micronic's installed base is found in the USA, ranging from the earliest LRS systems to the Sigma tool.

MICRONIC IN SOUTH KOREA

Micronic Laser Systems Korea Co. Ltd. was established in 2006 and has 21 employees. The head office is located in Anyang, Kyunggi do, near Seoul and there is a regional office in Gumi.

Micronic has been active in the South Korean market for over 15 years and more than 20 percent of its installed base is found in the country.

MICRONIC IN TAIWAN AND CHINA

In 2002 Micronic opened a subsidiary in Taiwan, Micronic Far East Co., with 4 employees. In Shanghai, China, Micronic has a branch office with one employee. In both Taiwan and China, Micronic conducts sales, installation and service through an agent, Hermes-Epitek.

Micronic has been active for more than 10 years in Taiwan and China, where the company has more than 20 percent of its installed base.

Flat panel displays for laptop computers led the first wave of LCD manufacturing. The second wave was driven by computer monitors and the third by LCD TV which is currently the largest application.

MICRONIC 2007

Micronic's employees, environment and society

Micronic's internal communication was improved in 2007. A central part of this process has been to establish the revised corporate values in the organization. Micronic strives continuously to improve the work environment and has been taking steps for several years to map and create effective routines to reduce the company's environmental impact.

The equipment industry for display and semiconductor fabrication is characterized by extremely fast-paced development. The systems Micronic delivers are critical to the electronics industry and close to a third of Micronic's employees work in R&D in order to meet the industry's rigorous requirements. This places high demands on knowledge in many different areas. The level of innovation is high and the company has in-depth expertise in a number of disciplines. Micronic's success also relies on the ability to do business in the cultures where the customers operate. Micronic has longstanding experience of marketing, sales and service adapted to the needs of each market and is a multicultural workplace with staff from more than fifteen different countries in the Parent Company alone.

SKILLS DEVELOPMENT AND KNOWLEDGE TRANSFER

The professional expertise and development of the employees is a key success factor for Micronic, and the company's long-term need for competency in various areas provides a framework for career paths. Skills enhancement initiatives are taken to ensure a high level of proficiency in the company's core business. To create and uphold a creative and innovative climate, Micronic carries out knowledge transfer activities such as weekly seminars where speakers take up different topics.

MICRONIC 2007

VALUES AND INTERNAL COMMUNICATION

In 2007 Micronic's executive management revised the corporate values and these were then communicated internally to create a platform and strengthen the organization. Aside from establishing a common identity, the values are also intended to enhance efficiency and support decision-making.

The values have been communicated through situation-adapted exercises in which the employees have explored specific real-life scenarios. These exercises have been used throughout the Group and have been appreciated by the employees.

Internal communication was a top priority in the past year. To encourage dialogue between the management and employees in Sweden, two rounds of breakfast meetings were arranged for all employees to discuss topics such as the company's improvement potential and strategic focus.

NEW LEADERSHIP PROGRAM

In the past year a leadership development program was set up to identify future candidates for managerial and key staff positions and to develop and strengthen current managers in their roles. Micronic's managers have access to external support in the form of a personal coach. The company's leadership profiles are used as criteria for identification of management talent among the employees.

In 2007, continuous leadership development activities were conducted in the form of seminars, courses and coaching sessions. All managers were trained to conduct performance reviews and difficult discussions, and also attended a course on leadership coaching.

The introductory courses to help new employees and consultants quickly familiarize themselves with the company and their new duties were further developed.

TRAINING OF SERVICE TECHNICIANS

The training programs for service technicians continued during the year. Due to the high complexity of Micronic's systems, many hours of instruction and hands-on experience are needed before a technician can be certified after completing an internal program structured according to industry norms. Forty percent of Micronic's service technicians are formally certified and the target for 2008 is 50 percent. The program runs for a period of one year, parallel to the technicians' day-to-day work.

EMPLOYEE SURVEY

In 2007 Micronic conducted a follow-up of the survey of all employees carried out in 2006, with a focus on leadership, human capital and organization. The survey also looked at Micronic as employer, stress, health and performance reviews. The results of the survey are used as a development and performance monitoring tool for continuous improvement in operations. The year's survey showed that Micronic's employees feel the company's strengths lie in its sense of responsibility, leadership, initiative and problem-solving ability. The main areas for improvement are communication, a better understanding of customer needs and even higher efficiency in the organization.

SALARY AND BENEFITS FOR EMPLOYEES IN SWEDEN

Micronic's salary adjustment policy is individualized and differentiated on the basis of expertise, skill, performance and the level of difficulty in the job. Salary levels are set with the support of tools such as the BAS performance evaluation system to ensure a systematic approach to the company's salary structure and salary mapping. All employees in the Group are covered by a variable salary program that is based partly on individual or group targets, and partly on Micronic's profit targets.

As a means for promoting gender equality, the company provides loss of earnings compensation to employees on parental leave for up to six months per child. The salary mapping carried out in 2007 shows that from an equality perspective, salaries in the company have been set in a satisfactory manner.

Employees in Sweden receive a fitness allowance.

Educational level in Sweden
64 percent of the employees in Sweden have a university or college degree, several at the doctorate level.

Employees in Sweden by age category
The average age at Micronic is 43 years.

Employees in the Group by geographical area
The number of employees in the Group at year-end 2007 was 411, of whom 17 percent were women.

Employees in the Group by function
Close to a third of the employees work in R&D.

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HEALTH INDEX

Employee turnover in 2007 was 13 percent, compared to 6 percent in 2006. The year's sickness absence at Micronic in Sweden was 1.74 percent, of which 1.04 percent was short-term.

OCCUPATIONAL HEALTH AND SAFETY

In Sweden, Micronic works according to an occupational health and safety policy which states that a focus on OHS must permeate all operations. The company works systematically and proactively to create the best possible social environment and to avoid injuries and unacceptable conditions. Aside from incident reporting, there is a process that begins with OHS inspections where violations and problems are taken up. These problems are logged and addressed according to a prioritization ladder that steers continuous improvements in the work environment, for which the group managers oversee implementation. The OHS committee meets once a month and plays a preventive and supervisory role in monitoring the implementation of decided actions. Occupational health and safety is also a standing item on the agenda of weekly executive management meetings.

The action plan for activities in 2007 included the following areas: fire protection, laser safety, safe handling of chemicals and gases, ergonomics and lighting. An information campaign was carried out to raise employee awareness of laser-related risks and the ergonomics inspection devoted its attention to the risk group for sedentary work. A contingency plan for dealing with serious incidents and accidents was drawn up. Regular safety courses are carried out at the head office, as well as in the foreign subsidiaries. Three minor incidents occurred in operations in Täby during the year.

MICRONIC'S ENVIRONMENTAL COMMITMENT

Micronic has no reporting or permit obligations to the environmental authorities, aside from the coolant used in the company's cooling system, nor is Micronic subject to the EU directive on producer responsibility for waste electronic and electronic equipment (WEEE) or by the phase-out of certain hazardous substances (RoHS).

POLICY AND ORGANIZATION IN PLACE

Although Micronic has no significant environmental effects as a manufacturing company, there is a clear long-term objective to minimize the company's environmental impact. As part of this undertaking, Micronic has an environmental policy that expresses the company's ambition to actively promote sustainable development and take responsibility for its employees, products and environment. Micronic has appointed an Environmental Director to oversee issues related to environmental management and OHS. Information is spread to the employees and environmental issues are taken up as part of the introductory course for all new employees.

MICRONIC'S ENVIRONMENTAL IMPACT

In 2007 Micronic continued its environmental efforts with the application of relevant requirements in the ISO 14001 standard. These activities were concentrated at the headquarters, where the production facility is located, and consisted mainly of reviewing and evaluating the environmental aspects related to consumption of raw materials and compliance with laws and official requirements.

The year's efforts were focused on the "Implementation & Application" phase according to ISO 14001 and consisted of updating data and analyzing trends in raw material consumption, energy usage, transports, chemical and water. The following areas were found to be the greatest environmental impact factors in Micronic's operations:

Purchasing of products, materials, chemicals and services
Use of developer and other chemicals
Energy usage
Transportation

The resulting action plan was concentrated on activities that led to rapid environmental gains, but also lower costs. Here are a few examples from the year's activities: A review of the energy system led to the replacement of an oil-fired boiler. The chemical group worked to reduce chemical consumption.

Micronic's environmental policy

With consideration to the environment, the employees and the customers, Micronic actively promotes the creation of an environmentally sustainable society by pursuing the following objectives:

Micronic shall strive to conduct its operations in the most resource- and energy-efficient manner possible, with continuous improvement as its guiding principle.
Micronic shall minimize the environmental impact arising as a result of its operations through environmental training of the company's employees.
The products developed, applied and marketed by Micronic shall give rise to a minimum of environmental impact throughout their product life cycle.
Micronic shall inspire and encourage its external business partners to comply with and respect international environmental laws and regulations.

tion. A collaboration with AGA resulted in more environmentally friendly chemicals. A changeover to lead-free soldering was made in production and the introduction of a whole new cleaning concept led to a drastic decrease in chemical usage.

Among other things, environmental management in product development is based on the industry standard SEMI S2, which contains performance-based environmental, health, and safety guidelines for semiconductor manufacturing process equipment. Micronic has been previously assessed according to this standard and approved by an independent third party.

RECOVERY OF SURPLUS HEAT FROM THE COOLING COMPRESSORS

Micronic uses a relatively large amount of energy to maintain a controlled cleanroom environment where air dehumidification is energy-consuming in the summer months. The cooling system for the cooling compressors was rebuilt during the autumn to recover surplus heat from the lasers for use in dehumidification, a solution that will conserve 30 m³ of oil per year and thereby reduce Micronic's annual CO₂ emissions by 93 tonnes.

ONGOING ENVIRONMENTAL ACTIVITIES

The plan for environmental activities in 2008 is to continue implementing an environmental management system based on ISO 14001. Environmental efforts will be broadened to include more employees. An environmental seminar will be held to increase employee involvement in day-to-day efforts and to raise the level of knowledge and commitment.

ENVIRONMENTAL WORK OF MICRONIC'S SUBCONTRACTORS

Micronic's products consist of more than 4,000 articles, made by some 350 subcontractors mainly from Sweden (accounting for around 85 percent of the total product weight), the rest of Europe, the USA and Japan. Micronic has adopted new purchasing principles for faster and more reliable deliveries and to reduce the number of suppliers to 110. In the evaluation, suppliers are asked if they have an environmental management system based on ISO 14001. Micronic has no real leverage to influence the environmental work of its suppliers due to the small volumes involved. Instead, and at some delay, the drivers come from the major display and semiconductor manufacturers.

ISO 14001 – Work method for the environmental management system

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Micronic's technology

Micronic's technology, which is protected by a strong patent portfolio, makes it possible for the electronics industry to produce photomasks cost-effectively. Each display or chip design requires a number of photomasks, one for each layer. Today the company is the leading supplier of laser pattern generators, a position achieved through close collaboration with customers and a longstanding commitment to research and development.

PHOTOMASKS AND MICROLITHOGRAPHY

Micronic's pattern generators are tools that are used to write microscopic images onto photomasks, which then function as templates for mass production of displays and integrated circuits.

The manufacturing process, called microlithography, is similar to the way in which photographs are reproduced with the help of a negative. By the same principle, photomasks are used to optically transfer

patterns onto a silicon wafer or glass plate for the production of semiconductor chips or displays. Each display or chip has an associated "mask set" of as many photomasks as it has layers. A flat panel display can have up to nine layers, and an advanced semiconductor as many as 40.

The photomask is made from a substrate, normally a quartz plate covered with a thin layer of chrome and photoresist, a light-sensitive material. A pattern

generator is used to expose the photoresist, after which the photomask is developed and etched.

DIFFERENT EXPOSURE TECHNOLOGIES

Micronic's systems employ laser-based patterning technology to write photomasks. All display photomasks are manufactured using laser pattern generators, while both laser and electron beam (e-beam) systems are used for semiconductor photomasks.

The pattern layout is created using a CAD system. This data is then transferred to the laser pattern generator where it is converted into a suitable format for writing.
The photomask blank is then exposed by controlling a laser beam according to the pattern data.
Display: The pattern is projected in a so-called aligner on a scale of 1:1 on the TFT-LCD substrate. This process normally requires between four and nine different photomasks.

Semiconductor: After processing, the photomask is used in a lithographic exposure system, a stepper, where the pattern is transferred to a silicon wafer. The pattern size is reduced four times in the stepper.

After exposure the wafer is processed to form the transistors and conductors. The process is repeated 20-40 times with a different photomask each time.

Display: The display is assembled.
Semiconductor: When the microchip is finished, it is tested and packaged.
The electronic components are ready to be mounted in electronic equipment such as laptop computers.

MICRONIC 2007

While laser-based systems are used for most semiconductor photomask layers, the dominating process for the most advanced semiconductor photomask layers is an e-beam technology called “variable shaped beam” (VSB). A VSB system divides the pattern into very small rectangles that are individually exposed with an electron beam. While this photomask-writing process offers high resolution and accuracy, it has some disadvantages – limited throughput and unpredictable write time. Today

it takes up to 10 hours to print a single advanced photomask with a VSB system. Micronic’s laser-based Sigma systems can produce the same photomask in one-third or one-fourth the time with nearly the same pattern resolution.

PATENTS AND LICENSING

For a high-tech manufacturer like Micronic, it is of particular importance to protect the use of innovative new solutions in application areas and markets of expected future

importance through patents and licensing agreements. A decisive strategy for early identification and protection of innovations through a combination of patent applications and analysis of the intellectual property potential of its business models enables the company to steer its operations in the right direction. At the end of 2007 Micronic had 140 patents registered in the USA, Asia and Europe, including the 23 patents that were granted during the year.

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TECHNOLOGICAL ADVANCES IN 2007

Research and development activities in 2007 were focused mainly on completing new products, enhancing the performance of existing ones and further improving the production stability of Micronic's systems. Parallel to development of existing products, Micronic is also studying future solutions in its core technology areas.

PREXISION

In 2007 Micronic completed development of the Prevision-8, which is designed for production of display photomasks through generation 8 and offers customers significant improvements in performance, productivity and stability. The greatest advances have been made in image quality, primarily mura performance (see glossary), which is a critical parameter for the customers. Mura control is an area under continuous development in terms of both general and application-specific requirements. Micronic's leading position and close customer relationships create unique conditions for knowledge buildup. The first Prevision-8 system was shipped to a world-leading display maker in 2007. In the second half of the year, Micronic began developing a more advanced pattern generator for G10 – the Prevision-10. Although the system draws on largely the same platform and technology as the Prevision-8, its 60 percent larger writing area and higher performance and stability requirements demand technical innovation in multiple areas.

FPSS100

The FPS5100 system is designed to meet mask shop requirements for flexibility, productivity and stability in a market with somewhat lower demands on performance. The multi-beam strategy, optimized datapath and high power laser enable to the FPS5100 to deliver significantly higher throughput than earlier products of this type. The first FPS5100 systems were shipped in 2007.

SIGMA7500-II

The Sigma7500-II was launched at the Photomask Japan conference in April 2007. Aside from enhanced optics, the Sigma7500-II contains a new function for linearity optimization, the LinearityEqualizer. This function is a critical parameter for back-insertion of OPC models for mask production at 65 and 45 nm, which is a central aspect of the product strategy for Sigma. LinearityEqualizer was installed by key customers in 2007.

FULL AUTOMATION OF THE SIGMA7500

In 2007 an automatic loading system for the Sigma7500 was developed and shipped. The loading system has made Sigma7500 the first pattern generator to be implemented in a fully automated and remote-controlled production flow. The purpose of full automation is to eliminate operator intervention in the writing process, since human hair and skin fragments and exhaled water droplets are the main sources of potentially harmful particles in the cleanroom environment.

PRODUCTION STABILITY

For the past few years, Micronic has made on ongoing effort in collaboration with customers to maximize the production stability of its pattern generators. The top priority in display manufacturing is production yield, which represents the percentage of photomasks that meet quality requirements after final processing. The expanding size of the photomasks used in display manufacturing is leading to considerably longer write times than in other markets. These long write times increase sensitivity to system disruptions, measured in terms of production yield.

In 2007 the Sigma7500 met high production stability requirements measured in uptime for volume production at 45 nm. With relatively short write times the semiconductor market is driven by rising demands on system availability, which is measured in uptime. In the past year

Micronic improved average uptime in the installed base by 3 percentage points.

FUTURE STUDIES

Micronic carries out future studies that are organized in five core technology areas, as well as direct pilot studies focusing on new product proposals. The systematic work on future and pilot studies is aimed at creating a basis for innovation of new products in coming years. A number of studies were completed in 2007 and the first results of these are expected to be applied in products during 2008.

WINNER OF THE 2007 SWEDISH TECHNOLOGY PRIZE

Torbjörn Sandström, Micronic's Chief Scientist, was named winner of the 2007 Swedish Technology Prize, awarded by Ny Teknik and Vinnova, in recognition of Micronic's work on the unique SLM technology which is today used in the Sigma product line. The SLM technology offers a combination of high optical resolution and extreme bandwidth, resulting in an unequaled combination of performance and productivity.

Torbjörn Sandström, Micronic's Chief Scientist, was named winner of the 2007 Swedish Technology Prize.

Micronic's technology

Raster scan technology

All of Micronic's display systems utilize a laser-based raster scan technology. The Prevision, LRS and FPS systems, used in the production of display photomasks and advanced electronic packaging, operate on large photomask blanks. The largest currently in production are 1,220x1,400 mm and even larger will be used in the next generation of display manufacturing. The photomask is placed on a stage that moves in one direction. When the stage is moving, a laser beam controlled by an acousto-optic deflector sweeps perpendicular to the direction of movement on the stage, creating a scan strip on the photomask. The process is repeated until the entire pattern area has been covered.

Micronic's Omega series is used for semiconductor photomasks that are significantly smaller, normally 5x5 or 6x6 inches. The Omega systems have a fixed optical head and an XY-stage that can move in two dimensions. In other respects, the Omega family uses the same writing principle as the Prevision, LRS and FPS systems.

SLM technology

Micronic's Sigma systems are designed for production of advanced semiconductor photomasks. Instead of writing with a limited number of laser beams, as in raster scan technology, the Sigma systems use a high-frequency pulsed laser and an SLM (Spatial Light Modulator) chip, a micromechanical circuit with one million individually controllable mirrors.

The laser illuminates the entire SLM chip, which reflects a small section of the pattern onto the photomask for each laser pulse. The pattern on the SLM chip changes between every laser pulse and since the photomask moves continuously, the pattern on the photomask is built up rapidly.

The reflecting mirrors enable pattern generation with a short wavelength laser, resulting in very high resolution. This is a critical capability, due to the ongoing push to smaller features on semiconductor photomasks. The SLM technology gives Micronic a unique combination of speed and resolution that can support customer requirements for many technology generations into the future.

MICRONIC 2007

Micronic's product portfolio

Micronic's product portfolio consists of pattern generators for photomasks in three application areas: displays, semiconductors and electronic packaging. The product range also includes a metrology system for display photomasks. In the past year Micronic launched two new products, the Sigma7500-II and the Prexision series.

The Prexision and LRS series are used for display applications and are the leading systems in the market. This also applies to the MMS15000 metrology system. The Sigma and Omega series are used for semiconductor applications from leading-edge chips to more mature technologies. The FPS systems are designed for the most advanced semiconductor packaging technologies.

PATTERN GENERATORS FOR DISPLAY PHOTOMASKS

PREXISION AND LRS15000

All of the systems in the Prexision and LRS series are used to produce photomasks for flat panel TFT-LCD displays (Thin Film Transistor Liquid Crystal Display) and color filter photomasks. Micronic's latest system, the Prexision-10, is capable of exposing photomasks up to 2000 mm with a 0.75 µm resolution for the latest generation of TFT-LCD production, so-called generation 10 (G10), that is used primarily for LCD TV. The Prexision-8 is designed for photomasks up to generation 8 (G8). The systems based on the Prexision platform have a higher image quality than the earlier LRS series.

The LRS15000 systems can write photomasks up to and including G8.

METROLOGY SYSTEMS FOR TFT-LCD PHOTOMASKS

MMS15000

The MMS15000 system is used to verify pattern placement accuracy (registration) on large area TFT-LCD photomasks. The system has a registration measurement accuracy of 90 nm, which makes it the most accurate on the market by far. Like the LRS15000, the system has a maximum photomask size of 1300 x 1500 mm.

PATTERN GENERATORS FOR SEMICONDUCTOR PHOTOMASKS

SIGMA7500

The Sigma7500 series consists of DUV (Deep Ultra Violet) optical pattern generators that are based on SLM technology, and offer a unique combination of high resolution and short write time. The system is designed for production of semiconductor photomasks at the advanced technology nodes. There are three system types, Sigma7500HT, Sigma7500HA and Sigma7500-II, which target the 90, 65 and 45 nm nodes respectively. The Sigma7500 is also used to manufacture the most advanced image sensors (CCD) and phase shifting photomasks.

OMEGA6800/OMEGA6080

The Omega6800 is a raster scan pattern generator with a very flexible architecture, enabling photomask manufacturers to achieve optimal quality and writing speed.

The Omega6800 is a stable tool for volume production of semiconductor photomasks for the 130 nm technology node and above. Another application is production of photomasks for image sensors found in camera phones and most digital cameras.

The Omega6080 is based on the same platform, but offers even higher productivity for lower end photomasks, for the 250 nm technology node and above and less advanced phase shifting photomasks.

PATTERN GENERATORS FOR ELECTRONIC PACKAGING PHOTOMASKS

FP55100

The FPS5100 is a versatile pattern generator made to handle large area photomasks for precision applications up to 1100x1100 mm. The system is designed to deliver optimum flexibility, productivity and stability. Flexibility is particularly important since customers in this market use pattern generators for a wide range of applications, including advanced electronic packaging, image sensors and simpler displays.

MICRONIC 2007

Micronic's product portfolio

Sigma7500

Omega6080

FPS5100

Prexision-8

LRS15000

MMS15000

DISPLAY PRODUCTS

System	Application	Resolution
Prexision-10	TFT-LCD	0.75 μm/G10
Prexision-8	TFT-LCD	0.75 μm/G8
LRS15000-TFT3	TFT-LCD	0.75 μm/G8
LRS15000-TFT2	TFT-LCD	1.5 μm/G8
MMS15000	Registration measurement of display photomasks	G8

SEMICONDUCTOR PRODUCTS

System	Application	Technology node
Sigma7500-II	Semiconductor	≥ 45 nanometer
Sigma7500HA	Semiconductor	≥ 65 nanometer
Sigma7500HT	Semiconductor	≥ 90 nanometer
Omega6800	Semiconductor	≥ 130 nanometer
Omega6080	Semiconductor	≥ 250 nanometer

ELECTRONIC PACKAGING PRODUCTS

System	Application	Max. photomask size
FPS5100	Electronic packaging	1100 × 1100 mm

MICRONIC 2007

Corporate governance report

Corporate governance is a system of rules and structures used to manage companies so that they meet shareholder expectations for return on invested capital. Increased transparency contributes to effective governance by giving stakeholders better insight into the company's operations. Corporate governance in Sweden has traditionally been regulated by law, while the business sector's self-regulatory bodies have continuously revised and introduced rules and guidelines with relevance for corporate governance. More information about the Code is provided on the website www.bolagsstyrningskollegiet.se.

MICRONIC AND THE CODE

Micronic applies the Swedish Code of Corporate Governance, where the basic principle is to follow the Code on a "comply or explain" basis. Micronic complies with the following exceptions:

According to the Code, the names of all nomination committee members, together with the names of the shareholders they represent, must be made public no late than six months prior to the AGM. Micronic announced the composition of the nomination committee on October 17, 2007, i.e. just over five months prior to the AGM. The explanation for this deviation is that Micronic has chosen to maintain the tradition of holding the AGM early in the year. Since the nomination committee cannot be appointed before the month of October (must be appointed after the end of September, see below under nomination committee), it is not possible to announce its composition earlier.

EXAMINATION BY THE AUDITORS

The corporate governance report and the Board's report on internal control have not been examined by the company's auditors.

ANNUAL GENERAL MEETING

Pursuant to the provisions in the Swedish Companies Act, the Annual General Meeting of Shareholders is the company's highest decision-making body. The responsibilities of the AGM include adoption of the profit and loss account and balance sheet, election of Board members and auditors, determination of fees and the transaction of other business as required by law or the Code.

2007 AGM

The 2007 Annual General Meeting was held on Thursday, March 29, 2007, in Täby. More than 51 percent of the votes were represented at the meeting.

2008 AGM

The 2008 Annual General Meeting will be held at 5 p.m. on Thursday, April 3, 2008, in the Galleriet conference room at Näsby Slott, Djursholmsvägen 30, in Täby.

NOMINATION COMMITTEE

The nomination committee represents the company's shareholders and its tasks are to evaluate and recommend candidates for nomination the Chairman of the AGM, Board Chairman, directors and auditors for election by the AGM. The committee's responsibilities also include recommendations on remuneration to directors, Board committee members and auditors. By decision of Micronic's 2005 AGM, the nomination committee consists of the Board Chairman and four members representing the four largest shareholders on September 30. This applies until such time that the AGM decides differently.

Ahead of the 2008 AGM, the nomination committee consists of Ramsey Brufer (Alecta), representing 7.9 percent of the votes on September 30, 2007, Anders Ljungqvist (AMF), representing 10.0 percent of the votes on September 30, 2007, Ulf Strömsten (Catella), representing 8.9 percent of the votes on September 30, 2007 and Annika Andersson (Fourth National AP Fund), representing 9.0 percent of the votes on September 30, 2007.

Board Chairman Göran Malm is also a member of the committee.

All shareholders in the company are given the opportunity to submit recommendations for evaluation by the nomination committee within the framework of its duties. Annika Andersson was appointed to chair the nomination committee. The committee has held several meetings ahead of the 2008 AGM and has maintained regular informal contact. As a basis for its recommendations, the nomination committee determines whether the sitting Board members have the requisite skills and characteristics in view of the company's position and future direction. In addition, the committee formulates the qualifications for any new directors that need to be recruited according to this assessment, and carries out a systematic procedure for seeking candidates for vacant Board seats, with consideration to any recommendations submitted by the shareholders. The committee then nominates candidates for election to the Board and presents its recommendations in the notice of the coming AGM. The nomination committee will present a report on its work at the AGM.

The company's auditors are appointed by the AGM every four years. The audit committee assists the nomination committee in preparing recommendations for nomination of auditors and fees for audit work. The current auditors were elected by the 2006 AGM for a period of four years.

BOARD OF DIRECTORS

Two new Board members were elected by

MICRONIC 2007

the 2007 AGM and one member resigned. The Board then consisted of eight members including the CEO. When Board Chairman Lars Nyberg left the Board on September 18, 2007, after being appointed CEO of TeliaSonera, Board member Göran Malm was appointed Chairman. The number of Board members was then seven.

The composition of the Board and the independent status of the directors in relation to the company, its management and major shareholders are disclosed on the coming pages.

The responsibilities of the Board are prescribed by the Swedish Companies Act and are not transferable to any other party. Through written instructions, the Board regulates the division of responsibilities between the Board, any bodies established by the Board, and the CEO. The procedural plan, which is adopted yearly at the statutory meeting following the AGM, defines the principles for Board work, the division of roles between the Board and the CEO and the framework for financial reporting. According to the procedural plan, the tasks of the Board include:

Approval and adoption of the annual report and other public reports, according to law or the Code, such as quarterly, semi-annual and year-end reports
Appointment of the CEO and evaluation of the CEO's performance
Formulation of a long-term strategy
Determination of the Board's need for information
Formulation and adoption of policies and authorization instructions
Adoption of rules for internal control, annual follow-up of the effectiveness of internal control and assessment of the adequacy of internal control over financial reporting
Adoption of financial budgets
Decisions regarding major investments
Decisions regarding far-reaching agreements
Determination of the procedures and focus for the Board's work and evaluation of Board performance
Appointment of an audit committee within the Board, and
Appointment of a remuneration committee within the Board.
Annual follow-up of compliance with the guidelines for remuneration to senior executives resolved on by the AGM
Annual recommendation of remuneration guidelines to the AGM.

BOARD CHAIRMAN

The Chairman is responsible for overseeing that the Board discharges its responsibilities in accordance with the Swedish Companies Act and the procedural plan. Through ongoing contact with the CEO, the Chairman monitors the company's development and ensures that the Board is continuously provided with the information required to perform its duties. The Chairman also represents the company in matters related to corporate governance. Lars Nyberg, who had been Board Chairman since the 2004 AGM, resigned on September 18, 2007, after being appointed CEO of TeliaSonera. Board member Göran Malm was appointed as his successor until the 2008 AGM.

BOARD REMUNERATION

The 2007 AGM resolved that Board fees for the period until the end of the next AGM would be paid in a total amount of SEK 1,775,000, of which SEK 500,000 would be paid to the Board Chairman, SEK 275,000 to the Vice Chairman and SEK 200,000 to each of the other Board members not employed by the company. Furthermore, the AGM resolved that total remuneration to the members of the audit and remuneration committees for the period until the end of the next AGM would amount to no more than SEK 300,000, to be paid in an amount of SEK 50,000 per member and committee assignment.

The 2007 AGM also resolved that a monthly fee of SEK 30,000 would be paid to the company's former Board Chairman, Lars Nyberg, for assisting the company in strategic matters. This fee was discontinued in connection with Lars Nyberg's resignation. See Note 11 on page 56 for full details on Board compensation in 2007.

BOARD ACTIVITIES IN 2007

In 2007 the Board held 11 meetings (10 in 2006), of which one was a statutory meeting directly following the AGM on March 29, 2007. The minutes from these meetings are decision minutes and are recorded by the company's CFO.

Areas of responsibility within the Board have been divided partly through the work conducted in the audit and remuneration committees. In 2007 the audit committee met four times and the remuneration committee three times. Agendas for regular Board meetings are prepared by the Chairman together with the CEO. Two items on the agenda of every regular Board meeting are an update on the business situation and a review of the company's financial development. Furthermore, at each meeting the Board has dealt with the matters specified in the summary below. In connection with every meeting, the Board members meet in executive session (without the presence of the CEO) and the Chairman is then responsible for feedback to the CEO.

In good time prior to each Board meeting, the members of the Board are provided with written material as a basis for future discussions and decisions. During the Board meetings, representatives of the executive management and other individuals take part to report on matters in their respective areas.

Every month, the Board is provided with a business report including both financial updates and a description of the business situation. These reports are compiled by the CEO and CFO.

EVALUATION OF BOARD PERFORMANCE

According to the procedural plan, the Board continuously evaluates its performance through open discussions between its members and with the assistance of independent consultants. The results of this independent evaluation are handed over to the nomination committee.

BOARD OF DIRECTORS, ATTENDANCE, ETC.

	Attendance at board meetings	Independent^{1)}	Attendance in audit committee^{2)}	Attendance in remuneration committee^{3)}
Lars Nyberg, Chairman through 17/09/07	9/9	No		2/3
Göran Malm, Chairman from 17/09/07	10/11	Yes		3/3
Christer Zetterberg, Vice Chairman	9/11	Yes	3/4
Jörgen Centerman	10/11	Yes	4/4
Sigrun Hjelmquist	5/7	Yes		1/3
Magnus Lindquist	7/7	Yes	4/4
Sven Löfquist, CEO	11/11	No
Lena Treschow Torell	10/11	Yes		3/3
Lars Öjefors	4/4	Yes		3/3

1) Dependent status in relation to the company, its management and major shareholders, in accordance with the criteria in the Swedish Code of Corporate Governance.
2) Refers to the number of committee meetings from the date of the AGM to adoption of the annual report. Sigrun Hjelmquist replaced Lars Nyberg on the remuneration committee as of September 17, 2007.

SUMMARY OF BOARD MEETINGS IN 2007

The Board held 11 meetings. At each meeting, matters such as the business situation and financial reporting were dealt with. The audit and remuneration committees have reported on their activities. The audit committee held meetings and conducted discussions with the independent auditors, mainly in connection with the quarterly reports. The audit committee also oversees the company's preparations for the Board's report on internal control over financial reporting. At the Board meetings, the remuneration committee has reported on the matters addressed within the framework of its duties, which in 2007 included the preparation of a variable salary program for all employees and an employee stock option program. The independent auditors took part in one meeting during the year to meet the entire Board and to describe and present their conclusions from the audit.

Other significant matters taken up at Board meetings in 2007 were as follows:

The Board adopted a new procedural plan which was updated as late as December 2007, as well as instructions for the CEO.

A decision was made to also deploy the Parent Company's business system in the subsidiaries in Japan and South Korea.

A number of policies were adopted: authorization instructions and policies for management of financial risks, corporate communications, investor relations, insider trading, pensions and equality.

Guidelines for the company's development activities were adopted.

The company's long-term strategies were reviewed after a presentation of the market situation and competitor and technological analyses for the various product areas. Risks and possible counter-measures in the strategic plan were discussed, as were alternative strategies. A strategy for the company's service operations was adopted.

The Board adopted principles for an incentive scheme for all employees and decided to propose the implementation of an employee stock option program.

The budget for 2008 was adopted.

A decision was made to invest in geothermal heating for the property in Täby.

AUDIT COMMITTEE

Every year, the Board appoints an audit committee from among its members. The committee must consist of three Board members not employed by the company. The majority of audit committee members must be independent from the company and its management. Furthermore, at least one member must be independent from the company's major shareholders.

Since the statutory meeting on April 3, 2007, the audit committee consists of Magnus Lindquist (Chairman), Jörgen Centerman and Christer Zetterberg, all of whom are considered independent.

The audit committee is an administrative/advisory function of the Board and does not remove any responsibility from the Board as a whole. The task of the audit committee is to ensure the high quality of the company's financial accounting, reporting and internal control. The committee also serves as the primary contact with the company's auditors in monitoring the aims and scope of the audit work and views on the company's risks. Furthermore, the committee is responsible for overseeing the company's internal and external reporting, for example by preparing a basis for Board approval of external financial reports. The audit committee assists the nomination committee in preparing recommendations for nomination of auditors and fees for audit services and is responsible for evaluating the quality of audit work. The audit committee also establishes guidelines for which non-audit services may be procured from the company's appointed auditors. The committee proposes rules for internal control and performs a yearly evaluation to determine the effectiveness of internal control and whether this level is deemed satisfactory with regard to financial reporting. The audit committee held four meetings during the period from the AGM until publication of the annual report.

REMUNERATION COMMITTEE

Every year at the statutory meeting following the AGM, the Board appoints a remuneration committee which must consist of the Chairman and two independent Board members.

The committee was appointed after the AGM on April 3, 2007, at which time it consisted of Lars Nyberg (Chairman), Lena Treschow Torell and Göran Malm. When Lars Nyberg resigned as Chairman, his seat on the committee was filled by Sigrun Hjelmquist. The current chairman of the committee is Göran Malm, who is also Board Chairman.

MICRONIC 2007

The remuneration committee is an administrative/advisory function of the Board and does not remove any responsibility from the Board as a whole. The purpose of the committee is to prepare and put forward recommendations regarding remuneration and terms of employment for the CEO and other senior executives. The committee's primary tasks are to recommend and, subject to Board approval, negotiate the salary, other remuneration and terms of employment for the CEO. The committee also ensures that the principles for salary, other remuneration and terms of employment for other senior executives are competitive and consistent with the company's objectives. Furthermore, the committee assists the Board in preparing recommendations for incentive schemes such as stock option programs. In 2007 the remuneration committee set up an employee stock option program that was approved by the 2007 AGM.

The remuneration committee held three meetings and a number of informal contacts during the period from the AGM until publication of the annual report.

REMUNERATION AND OTHER TERMS OF EMPLOYMENT FOR THE EXECUTIVE MANAGEMENT

The terms of remuneration to the CEO and other senior executives who together with the CEO make up the executive management team have been proposed by the remuneration committee and consist of basic salary, variable remuneration, pension and other benefits. These principles must then be approved by the AGM. For 2008, no changes are proposed to the principles adopted in 2007. For a more detailed description of the principles applied in 2007 and those proposed for 2008, see the Administration Report and Note 11 on page 56. Lastly, it can be noted that the remuneration committee assists in ensuring compliance with the guidelines for remuneration to senior executives that have been approved by the AGM.

On January 1, 2008, the executive management was increased by one person

when Håkan Färdig was appointed as Human Resources Director, and currently consists of Carl-Johan Blomberg, Kjell Bohlin, Tomas Carlsson, Håkan Färdig, Jonas Hasselberg, Sven Löfquist, Charlott Samuelsson, Ulf Sundström and Johan Åman. For complete details on remuneration to the CEO and other senior executives in 2007, see Note 11 on page 56. See page 36 for the composition of the executive management.

AUDITORS

The 2006 AGM elected the accounting firm of KPMG Bohlins AB as the company's auditor, at which time KPMG appointed Authorized Public Accountant Anders Malmeby as Auditor in Charge of the Group's accounts. KPMG has been appointed to serve for the period until the 2010 AGM. At the request of the Board, the company's auditor performs a review of all quarterly financial information in accordance with Standard on Review Engagements (SÖG) 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. Other statutory audits of the annual report, annual accounts, the consolidated accounts, the accounting records and the administration of the Board of Directors and CEO are carried out in accordance with generally accepted accounting standards in Sweden (RS). Once a year, the auditors meet with the entire Board. The independent auditors meet with the audit committee in connection with adoption of the company's interim financial statements.

FINANCIAL REPORTING TO THE BOARD

The quality of the company's financial reporting is evaluated primarily through the audit committee. The audit committee meets regularly with the CFO and the company's independent auditors to discuss matters of significance in the accounting area. The audit committee reviews interim reports before these are submitted to the entire Board in order to take up items of material significance with the CFO and independent auditors.

Certain meetings between the audit committee and the independent auditors take place without the presence of members employed by the company. The audit committee continuously reports its observations to the Board. The Board also ensures that the CEO sets up an organization to provide sufficient resources for the accounting function.

EXTERNAL FINANCIAL INFORMATION

In accordance with the Investor Relations policy adopted by the Board, the company provides continuous information on its financial position in the form of quarterly, year-end and annual reports, as well as press releases in connection with major orders and other significant events. When the interim and year-end reports are published, the company also holds presentations and/or teleconferences for analysts, investors and the media. During the year, the executive management regularly meets with analysts and investors at several locations around the world. In connection with trade fairs and seminars, the media is given opportunities to meet with the company's representatives. Every year, the Board adopts a corporate communications policy to establish the rules and procedures for communication and specify which individuals may speak on behalf of the company in various contexts.

All information that is distributed via press releases is also posted on the company's website, together with other information of value to various stakeholders, such as a description of Micronic's application of the Code.

THE BOARD OF DIRECTORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING IN 2007

INTRODUCTION

As stated in the Swedish Companies Act and the Swedish Code of Corporate Governance (the Code), the Board of Directors is responsible for establishing and maintaining adequate internal control. This report has been prepared by the Board in accordance with the Code and the guide

MICRONIC 2007

lines issued by FAR SRS (the Institute for the Accountancy Profession in Sweden) and Svenskt Näringsliv (the Confederation of Swedish Enterprise), and is accordingly limited to internal control over financial reporting.

Micronic's internal control is structured according to the established Internal Control – Integrated Framework, "COSO"*, which divides internal control into five components: Control environment, Risk assessment, Control activities, Information & Communication, and Monitoring. COSO defines internal control as follows:

Internal control is a process, effected by an entity's board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives regarding the effectiveness and efficiency of operations, the reliability of financial reporting and compliance with applicable laws and regulations.

The following description deals primarily with those aspects of internal control that are related to the category of financial reporting.

DESCRIPTION

CONTROL ENVIRONMENT

The basis for internal control over financial reporting is the control environment, which includes the organizational structure, decision-making channels, powers and responsibilities, management philosophy and operating style as documented and communicated in the form of normative documents such as internal policies, manuals and guidelines.

Micronic's business activities are conducted primarily in a single location and are therefore judged to be of manageable complexity. This, in turn, means that the structure of the organization is simple and clear. Normative documents have been established in the form of procedural plans for the Board and the Board's audit committee and instructions for the CEO. The Board has also established guidelines

for external reporting of financial information. Instructions for authorization of business transactions are established by the Board, while instructions for financial accounting and reporting are established by the executive management.

The Board and management have determined the importance of timely and accurate reporting, and therefore also of maintaining an effective accounting function. The level of staffing and expertise in the accounting function is continuously monitored by the executive management. A strong controller function in the accounting organization also ensures that all business activities are evaluated and their efficiency optimized.

In 2006 the Board initiated a special project to support and develop the company's internal control activities. These efforts continued in 2007 and will remain part of the company's administration in the future.

Responsibility for creating processes with a high degree of internal control is assigned to the respective departmental managers. Personnel from each area of operation take part in process reviews supervised by the accounting function as a step in documenting and evaluating significant processes.

RISK ASSESSMENT

The company applies continuous processes for risk assessment and control to ensure that the risks to which the company is exposed are managed within the limits established by the Board.

The company's management continuously analyzes the company's business processes for assessment of efficiency and risks, including the identification of risks for errors in financial reporting. The company's support processes, including the financial closing processes, are also analyzed. The most critical business processes and most significant values, with regard to assets as well as business and product development, are found in the Swedish Parent Company. The processes of critical importance to Micronic are sales, development, manufacturing, accounting and IT. In 2007 the processes for purchasing and payment were also deemed critical and have therefore been subject to evaluation. The risks for errors in financial reporting are identified and discussed by the audit committee. An examination of risk areas is also carried out by the Board, primarily in connection with discussion and adoption of strategies and objectives.

CONTROL ACTIVITIES

The identified risks relating to financial reporting are dealt with through a number of identified control activities in the company's processes. Many of these processes are documented, updated and improved on an ongoing basis. Due to the nature of the company's business, every external business transaction is monitored closely and the accounting function has in-depth insight into the process. The control structure also includes the established division powers, roles and responsibilities and the management's monthly review of financial information.

INFORMATION AND COMMUNICATION

Micronic's information and communication channels are designed to promote complete, reliable and accurate financial reporting. This is accomplished by making steering documents such as internal policies, guidelines and instructions with relevance for financial reporting available and known to the affected personnel via the company's intranet and through frequent information meetings with all employees. Staff members from the head office regularly visit the subsidiaries and the reverse is also true; employees from the subsidiaries visit the head office to further improve their knowledge of the Group's processes and objectives and to share information and experiences. In 2007, a group-wide business system was deployed to the subsidiaries in Japan and South Korea. This has resulted in more uniform processes and a valuable exchange of experience between employees in the Group companies.

*) Committee of Sponsoring Organizations of the Treadway Commission

MICRONIC 2007

MONITORING

Information about the effectiveness of internal control is monitored by the executive management. The Board has determined the effectiveness of internal control will be monitored through a self-assessment of critical processes. In 2006 the audit committee established a plan for reviewing the most critical processes, with the greatest possible impact on the company's financial position, over a number of years. The plan is reassessed yearly to identify any possible needs for reprioritization. Following an initial risk assessment, based on the consolidated balance sheet and income statement, a decision is made about which processes will be documented and assessed during the year. Staff from the accounting function, together with the affected employees, reviews how the process is working, document the flow and evaluate the effectiveness of the process with respect to the identified risks and control activities. This is done with the help of a self-assessment in which employees from each area of operation evaluate the documented process and assess the identified risks and controls. This method promotes a wide understanding for the importance of internal control and responsibility for developing the processes is retained within each respective area of operation. In 2007 Micronic documented and evaluated the processes for payment, sales and purchasing. This, together with process reviews of development, manufacturing, financial closing and IT during 2006, means that most of the company's critical processes have been evaluated. A couple of processes remain to be similarly evaluated in 2008, after which an administrative phase will be started to update the processes.

Another aspect of monitoring is the accounting department's visits to the subsidiaries to review their processes, documentation of control activities and compliance with group-wide policies and guidelines.

Through the audit committee, the Board establishes and oversees the evaluation processes that are carried out.

The audit committee maintains continuous contact with the independent auditors and is informed of their opinions and observations, which also contributes to the Board's overall picture of the company's internal control.

The Board is provided with monthly financial reports and discusses the financial situation of the company and the Group at each Board meeting. Prior to board meetings where the quarterly financial statements are adopted, the audit committee has analyzed and assessed the financial information before it is adopted by the Board.

STATEMENT

In light of the processes and structures described above, the Board has not found it necessary to set up a special internal audit function.

Board of directors and auditor

MICRONIC 2007

Göran Malm

Born in 1947. Chairman since September 2007. Director since 2002.
Education: M.B.A.

Other board assignments: Chairman of North Asia Strategic Holdings Ltd, Boathouse Ltd and Children's Medical Foundation in Hong Kong, Smartpay Jieyin in Shanghai and Celestix Networks in Singapore. Board member of Samsung Electronics Co Ltd in South Korea, Elife in Tokyo, Sourcebynet and Dornier GmbH in Singapore, and ISA and Envac in Stockholm.

Previous positions: Senior Vice President of Dell Corporation 1999–2000. Senior Vice President of General Electric Company 1997–1999. President and CEO of GE Medical Systems Asia 1992–1996. Executive Vice President of SKF 1990–1991. Associate Professor at Göteborg University School of Business, Economics and Law 2005–2006.
Shareholding in Micronic: 0.

Christer Zetterberg

Born in 1941. Vice Chairman. Chairman of Micronic 1998–2001.
Education: M.B.A.

Other board assignments: Chairman of Nike Hydraulics. Vice Chairman of Swedeship AB. Board member of L E Lundbergföretagen AB, Bo Forssjö AB, Camfil AB and Cloetta-Fazer AB. Member of IVA (The Royal Swedish Academy of Engineering Sciences).

Previous positions: President and CEO of AB Volvo 1990–1992. President and CEO of PK-Banken 1988–1990. President and CEO of Holmens Bruk 1983–1988.
Shareholding in Micronic: 1,300.

Jörgen Centerman

Born in 1951. Director since 2004.
Education: Master's degree in Electronic Engineering.

Other board assignments: Chairman of Dacke PMC. Board member of Telelogic, XPonCard, HMS Network, Kemetyl and Segulah.

Previous positions: CEO of ABB 2000–2002. Various management positions at ABB 1981–2000.
Shareholding in Micronic: 0.

Lena Treschow Torell

Born in 1946. Director since 2004. President of IVA (The royal Swedish Academy of Engineering Sciences).
Education: Ph.D. in Physics, Professor.

Other board assignments: Board member of Investor AB, SKF AB, SAAB AB, AB Ångpanneföreningen and Chalmers University of Technology Foundation.

Previous positions: Director of the European Commission's Joint Research Center in Brussels 1998–2001. Pro-Vice President, Chalmers 1995–1998.
Shareholding in Micronic: 3,400.

Sven Löfquist

President and CEO of Micronic.
Born in 1956. Director since 2001. Deputy director 1998–2001.
Education: Master's degree in Electronic Engineering.

Other board assignments: None.

Previous positions at Micronic: Vice President, Sales and Marketing 1989–1999. Executive Vice President 1999–2001.
Shareholding in Micronic: 37,500.
Employee share options: 52,500.

Sigrun Hjelmquist

Born in 1956. Director since 2007.
Education: M.B.A and M. Sc. Engineering Physics.

Other board assignments: Chairman of Sight Executive Group, 2006. Board member of Sandvik AB, Svenska Handelsbanken AB, EON Sverige AB, RAE Systems Inc (USA), Audiodev AB, Symsoft AB, Seamless Distribution AB and Silex AB.

Previous positions: Investment Manager and co-founder of BrainHeart Capital AB 2000–2005. President and CEO of Ericsson Components AB 1998–2000. Various positions in the Ericsson group 1979–1998.
Shareholding in Micronic: 1,000.

Magnus Lindquist

Born in 1963. Director since 2007. Chief Financial Officer of Autoliv.
Education: Economist.

Other board assignments: Board member of Alimak Hek Group AB, 2007.

Previous positions: CFO of Perstorp, 1996–2001. CFO of Stora Cell Group, Gävle, 1993–1996.
Shareholding in Micronic: 0.

Lars Nyberg*

The following refers to the situation on September 17, 2007.
Born in 1951. Chairman from 2004 until September 2007.
Education: M.B.A.

Other board assignments: Chairman of IBS. Board member of Autoliv, Snap-On Inc and Datacard Inc.

Previous positions: Chairman and CEO of NCR 1995–2003, thereafter Chairman until 2005. Various management positions at Philips Electronics 1974–1995.
Shareholding in Micronic: 50,000.

Lars Nyberg resigned from his chairmanship and seat on the Board on 18 September 2007 due to his appointment as the new President and CEO of TeliaSonera.

Auditor

Anders Malmeby
Born in 1955. Auditor for Micronic since 2006. Authorized Public Accountant, KPMG Bohlins AB.

Other auditing assignments: IBS, Metro International, NOTE and Fujitsu Siemens Computers.

Board of directors and auditor

Back row from left: Christer Zetterberg, Magnus Lindquist, Sven Löfquist and Jörgen Centerman.
Front row from left: Sigrun Hjelmquist, Göran Malm and Lena Treschow Torell.

MICRONIC 2007
35

Executive management and subsidiary presidents

MICRONIC 2007

Sven Löfquist
Born in 1956. President and CEO. Employed since 1985.
Education: M. Sc. Engineering.
Previous positions: Vice President Sales and Marketing, Executive Vice President at Micronic.
Shareholding in Micronic: 37,500.
Employee stock options: 52,500.

Johan Åman
Born in 1968. Sr. Vice President, Research & Development
Employed since 1996.
Education: M. Sc. Engineering Physics.
Previous positions: Vice President and General Manager, Business Unit Display, Vice President System and Application Development at Micronic.
Shareholding in Micronic: 1,626.
Employee stock options: 24,500.

Tomas Carlsson
Born in 1950. Sr. Vice President, Production.
Employed since 2004.
Education: M. Sc. Industrial Engineering.
Previous positions: Plant Manager and Product Area Manager Purchasing at Ericsson AB.
Shareholding in Micronic: 0.
Employee stock options: 24,500.

Jonas Hasselberg
Born in 1967. Sr. Vice President, Product Management.
Employed since 2006.
Education: M. Sc. Engineering Physics.
Previous positions: Head of Global Product Management for Windows Mobile, Microsoft Corporation 2000–2006.
Shareholding in Micronic: 243.
Employee stock options: 24,500

Carl-Johan Blomberg
Born in 1952. Sr. Vice President and Chief Financial Officer.
Employed since 2002.
Education: M.B.A.
Previous positions: Finance Director at Alfa-Laval, Procordia, Pharmacia and Net Insight.
Shareholding in Micronic: 0.
Employee stock options: 24,500.

Ulf Sundström
Born in 1958. Sr. Vice President, Corporate Sales
Employed since 1996.
Education: M. Sc. Engineering Physics.
Previous positions: Vice President Sales and Customer Support at Micronic. Area Manager Sales, Japan and Germany at ABB.
Shareholding in Micronic: 14,666.
Employee stock options: 24,500.

Charlott Samuelsson
Born in 1963. Vice President, Corporate Development.
Employed since 1996.
Education: M. Sc. Electronic Physics
Previous positions: Vice President, System and Application Development at Micronic.
Shareholding in Micronic: 6,000.
Employee stock options: 24,500.

Kjell Bohlin
Born in 1952. Vice President, Customer Operations.
Employed since 2003.
Education: Ph. D. in Electronics.
Previous positions: Vice President and General Manager at Ericsson Microelectronics. Vice President Research & Development at Infineon Technologies Sweden.
Shareholding in Micronic: 1,000.
Employee stock options: 24,500.

Håkan Färdig *
Born in 1969. Human Resources Director.
Education: Degree in organization and management.
Previous positions: Country HR Manager, GE Healthcare, Sweden, HR Manager, Getinge, Country HR Manager, Sun Microsystems.
* Human Resources Director since January 1, 2008 and member of the Executive Management Group.

SUBSIDIARY PRESIDENTS

From left: Masashi Tsutsui, Manny Ferreira, Charles (Changhee) Lee.

Masashi Tsutsui
Born in 1960. President of Micronic Japan K.K.
Employed since 2001.
Education: M.B.A.
Previous positions: General Manager, Nuclear Power Department, Energy Division at Marubeni.
Shareholding in Micronic: 0.

Manny Ferreira
Born in 1953. President of Micronic Laser Systems Inc., USA.
Employed since 2002.
Education: M. Sc. Engineering.
Previous positions: CFO of Portal Bay. COO, Ultra-Beam Lithography.
Shareholding in Micronic: 0.

Charles (Changhee) Lee
Born in 1957. President of Micronic Laser Systems Korea Co., Ltd.
Employed since 2005.
Education: Electronic Engineer.
Previous positions: Vice President of Taihan Metra Co., Ltd. President of Toshiba Engineering Center Co., Ltd. Service Director of GE Healthcare Korea.
Shareholding in Micronic: 0.

Executive management and subsidiary presidents

Ulf Sundström

Sven Löfquist

Carl-Johan Blomberg

Jonas Hasselberg

Charlott Samuelsson

Kjell Bohlin

Tomas Carlsson

Johan Åman

MICRONIC 2007

Financial overview

SEK million	2007	2006	2005	2004	2003*	2002*	2001*
Order intake	634	604	1,306	945	1,086	459	633
Profit and loss accounts
Net sales	523.0	1,204.1	1,275.8	839.5	428.0	496.1	699.3
Operating profit	-290.8	122.6	172.4	125.5	-193.9	-89.7	17.1
Net financial items	3.3	3.7	-6.6	-5.2	0.1	3.0	-7.6
Profit/loss before tax	-287.5	126.2	165.8	120.3	-193.8	-86.7	9.5
Tax	80.0	-33.3	-48.4	-11.9	35.1	23.3	-2.4
Profit/loss for the year	-207.5	92.9	117.4	108.4	-158.7	-63.4	7.1
Balance sheets
Fixed assets	413.4	482.8	606.1	718.0	663.4	432.4	244.6
Inventories	333.6	353.3	357.7	339.3	295.3	327.7	279.5
Other receivables	309.0	245.8	345.1	208.3	94.3	229.2	257.0
Cash and cash equivalents	450.7	627.8	561.9	306.2	587.6	287.1	552.4
Total assets	1,506.7	1,709.7	1,870.8	1,571.8	1,640.6	1,276.4	1,333.5
Equity	907.5	1,109.8	1,025.3	907.9	798.4	631.4	697.2
Interest-bearing liabilities	246.5	295.7	359.8	383.7	512.5	451.2	437.6
Other liabilities	352.7	304.2	485.7	280.2	329.7	193.8	198.7
Total equity and liabilities	1,506.7	1,709.7	1,870.8	1,571.8	1,640.6	1,276.4	1,333.5
Capital employed	1,154.0	1,405.5	1,385.1	1,291.6	991.0	762.5	816.0
Net interest-bearing debt	-204.2	-332.1	-202.1	77.5	-390.0	-156.0	-434.9
Capital turnover rate, times	0.4	0.9	1.0	0.7	0.5	0.6	0.9
Cash flow and liquidity
Cash flow from operating activities	-77.3	219.0	323.5	-11.0	141.0	-97.0	7.0
Cash flow from investing activities	-44.6	-97.4	-40.3	-137.6	-228.9	-180.6	-152.2
Cash flow after investing activities, before financing	-121.9	121.6	283.2	-148.6	-87.9	-277.6	-145.2
Cash flow from financing activities	-54.4	-50.9	-29.0	-131.6	390.3	-175.4	-152.2
Key ratios
Gross margin, %	29.3	54.3	54.4	55.8	38.4	47.8	56.2
Operating margin, %	-55.6	10.2	13.5	15.0	-45.3	-18.1	2.4
Adjusted operating margin, %	-40.2	18.2	22.3	5.2	-86.0	-44.2	2.4
Profit margin, %	-55.0	10.5	13.0	14.3	-45.3	-17.5	1.4
Equity/assets ratio, %	60.2	64.9	54.8	57.8	48.7	49.5	52.3
Return on capital employed, %	-21.6	9.8	13.3	11.5	-21.2	-9.4	4
Return on equity, %	-20.6	8.7	12.2	12.7	-22.2	-9.5	1

The figures for 2003 and earlier years have not been restated to IFRS. The differences are mainly related to the application of IAS 16 (component depreciation) and IAS 39 (hedge accounting).

MICRONIC 2007

Financial reports

SEK million	2007	2006	2005	2004	2003*	2002*	2001*
R&D
R&D expenditure	198.4	221.7	198.7	258.5	282.3	311.0	230.0
R&D expenses	279.0	318.5	310.9	176.4	123.5	185.2	214.7
R&D expense/sales, %	53.3	26.5	24.4	21.0	28.9	37.3	30.7
R&D expenditure/sales, %	37.9	18.4	15.6	30.8	65.9	62.7	32.9
Capitalized development costs	34.1	32.4	17.0	117.6	174.3	129.7	–
Amortization of capitalized development costs	114.7	129.2	129.2	35.5	–	–	–
Data per share
Number of shares at end of year, millions	39.2	39.2	39.2	39.2	39.2	19.2	19.2
Average number of shares, millions	39.2	39.2	39.2	39.2	28.4	19.2	19.1
Average number of shares after dilution, millions	39.2	39.2	39.3	40.2	30.8	21.8	21.0
Share price at December 31, SEK	32.20	77.00	113.00	66.75	83.50	41.00	191.00
Dividend per share, SEK	–	–	–	–	–	–	–
Before dilution
Earnings per share (average number of shares), SEK	–5.30	2.37	3.00	2.77	–5.59	–3.30	0.37
Equity per share (average number of shares), SEK	23.17	28.34	26.18	23.18	28.12	32.86	36.50
Cash flow per share (average number of shares), SEK	–4.50	1.81	6.49	–7.15	10.65	–13.81	12.24
P/E ratio (number of shares at end of year)	neg	32	38	24	neg	neg	516
Price/equity (number of shares at end of year), SEK	1.39	2.72	4.32	2.88	4.10	1.25	5.26
After dilution
Earnings per share (average number of shares), SEK	–5.30	2.37	2.99	2.70	–5.59	–3.30	0.32
Equity per share (average number of shares), SEK	23.17	28.34	26.10	22.58	28.12	32.86	57.00
Cash flow per share (average number of shares), SEK	–4.50	1.81	6.47	–6.97	9.82	–12.17	11.13
P/E ratio (number of shares at end of year)	neg	32	38	24	neg	neg	596
Price/equity (number of shares at end of year), SEK	1.39	2.72	4.32	2.89	4.10	1.25	3.30

The figures for 2003 and earlier years have not been restated to IFRS. The differences are mainly related to the application of IAS 16 (component depreciation) and IAS 39 (hedge accounting).

COMMENTS ON THE GROUP'S FINANCIAL OVERVIEW

Profit and loss accounts

Micronic is a supplier of manufacturing equipment to the electronics industry and is steered by these companies' investment plans. Since 1999 Micronic delivers systems for both display and semiconductor applications. Despite having these two pillars, sales fluctuate dramatically in response to the available capacity in each market. The Group's sales of after market products and services are growing both percentage-wise and in absolute numbers.

To a large extent, gross margin is affected by both volumes and the product mix. In years with lower volumes, gross margin is negatively affected by the relatively large impact of fixed costs for the production unit and by indirect production-related costs. In 2007 gross margin amounted to 29 percent. It is a prioritized goal for 2008 to once again attain a gross margin of at least 50 percent.

The Group's long-term goal is to achieve an operating margin of over 15 percent, a financial target that Micronic has meet only in 2005 and 2006 when the company's sales exceeded SEK 1 billion. The Group's R&D expenses are high and represent a large share of total sales revenues. The Group's R&D expenses consist partly of pure expenses and partly of amortization of previously capitalized development costs.

Over the past seven-year period, average annual R&D expenditure has amounted to SEK 243 million and reported annual expenditure to SEK 230 million. Since 2002 the company has capitalized development costs of SEK 505 million in accordance with the applicable accounting rules. As of 2004, Micronic recognizes amortization of previously capitalized development costs as a development cost and has amortized a total of SEK 409 million over the past four years.

Investments and financing

In the past seven years the Group has invested a total of approximately SEK 880 million, of which SEK 505 million refers to capitalized development projects. Of the remaining investments, these refer mainly to the property in Täby and related manufacturing machinery, computers and equipment.

In 2003 Micronic carried out a rights issue that provided net proceeds of SEK 316 million. The motive for the share issue was to finance research and development activities, mainly with a focus on semiconductor applications. The Group has also previously financed its operations through a convertible debenture loan from ASML amounting to SEK 320 million, which was repaid in 2004. The same year, Micronic received an advance on future royalties from ASML in accordance with an agreement between the companies regarding certain collaborative development.

MICRONIC 2007

Report of the directors

The Board of Directors and the CEO of Micronic Laser Systems AB (publ.) corp. ID. no. 556351-2374, hereby present the annual report and consolidated financial statements for the financial year January 1, 2007 – December 31, 2007.

Submission of reports

The information in this annual report is such that it must be published by Micronic in accordance with the Swedish Securities Market Act. Micronic has published an interim report for the fourth quarter and the full year. The information was submitted for publication at 8:00 a.m. on January 28, 2008, through a press release and on the corporate website www.micronic.se. The full annual report has also been published through a press release and on the website at 9:00 a.m. on March 12, 2008.

Operations

Micronic develops, manufactures and markets a range of extremely accurate laser pattern generators that are used by the world's leading electronics companies in the manufacture of displays and semiconductor chips and for electronic packaging of integrated circuits. Photomasks are critical enablers for mass production of displays and semiconductors. Micronic also manufactures metrology systems for display photomasks. Nearly all sales are generated in Asia, where around 80 percent of the customers and installed systems are found.

The Micronic share has been listed since March 2000 and since October 2006 on the OMX Nordic Exchange, the Stockholm list, in the category Mid Cap, Information Technology.

Group structure

The Group consists of the Parent Company, Micronic Laser Systems AB, and the wholly owned subsidiaries Micronic Japan K.K., Micronic Laser Systems Korea Co. Ltd., Micronic Laser Systems, Inc., USA, Micronic Laser Systems Far East Co. Ltd. and Micronic Treasury AB.

The Group's R&D, manufacturing and marketing activities are conducted in the Parent Company. In its largest markets, the Group has built up local organizations in the form of wholly owned subsidiaries that are responsible for service and customer support. These also work in close cooperation with the Parent Company in marketing, sales and installation. In addition, Micronic has a smaller subsidiary in Taiwan and a local office in China. In both of these countries, Micronic also works via an agent. Micronic Treasury AB has functioned as an intermediary for distribution of the option program.

The Group's operations are structured in a functional organization with joint R&D, manufacturing, marketing and sales for all products.

Changes in the Board and executive management

On September 18, 2007, Lars Nyberg resigned from his seat on the Board and chairmanship of Micronic after being appointed President and CEO of TeliaSonera. The Board chose Göran Malm to serve as Chairman until the 2008 AGM. Göran Malm has been a member of the Board since 2002.

As of January 1, 2008, the executive management was increased by one person when Håkan Färdig was hired as Human Resources Director.

Employees

The average number of employees in the Group during 2007 was 416 (462), of whom 301 (347) work in Sweden. Women make up 17 percent (18) of the average number of employees. Employee turnover in 2007 was 13 percent (6). The number of employees at year-end was 413 (450).

The electronics industry, where Micronic is active, is characterized by extremely fast-paced development and almost a third of the Group's employees work in R&D. Micronic actively pursues programs to enhance the skills of its employees. A remuneration review that was made in 2007 shows that salaries are set equally from a sex perspective. The variable salary program applies to all employees throughout the Group.

In 2007 Micronic's executive management revised the corporate values as a way to promote solidarity and strengthen the organization. In 2007 the company worked intensively with internal communication, for example by holding breakfast meetings for employees in small groups in Sweden and by introducing a global monthly newsletter. In 2007 Micronic also conducted an employee survey, as a follow-up to that carried out in 2006. The year's survey covered all employees in the Group. For a more detailed description of how Micronic sees its role as employer, see the section on Employees, Environment and Society on pages 18–21.

Financial overview

The Group's net sales in 2007 reached SEK 523 million (1,204). The year's low sales are mainly explained by a downturn in the display market that affected Micronic already at the end of 2006 and continued in 2007. Order intake in 2007 amounted to SEK 634 million (604). The order backlog at year-end 2007 was SEK 332 million (200).

Operating margin for 2007 was negative. Micronic's long-term target is an operating margin of 15 percent.

The consolidated loss after tax for the full year 2007 was SEK 207 million (+93), equal to SEK -5.30 (+2.37) per share.

Consolidated cash flow for 2007 was SEK -177 million and the Group's cash and cash equivalents at December 31, 2007, amounted to SEK 451 million (628). The Group's total capital expenditure in 2007 was SEK 45 million and consisted primarily of capitalized development costs.

For additional comments on the Group's results and financial position, see pages 44–47.

Key events in 2007

Micronic received orders for:

two pattern generators for the production of advanced display photomasks, including masks for next generation display manufacturing, so called G10.
one laser pattern generator from the LRS series for the production of display photomasks.
one FPS5100 laser pattern generator for advanced electronic packaging applications.
one laser pattern generator from the Omega series that will be used for semiconductor applications.
one MMS metrology system for display photomasks.
one major upgrade of a previously delivered LRS system.

Micronic introduced the Prevision series, pattern generators with improved image quality for next generation display manufacturing.

Research and development

R&D expenses in 2007 amounted to SEK 279 million (318). Actual R&D expenditure during the year was SEK 198 million (222). Aside from this, operating profit was charged with SEK 115 million (129) in amortization of previously capitalized development costs. In 2007, new development projects were capitalized in an amount of SEK 34 million (32). For a more detailed description of the Group's R&D activities in 2007 and for financial comments, see pages 44–47 and page 55.

MICRONIC 2007

FINANCIAL REPORTS

The Group's environmental work

Micronic is working actively to develop its environmental performance. The environmental policy expresses the company's ambition to actively promote sustainable development and take responsibility for its employees, products and environment. In the past year Micronic continued its efforts to apply parts of the requirements for environmental work set out in the ISO 14001 standard. In 2007 an action plan was formulated with a focus on realizing both environmental gains and cost savings. Micronic has been assessed and approved by an independent third party according to the industry standard SEMI S2, which contains performance-based environmental, health, and safety guidelines for semiconductor manufacturing equipment. For the past three years, Micronic has worked according to an occupational health and safety policy which states that a focus on OHS must permeate all operations. The company works systematically and proactively to create the best possible social environment and to avoid injuries and unacceptable conditions. Aside from incident reporting, there is a process that begins with OHS inspections where the group managers are responsible for taking up violations and problems that have been identified. The action plan for activities in 2007 included the following areas: fire protection, laser safety, safe handling of chemicals and gases, ergonomics and lighting. For a more detailed description of Micronic's environmental and OHS work, see the section on Employees, Environment and Society on pages 18–21.

Corporate governance

Micronic applies the Swedish Code of Corporate Governance. For a detailed description of the company's corporate governance practices, see the Corporate Governance Report on pages 28–33.

Risks and risk management

Through its operations Micronic is exposed to risks of both an operating and financial nature. For a description of the company's identified risks and procedures for risk management, see the descriptions on pages 42–43.

The Micronic share

The total number of shares outstanding is 39,166,616, all of the same class. Each share carries one vote. There are no limitations on the transferability of shares owing to provisions in the Articles of Association. At year-end 2007 the company had only one shareholder with a holding amounting to 10 percent or more, AMF. There are employees with private shareholdings in the company, although not the employees as a whole through a pension fund or similar. To the company's knowledge, there are no agreements between shareholders giving rise to limitations in the right to transfer shares. Furthermore, the company is not party to any agreement that will have effect, be altered or cease to apply if control over the company should change as a result of a public tender offer.

According to the Articles of Association, the members of the Board of Directors are appointed yearly by the AGM. The Articles of Association do not contain any other restrictions regarding the appointment or dismissal of Board members or regarding amendments to the Articles of Association. Instead, all other decisions are made in compliance with the Swedish Companies Act. There are no agreements between the company and members of the Board or employees granting the right to remuneration if these resign voluntarily, if their employment is terminated without reasonable grounds or they are terminated as a result of a public tender offer, other than those agreements between the company and senior executives described in Note 11 and which includes termination benefits to the CEO for 18 months and to other senior executives for six months.

Guidelines for remuneration to senior executives

Micronic strives to offer its senior executives a total remuneration package that is reasonable and market-based with respect to the specific conditions for each employee. The basic principle is an individualized level of remuneration that is determined by performance and the Group's financial position. At the AGM 2008, the Board proposes guidelines for remuneration to the executive management. Remuneration to senior executives is decided by the Board of Directors based on recommendations from the remuneration committee. The total remuneration package consists of fixed salary, variable salary, pension benefits and other benefits. In addition, agreements regarding termination benefits are found in the terms of employment.

Fixed salary, which individual and differentiated on the basis of the employee's specific conditions and responsibilities, is set according to market-based principles and is subject to yearly review. Variable salary is based on performance targets and is payable on the attainment of individual goals that are set yearly by the Board of Directors. These goals must be clear, measurable and stipulate a maximum level of remuneration, for 2007 amounting to 75 percent of fixed salary. For 2007, half of variable remuneration has been based on the Group's profit and the other half on attainment of individually set goals. The 2007 AGM approved an incentive scheme in the form of an employee stock option program 2007/2012. The Board decided on an allocation to senior executives, whereby the CEO was granted 75,000 options and the other senior executives were granted 35,000 options each. All pension benefits are of the defined contribution type, which means that the company pays a pension premium and has no further legal or constructive obligations. Other benefits consist of a company car. The Board will propose to the 2008 AGM that the current principles for remuneration to senior executives be retained with the exception of the employee stock option program that was adopted in 2007. See also Note 11.

Key events after the end of 2007

After the end of the financial year, no events have taken place in the Micronic Group which have had a significant financial impact on the company.

Outlook for 2008

Display capacity investments are set to rise by 35 percent in 2008 (DisplaySearch, January 2008), which is predicted to generate increased demand for photomasks. Micronic anticipates a shift in the market for pattern generators towards systems with higher complexity and productivity. Over time, the company also expects to sell fewer pattern generators than previously, but at a higher price per system. As a result, the lower number of system units will be compensated by higher overall order values. Growth in the market for semiconductor chips is projected at 7 percent in 2008, while semiconductor equipment spending is forecast to decline by 5 percent (VLSI Research, January 2008). However, Micronic expects the advantages of the Sigma to become increasingly important as production volumes for sub-100 nm mask production accelerate.

Older pattern generators are costly to keep online and the ongoing decommissioning of these tools creates is creating a demand for new capacity. The Omega series is well positioned for the replacement market and is continuing to sell for mainstream photomask applications.

With the anticipated recovery in the pattern generator markets from their current low level, it is the Board of Directors' assessment that sales for 2008 will exceed the 2007 level and that the second half of the year will be stronger than the first.

For the proposed disposition of accumulated deficit, see page 71.

MICRONIC 2007

Risks and risk management

The Group's risks

Micronic's operations and profitability are affected by a number of external and internal factors which are more or less within the company's control. The company employs an ongoing process to identify all existing risks and assess how these should be managed. Through internal loss prevention and ongoing development of the Group's insurance solutions, the Group minimizes its total risk and therefore also the cost of risk management.

Operating risks

Market development/business cycle

The Group's sales are influenced mainly by investments in the electronics industry. A recession or stagnation in the industry, in general or in any of the specific areas where the Group operates, could have a severe impact on Micronic's operations, profit and financial position.

In order to minimize the effects of a recession, Micronic is diversifying its product range to address a wider range of application areas. A future downturn in one application area can then be offset by growing demand in others.

Micronic is also developing its offering of after market products and other services to decrease its dependency on direct system sales. With a rising number of systems in operation at customer sites, there is a growing market for service and add-on sales.

Political risks

Although most of Micronic's production and development take place in Sweden, the majority of customers are based in Asia, with an emphasis on Japan, South Korea, Taiwan and to a certain extent also China. Micronic has subsidiaries in Japan, the USA, Taiwan and South Korea which offer service and customer support and assist the Parent Company with system sales.

At present, the countries where Micronic operates are not deemed to represent any significant political risks.

Customers

Because there are a limited number of captive and commercial photomask manufacturers in the world, the Group is dependent on a few large customers. A decrease in order intake and sales to a customer could have a significant impact on the Group's earnings and financial position. Earnings for a specific period can be affected by a postponement in the date of shipment for individual systems, arising as a result of changed conditions for a customer.

Development

Due to the rapid rate of technological development in the areas where the Group is active, Micronic is continuously exposed to a risk that the products it delivers will not meet the customers' high technical requirements. Micronic strives to minimize these risks, for example by investing aggressively in technological innovation in order to meet high customer expectations while at the same time providing superior service through a strong local presence. Micronic often collaborates closely with its customers in the development of new applications. Micronic works at the cutting edge of technological development, which creates a risk that certain development activities will not lead to commercial products and can make it difficult to predict the cost of finding a solution.

Suppliers

Some of the critical components used in the Group's products are developed and sold by a limited number of suppliers. Micronic works continuously to evaluate alternative suppliers of critical components that meet the company's quality and efficiency requirements.

Product liability and intellectual property

Through its business operations Micronic is subject to normal product liability, which means that personal injury and property damage caused by Micronic's products to a customer or third party could lead to claims against Micronic. For risks of this type, Micronic has taken out normal insurance, whereby the level of risk is deemed.

Micronic's success is also dependent on the Group's ability to protect its business secrets. Micronic utilizes various methods to protect confidential information. To reduce the risks related to intellectual property, Micronic works continuously to protect the use of innovative new technology through patents and license agreements.

By applying a proactive strategy for early identification and protection of innovations through patent applications, combined with analysis of the intellectual property potential of various products, the company minimizes its vulnerability.

Property risks

Because its operations include large-scale production and development in its own property, Micronic is also exposed to traditional property risks such as fire and water damage, theft, crimes against property, etc., which could lead to disruptions in operations. The Group has adequate insurance coverage for damage of this type.

Micronic also pursues active loss prevention, among other things with regard to building service systems and processes, for example by providing all employees with fire safety training and carrying out regular fire drills.

In 2007 Micronic drafted a contingency plan to ensure fast action and limitation of losses in the event of a disaster. Furthermore, Micronic has customary Board, directors and officers' liability coverage for all companies in the Group.

Financial risks

Financial risks arise due to fluctuations in the company's profit and cash flows resulting from movements in exchange rates, interest rates, credit risks and borrowing risks. To regulate its handling of financial risks, there is a finance policy that provides a framework of guidelines and rules for financial risk management. The policy is adopted by the Board and revised annually. The Group's finance operations are aimed at securing the Group's financing as cost-effectively as possible and minimizing the negative effects of exchange rate fluctuations on reported profit and cash flow. The Group's finance operations are carried out mainly in the Parent Company's finance department.

Foreign exchange risk

Micronic's largest single financial risk is foreign exchange risk, since the Group's sales are denominated almost exclusively in foreign currencies (see table below). In 2007 the Japanese yen (JPY) weakened by 9 percent and the US dollar (USD) by 8 percent against the Swedish krona (SEK). If sales for 2007 were translated at the same exchange rates as in 2006, the reported operating profit for 2007 would have been approximately SEK 47 million higher.

MICRONIC 2007

Sales consist of a relatively limited number of systems with typically long delivery times, i.e. the period between order receipt and delivery. Services are sold and invoiced locally by the subsidiaries. Most of the Group's costs are incurred in SEK.

Foreign exchange risk can partly be classified as either translation exposure arising in connection with the translation of the financial statements of foreign subsidiaries, and partly as transaction exposure. Forward exchange contracts and loans/investments are used to reduce exposure in foreign currency. That portion of capital employed in the foreign subsidiaries that is financed through loans, is financed in local currency. In order to minimize transaction exposure, the company uses forward exchange contracts to hedge contracted cash flows where the delivery date can be determined with certainty. Currency hedging is undertaken in accordance with the Board's established policy. Contracted cash flows consist of incoming orders. The hedged percentage of a contracted cash flow depends on the degree of uncertainty regarding the delivery date. As the delivery date approaches, Micronic increases the hedged portion of the respective contracted inflows. Forecasted cash flows with no underlying order and translation exposures are not hedged.

Currency	% of income	% of expenses	Average rate 2007	Average rate 2006
JPY	46	6	0.0574	0.0635
USD	49	13	6.7607	7.3766
EUR	0	6	9.2481	9.2549
SEK	0	73
KRW	5	3	0.007277	0.007723

Given the same volumes as in 2007, the effect of a 10 percent change in the rate of exchange for JPY or USD would affect operating profit for 2008 in an amount of approximately SEK 52 million.

Interest risk

Micronic is exposed to interest risk, defined as the risk for changes in the yield on fixed-income instruments arising from changes in market interest rate and the related cash flow risk since higher interest rates also lead to an increased cash outflow. Micronic's interest risk is limited since investments are made in accordance with liquidity plans, meaning that investments are held to maturity but with an investment horizon of no more than six months.

The Group's outstanding loans consist mainly of property loans related to the head office in Täby, as well as operating loans in the foreign subsidiaries.

Interest risk in the Group is considered limited and no financial instruments are used to hedge the effects of negative changes in market interest rates.

The Group's loans are covered by agreements with varying maturities and interest conversion dates, and carries partly fixed and partly variable interest in order to achieve a suitable mix of terms and thereby optimize the cost and interest risk. If the variable interest rate should increase by one percentage point in 2008, the total interest expense would increase by SEK 70 thousand and refers to property loans in Sweden. In note 26 there is a specification on att contractual maturity dates.

Credit risk

Through its operations, Micronic is also exposed to credit risk. Credit risk is divided into risks arising from customer sales and risks associated with liquidity management.

The sale of goods or services gives rise to customer credit risk, meaning a risk that the Group's customers will be unable to meet their payment obligations. Micronic sells a relatively small number of systems to a limited number of customers, primarily in Asia, which represents a concentration of risk. These customers are major producers of photomasks, where Micronic's systems make up a small part of a larger manufacturing facility. The customers are typically well-known, have been established in the market for many years and have good credit ratings. Because the number of suppliers of manufacturing equipment is also limited, Micronic has longstanding business relationships with its customers.

Partly to minimize credit risk, Micronic is working intensively to increase advance financing from customers as far as possible.

When doing business with new customers or in new geographical areas, Micronic minimizes credit risk by requiring letters of credit or other forms of collateral. In addition, Micronic has always had extremely low credit losses.

One type of credit risk is so-called counterparty risk, defined as the risk that a counterparty to a financial instrument will be unable to live up to its contractual obligations on the settlement date. Micronic enters into derivative transactions only with counterparties that have high credit ratings.

Liquidity risk

The Group invests its excess liquidity without assuming any significant liquidity risk. According to the established policy, excess liquidity is invested in bank deposits or other fixed-income instruments with a credit rating of at least A1/P1/K1. The reason for this is that it must be possible to liquidate investments at short notice in order to minimize the liquidity risk associated with them. No investments in fixed-income securities were made during 2007.

Micronic monitors liquidity in the Parent Company and the Group by continuously preparing both short- and long-term liquidity forecasts as a basis for decision on any borrowing or investments. These liquidity forecasts, which among other things are updated with respect to incoming payments from system sales, also provide a basis for increasing the hedged share of contracted flows as the date of delivery approaches.

MICRONIC 2007

Group

CONSOLIDATED PROFIT AND LOSS ACCOUNT

SEK thousand	Notes	2007	2006
Net sales	5	522,981	1,204,143
Cost of goods sold		-369,740	-550,028
Gross profit		153,241	654,115
Other operating income	9	302	3,444
Research and development expenses	10	-279,004	-318,487
Selling expenses		-48,690	-112,148
Administrative expenses		-103,322	-81,097
Other operating expenses	9	-13,334	-23,271
Operating profit/loss	6, 7, 8, 11, 12	-290,807	122,556
Financial income		14,161	13,758
Financial expenses		-10,910	-10,094
Net financial items	13	3,251	3,664
Profit/loss before tax		-287,556	126,220
Tax	15	80,015	-33,318
Profit/loss for the year		-207,541	92,902
Earnings per share before and after dilution, SEK		-5.30	2.37
Average number of shares before and after dilution, thousands		39,167	39,167

COMMENTS ON THE CONSOLIDATED PROFIT AND LOSS ACCOUNT

Order intake and order backlog

Order intake in 2007 amounted to SEK 634 million (604), of which orders from the after market accounted for SEK 186 million (176) and system orders for SEK 448 million (428).

In 2007 Micronic received orders for a total of 6 (8) systems, consisting of 4 systems (3) for display applications, 1 system (2) for semiconductor applications and 1 system (3) for electronic packaging applications.

The order backlog at year-end 2007 totaled SEK 332 million (200) and consisted solely of system orders. The order backlog includes systems with expected shipment in 2008 and 2009.

Sales

Net sales in 2007 reached SEK 523 million (1,204), a sharp decrease compared to 2006. Of this total, sales of service and other after market products accounted for SEK 186 million (176). Sales were severely impacted by a downturn in the display market that began in the second half of 2006 as a result of the excess capacity built up at that time. The awaited upswing in the semiconductor market failed to materialize and several customers instead announced postponed investment plans. The after market is continuing to gain importance for Micronic in pace with growth in the installed system base and development of after market products.

System sales in 2007 amounted to SEK 338 million (1,027) and consisted of 4 systems (9) for display applications, 1 system (4) for semiconductor applications and 3 systems (2) for electronic packaging applications. All system sales in 2007 were shipped to customers in Asia, compared to 98 percent in 2006.

Operating expenses

Operating expenses in 2007 totaled SEK 814 million (1,082), of which the cost of goods sold accounted for SEK 370 million (550). Gross profit for the full year 2007 was SEK 153 million (654), equal to a gross margin of 29 percent (54). Gross margin for the fourth quarter was 31 percent (53). Gross profit is charged with direct costs for delivered goods and services, including costs for system setup at the customer site and warrantees. All estimated remaining costs are recognized in connection with shipment and revenue recognition of a system. In addition, gross profit is charged with certain fixed costs for the production department and in some cases with indirect manufacturing and logistics overheads. In the fourth quarter of 2007, inventories were written down by approximately SEK 14 million. The write-down referred to parts used in products that are no longer marketed. Furthermore, costs for certain technical and customer-related activities are expensed as incurred within this function.

Depending on volumes and the product mix, gross profit, and therefore also gross margin, can vary over time and even between individual quarters. In a year like 2007 with low sales, gross margin is also more negatively affected by the fixed costs recognized in costs of goods sold.

Research and development in 2007

Operating profit for 2007 was charged with R&D expenses of SEK 279 million (318). Actual R&D expenditure during the year was SEK 198 million (222). Aside from this, operating profit was charged with SEK 115 million (129) in amortization of previously capitalized development costs. In 2007, new development projects were capitalized in an amount of SEK 34 million (32).

Each development project is assessed individually to determine whether the criteria for capitalization have been met. Amortization of capitalized costs is started when a development project is completed and it begins to generate revenue, i.e. when the first system in a new product series is shipped.

In the fourth quarter of 2007, amortization of capitalized development costs decreased when the related costs for the Sigma platform were fully amortized. At the same time, amortization of other development projects has begun but is less substantial than that for Sigma.

Micronic's R&D activities in 2007 were focused mainly on completion of new products for shipment to customers, as well as enhancements in the production reliability of Micronic's existing systems. Development of the Prevision-8 series was completed and has led to a product with significantly higher performance, productivity and stability. In 2007, Micronic developed and shipped the first systems in the FPS series and launched the Sigma7500-II. The Sigma has also been developed with a fully automated loading module, which makes this the first pattern generator to be implemented in a fully automated and remote-controlled production flow. In addition, Micronic has continued an ongoing development project to improve the production reliability of the tools measured either in uptime or production yield, which represents the percentage of photomasks that meet quality requirements after final processing. These efforts have improved the average uptime of Micronic's systems in the field.

MICRONIC 2007

For a more detailed description of Micronic's R&D activities in 2007, see page 24.

Selling and administrative expenses

Selling expenses in 2007 totaled SEK 49 million (112). Sales commissions amounted to SEK 11 million (55), equal to 3 percent (5) of system sales. The lower selling expenses reflect Micronic's shift toward in-house management of sales activities in the Group, instead of using agents as earlier, as well as lower volumes in 2007.

Administrative expenses in 2007 amounted to SEK 103 million (81). The increase is explained by the effects of reclassification of certain costs in a new organization, whereby costs for items such as product management are reported as administrative expenses. These costs, which amounted to SEK 38 million in 2007, were previously reported in the development and sales functions. Administrative expenses in 2007 were also charged with costs for the employee stock option program approved by the 2007 AGM, which runs until 2012. The total cost of the program is estimated at around SEK 15 million and will be allocated over the period ending in March 2010. Profit for 2007 has been charged with costs of around SEK 4.5 million arising from the employee stock option program.

Other expenses in 2007 amounted to SEK 13 million (20) and consisted mainly of foreign exchange differences. Other expenses also include costs for the phase-out of a self-produced development system that is no longer used in operations.

Operating profit

The Micronic Group reported an operating loss of SEK 291 million (+123) for the full year 2007. Operating profit is affected by capitalization and amortization of capitalized development costs. Adjusted for these items, the operating loss for 2007 was SEK 210 million (+220). The negative result is explained by significantly lower sales in 2007 at a lower gross margin. The measures taken to reduce costs have had the intended effect, but can only partly compensate for these negative earnings effects.

Tax

The consolidated loss before tax for the full year 2007 was SEK 288 million (+126). The Group's total tax effect was SEK 80 million (-33). Of total reported tax, approximately SEK -6 million (-6) consists of current tax arising in the foreign subsidiaries and the remainder of deferred tax. The Parent Company's loss before tax for 2007 was SEK 221 million (+211). The difference in the pre-tax loss between the Group and the Parent Company is largely explained by the fact that development costs are reported as incurred in the Parent Company, while certain development costs in the Group are capitalized in the balance sheet to be later expensed as amortization. The closing balance of accumulated loss carryforwards in the Parent Company at year-end was SEK 247 million (30), of which the full amount is expected to be utilized against future taxable profits in the Parent Company.

Profit for the year and earnings per share

The consolidated loss after tax for the full year 2007 was SEK 207 million (+93). The total number of shares outstanding at December 31, 2007, was 39,166,616. Under the stock option program adopted by the AGM, the number of shares may be increased by not more than 1,540,000 to 40,706,616. Earnings per share before and after dilution and calculated on the average number of shares in 2007, amounting to 39,166,616, were SEK -5.30 (2.37). The average number of shares has not been affected by any dilution, since the Group has reported a loss for 2007 at the same time the market price is lower than strike prices of the option program.

Order intake by quarter

Sales by quarter

R&D expenditure

Earnings per share and operating margin

MICRONIC 2007

Group

CONSOLIDATED CASH FLOW STATEMENT

SEK thousand	Notes	2007	2006
Operating activities
Profit/loss after financial items		-287,556	126,218
Adjustments for non-cash items
Depreciation/amortization and impairment of assets		193,965	202,632
Capital gain on the sale of fixed assets		7,551	130
Unrealized foreign exchange differences		5,459	19,362
Provisions for employee benefits		-174	1,219
Other provisions		826	-
Other non-cash items		-13,467	-51,495
Paid income tax		-6,340	-2,922
		-99,736	295,144
Changes in working capital
Inventories		-8,494	7,036
Accounts receivable		-41,796	12,734
Other receivables		-18,178	57,822
Accounts payable		-20,087	-28,342
Other liabilities		111,035	-125,416
Cash flow from operating activities		-77,256	218,978
Investing activities
Investments in intangible assets	16	-35,351	-35,147
Investments in tangible assets	17	-9,167	-61,578
Investments in financial assets		-93	-663
Cash flow from investing activities		-44,611	-97,388
Financing activities
Repayment of debt		-54,420	-50,922
Cash flow from financing activities		-54,420	-50,922
The year's cash flow		-176,287	70,668
Cash and cash equivalents at beginning of year		627,797	561,900
Exchange rate differences in cash and cash equivalents		-848	-4,771
Cash and cash equivalents at end of year		450,662	627,797
Interest received and paid
Interest received		14,589	12,873
Interest paid		-11,830	-9,584
		2,759	3,289
Other non-cash items
Changes in provisions for setup, warranty, commissions and obsolescence		-30,750	-51,495
Changes in provisions for variable salary		12,832	-
Costs for the employee stock option program		4,451	-
		-13,467	-51,495

CONSOLIDATED BALANCE SHEET

SEK thousand	Notes	Dec 31, 2007	Dec 31, 2006
ASSETS
Intangible assets	16	83,928	168,190
Tangible assets	17	246,359	306,051
Long-term receivables	20	5,309	5,200
Deferred tax assets	15	76,616	3,363
Total fixed assets		412,212	482,804
Inventories	21	333,608	353,309
Tax receivables		2,122	1,421
Accounts receivable		253,295	213,487
Prepaid expenses and accrued income	23	38,754	18,549
Other receivables	22	16,010	12,364
Cash and cash equivalents	24	450,662	627,797
Total current assets		1,094,451	1,226,927
TOTAL ASSETS		1,506,663	1,709,731
EQUITY AND LIABILITIES
Equity
Share capital		39,167	39,167
Other contributed capital		855,400	855,400
Reserves		-5,766	-6,474
Retained earnings incl. profit/loss for the year		18,663	221,753
Total equity		907,464	1,109,846
Liabilities
Long-term interest-bearing liabilities	26	180,901	230,842
Long-term provisions	27	5,536	4,977
Deferred tax liabilities	15	20,903	32,365
Total long-term liabilities		207,340	268,184
Current interest-bearing liabilities	26	65,506	64,858
Advance payments from customers		139,346	38,086
Accounts payable		43,011	63,281
Tax liabilities		3,758	3,310
Other liabilities	28	7,925	23,394
Accrued expenses and deferred income	29	119,282	106,023
Warranty provisions	30	13,031	32,749
Total current liabilities		391,859	331,701
Total liabilities		599,199	599,885
TOTAL EQUITY AND LIABILITIES		1,506,663	1,709,731

MICRONIC 2007

COMMENTS ON THE CONSOLIDATED BALANCE SHEET AND CASH FLOW STATEMENT

Assests

At year-end 2007 the Group's total assets amounted to SEK 1,507 million, a decrease of 12 percent from SEK 1,710 million the year before.

The Group's fixed assets fell by SEK 69 million to SEK 413 million. Intangible assets amounted to SEK 84 million (168) and consisted primarily, SEK 77 million, of capitalized development. In 2007 Micronic amortized previously capitalized development in an amount of SEK 115 million (129) at the same time that new development projects were capitalized in an amount of SEK 34 million (32), equal to net amortization of SEK 81 million (97) in 2007. Each development project is assessed individually to determine whether the criteria for capitalization have been met. Amortization of previously capitalized development costs related to the Sigma platform was completed in the fourth quarter of 2007, which will lead to lower amortization in 2008. The value of intangible assets is reviewed for impairment quarterly to ensure accurate reporting.

Tangible assets such as buildings, computers and equipment declined in 2007 from SEK 306 million to SEK 246 million. The year's investments totaled approximately SEK 11 million, while depreciation amounted to around SEK 69 million.

Accounts receivable at year-end 2007 totaled SEK 253 million (213). Most shipments in the fourth quarter took place late in the year, which explains the high level in relation to sales.

Cash and cash equivalents fell by SEK 177 million in 2007 and amounted to SEK 451 million at the end of the year.

Liabilities

The Group's interest-bearing liabilities have decreased through repayment of loans, mainly referring to parts of the advance from ASML. Short-term operating liabilities rose by SEK 60 million and amounted to SEK 327 million (267) at year-end. Accounts payable were down by SEK 20 million, while advance payments from customers increased by SEK 100 million to SEK 139 million (38). As far as possible, Micronic strives to obtain advance payment from customers when an order is placed. Most of the advance payments at year-end were received in connection with an order for two systems for next generation display manufacturing.

Cash flow 2007, capital expenditure and financing

The Group's cash and cash equivalents at December 31, 2007, amounted to SEK 451 million (628), which means that consolidated cash flow for 2007 was SEK -176 million. Operating activities in 2007 generated a negative cash flow of SEK 77 million, compared with a positive cash flow of SEK 219 million in 2006. Operating cash flow consists of net profit adjusted for non-cash items such as depreciation, amortization and changes in working capital.

The Group's total capital expenditure in 2007 was SEK 45 million (97). The decrease is mainly attributable to lower investments in tangible assets. Of total capital expenditure, SEK 34 million (32) is attributable to capitalization of development costs. Other investments, amounting to SEK 11 million, refer primarily to the purchase of computers, investments in the business system and modifications in the Täby property, and were mostly made in Sweden.

The Group's financing activities in 2007 generated a negative cash flow of SEK 54 million (51). ASML has carried out some development of the SLM technology that will benefit Micronic, for which reason a portion of an advance payment has been refunded according to an agreement between the companies. The refund, which was made in the first quarter of 2007, amounted to SEK 32 million. Liabilities relating to finance leases have been reduced by SEK 11 million. Net borrowing in the Group has otherwise decreased by SEK 11 million, of which the bulk is attributable to the subsidiaries.

The equity/assets ratio at year-end 2007 was 60 percent (65).

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

The share capital consists of 39,166,616 (39,166,616) shares. All shares are of the same class and each share carries one vote.

SEK thousand	Share capital	Other contributed capital	Reserves			Retained earnings	Total equity
			Hedge reserve	Revaluation reserve	Translation reserve
Opening balance, January 1, 2006	39,167	855,400	1,025	1,359	807	127,494	1,025,252
Reclassification				-1,359		1,359	-
Transferred to profit and loss			-1,424				-1,424
Foreign exchange differences					-8,542		-8,542
Tax attributable to items recognized directly in equity			399		1,261		1,660
Total income and expenses recognized directly in equity, excl. transactions with shareholders			-	-	-6,474	128,854	1,016,946
Profit/loss for the year						92,900	92,900
Closing balance, December 31, 2006	39,167	855,400	-	-	-6,474	221,753	1,109,846
Foreign exchange differences					-3,618		-3,618
Recognized in hedge reserve			11,444				11,444
Transferred to profit and loss			-5,832				-5,832
Tax attributable to items recognized directly in equity			-1,571		285		-1,286
Total income and expenses recognized directly in equity, excl. transactions with shareholders			4,041		-3,333		708
Profit/loss for the year						-207,541	-207,541
Total recognized income and expenses, excl. transactions with shareholders			4,041		-3,333	-207,541	-206,834
Equity-settled share-based payments according to IFRS 2						4,451	4,451
Closing balance, December 31, 2007	39,167	855,400	4,041	-	-9,807	18,663	907,464

The translation reserve contains foreign exchange differences arising on translation of foreign operations after January 1, 2004.

MICRONIC 2007

Parent Company

PROFIT AND LOSS ACCOUNT

SEK thousand	Notes	2007	2006
Net sales	5	412,423	1,140,437
Cost of goods sold		-303,083	-516,350
Gross profit		109,340	624,087
Research and development expenses	10	-199,450	-222,279
Selling expenses		-84,464	-111,992
Administrative expenses		-47,746	-62,785
Other operating income	9	7,891	3,424
Other operating expenses	9	-12,565	-26,112
Profit profit/loss	6, 7, 8, 11, 12	-226,994	204,343
Result from financial investments
Interest income and similar items	14	15,153	14,448
Interest expense and similar items	14	-9,104	-7,703
Profit/loss before tax		-220,945	211,088
Tax	15	62,538	-56,812
Profit/loss for the year		-158,407	154,276

CASH FLOW STATEMENT

SEK thousand	Notes	2007	2006
Operating activities
Profit/loss before tax		-220,945	211,088
Adjustments for non-cash items
Depreciation/amortization and impairment of assets		65,772	56,405
Unrealized foreign exchange differences		5,506	-6,270
Capital gains on the sale of fixed assets		7,551	130
Other non-cash items		-16,344	-51,496
		-158,460	209,857
Changes in working capital
Inventories		-7,599	30,943
Accounts receivable		-128,686	177,317
Other receivables		61,702	-92,309
Accounts payable		-20,893	-24,425
Other liabilities		118,330	-104,693
Cash flow from operating activities		-135,606	196,690
Investing activities
Investments in subsidiaries		-	-12,832
Investments in intangible assets	16	-997	-2,846
Investments in tangible assets	17	-8,782	-58,048
Cash flow from investing activities		-9,779	-73,726
Financing activities
Repayment of debt		-35,116	-36,445
Cash flow from financing activities		-35,116	-36,445
The year's cash flow		-180,501	86,519
Cash and cash equivalents at beginning of year		604,247	517,728
Cash and cash equivalents at end of year		423,746	604,247
Additional information
Interest received and paid
Interest received		14,527	13,526
Interest paid		-9,737	-7,138
		4,790	6,388
Other non-cash items
Changes in reserves for setup, warranty, commissions and obsolescence		-30,154	-51,496
Costs for the employee stock option program		4,451	-
Changes in reserve for variable salary		9,359	-
		-16,344	-51,496

48
MICRONIC 2007

BALANCE SHEET

SEK thousand	Notes	Dec 31, 2007	Dec 31, 2006
ASSETS
Fixed assets
Intangible assets	16	6,425	10,088
Tangible assets	17	233,453	280,126
Financial assets
Participations in group companies	18	24,677	24,677
Receivables from group companies	19	26,209	27,227
Other long-term receivables	20	80	80
Deferred tax asset	15	72,807	9,531
Total financial assets		123,773	61,515
Total fixed assets		363,651	351,729
Current assets
Inventories	21	284,087	303,310
Current receivables
Accounts receivable		168,458	39,772
Receivables from group companies		52,894	139,154
Other receivables	22	7,998	11,709
Tax assets		1,196	1,421
Prepaid expenses and accrued assets	23	40,154	17,251
Total current receivables		270,700	209,307
Cash and cash equivalents	24	423,746	604,247
Total current assets		978,533	1,116,864
TOTAL ASSETS		1,342,184	1,468,593
Pledged assets and contingent liabilities
At December 31
Pledged assets	31	191,000	191,000
Contingent liabilities	32	99,472	154,755
SEK thousand	Notes	Dec 31, 2007	Dec 31, 2006
---	---	---	---
EQUITY AND LIABILITIES
Restricted equity
Share capital		39,167	39,167
Statutory reserve		861,637	861,637
		900,804	900,804
Non-restricted equity
Fair value reserve		-4,144	-3,411
Accumulated deficit		101,184	-57,543
Profit/loss for the year		-158,408	154,276
		-61,368	93,322
Total equity		839,436	994,126
Untaxed reserves	25	5,451	5,451
Long-term liabilities
Interest-bearing liabilities to credit institutions	26	79,142	82,582
Other interest-bearing liabilities	26	89,998	117,650
Total long-term liabilities		169,140	200,232
Current liabilities
Interest-bearing liabilities to credit institutions	26	3,440	3,440
Other interest-bearing liabilities	26	33,157	31,675
Advance payments from customers		130,774	27,524
Accounts payable		38,009	58,901
Liabilities to group companies		-	5,141
Other liabilities	28	4,507	9,596
Accrued expenses and deferred income	29	105,239	99,758
Warranty provisions	30	13,031	32,749
Total current liabilities		328,157	268,784
TOTAL EQUITY AND LIABILITIES		1,342,184	1,468,593

PARENT COMPANY STATEMENT OF CHANGES IN EQUITY

The share capital consists of 39,166,616 (39,166,616) shares. The shares are of the same class and each share carries one vote.

SEK thousand	Restricted equity		Non-restricted equity		Total equity
	Share capital	Statutory reserve	Fair value reserve*	Accumulated deficit incl. loss for the year
Opening balance, January 1, 2006	39,167	861,637	-	-57,543	843,261
Translation differences recognized directly in equity			-4,737		-4,737
Tax attributable to items recognized directly in equity			1,326		1,326
Total income and expenses recognized directly in equity excl. transactions with shareholders			-3,411		-3,411
Profit/loss for the year				154,276	154,276
Closing balance, December 31, 2006	39,167	861,637	-3,411	96,733	994,126
Translation differences recognized directly in equity			-1,018		-1,018
Tax attributable to items recognized directly in equity			285		285
Total income and expenses recognized directly in equity, excl. transactions with shareholders			-733		-733
Profit/loss for the year				-158,408	-158,408
Total recognized income and expenses, excl. transactions with shareholders			-733	-158,408	-159,141
Equity-settled share based payments according to IFRS 2				4,451	4,451
Closing balance, December 31, 2007	39,167	861,637	-4,144	-57,224	839,436

The fair value reserve in its entirely comprises the translation reserve.

MICRONIC 2007

Additional information and notes

50
MICRONIC 2007

NOTE 1. ACCOUNTING POLICIES, GENERAL INFORMATION

Compliance with norms and laws

Micronic Laser Systems AB (publ) and its subsidiaries, together comprising the Group, are engaged in the development, manufacture and sale of advanced laser pattern generators for the production of photomasks. All manufacturing takes place in Sweden, while sales are generated almost exclusively outside Sweden. The subsidiaries are based in Japan, South Korea, the USA, and Taiwan.

The Parent Company is quoted on the OMX Nordic Exchange, Stockholm list, in the category Mid Cap, Information Technology.

The consolidated annual report has been prepared in accordance with International Financial Reporting Standards (IFRS) as endorsed by the European Commission for application in the EU. Furthermore, the Swedish Financial Accounting Standards Council's recommendation RR 30, Supplementary Rules for Consolidated Financial Statements, has been applied. The accounting policies of the Group are unchanged compared with the preceding year aside from increased disclosure requirements in IFRS 7, Financial Instruments: Disclosures. The concurrent revisions in IAS 1, Presentation of Financial Statements, also require additional disclosures about equity, the significance of financial instruments and the risks arising from financial instruments. This has not entailed a change in the accounting standard but only of the disclosure requirements for financial instruments. Certain new interpretations are mandatory as of January 1, 2008, but these are not assessed to have any appreciable impact on the Group.

The Parent Company applies the same accounting policies as in 2006. Any deviations between the policies applied by the Parent Company and the Group are a result of the Swedish Annual Accounts Act's limitations on the scope for IFRS conformity in the Parent Company and of the exemption rules in RR 32 "Accounting for Legal Entities" arising from the connection between accounting and taxation.

Approval

These financial statements for the Parent Company and the Group were approved by the Board for publication on February 20, 2008, and will be submitted to the Annual General meeting for adoption on April 3, 2008.

Basis of presentation

The closing date is December 31.

Assets and liabilities are stated at cost, unless otherwise specified.

The functional currency of the Parent Company is Swedish kronor (SEK), which is also the presentation currency of the Parent Company and the Group. This means that the financial statements are presented in SEK. All amounts are stated in SEK thousands unless otherwise specified.

Accounting estimates and classifications

The preparation of financial reports in compliance with IFRS requires the company's management to make certain accounting judgments, estimates and assumptions that affect the reported amounts of assets and liabilities on the closing date and the reported amounts of revenues and expenses during the reporting period. The actual results may differ from these estimates. The areas that contain a large degree of estimates, which are complex or where the assumptions and estimates are of material significance for the consolidated financial statements, are specified in Note 4.

Fixed assets and long-term liabilities essentially consist of amounts that are expected to be recovered or settled more than 12 months after the closing date.

Current assets and current liabilities essentially consist of amounts that are expected to be recovered or settled within 12 months from the closing date. Where applicable, any deviations from these principles for settlement or payment are specified in a note to the affected balance sheet item.

NOTE 2. ACCOUNTING POLICIES OF THE GROUP

Principles of consolidation

Subsidiaries include all companies in which the Parent Company has the ability, directly or indirectly, to govern the operating and financial policies in a manner normally determined by the ownership of more than 50 percent of the voting stock. Subsidiaries are included in the consolidated financial statements from the date on which control passes to the Group and up to the date on which control passes from the Group.

The consolidated financial statements have been prepared in accordance with the purchase method of accounting.

All intra-group income and expenses, receivables and liabilities, and unrealized gains on transactions between group companies are eliminated in full on consolidation.

Foreign currency translation

Functional currency

Items included in the financial statements of the Group's subsidiaries are measured using the currency of the primary economic environment in which the subsidiary operates ("the functional currency").

Transactions and balances

Transactions in foreign currency are translated to the functional currency at the rate of exchange ruling on the transaction date.

Sales transactions in foreign currency are translated at the spot rate with the exception of sales of spare parts, for which an approximative exchange rate for the month is used. When a contracted sale is hedged, the cumulative gain or loss on the hedging instrument, normally a forward exchange contract, is recognized in the profit and loss account when the hedged sales transaction affects profit or loss.

Monetary assets and liabilities in foreign currency are translated to the functional currency at the closing day rate. Foreign exchange gains/losses arising on translation are recognized in the profit and loss account. Non-monetary assets and liabilities carried at cost are translated at the rate of exchange ruling on the transaction date. Non-monetary assets and liabilities carried at fair value are translated to the functional currency at the rate of exchange ruling on the date when the fair values were determined. Forward exchange contracts are used to protect a receivable or liability from foreign exchange risk. Hedge accounting is not needed to achieve offsetting since the hedged item is translated at the closing day rate of exchange and the hedging instrument is measured at fair value with fair value changes arising from changes in exchange rates through profit or loss. Foreign exchange differences arising on operating receivables and liabilities are recognized in operating profit, while exchange differences arising on financial assets and liabilities are recognized among financial items.

Financial statements of foreign operations

Assets and liabilities in foreign group companies are translated from that company's functional currency to SEK at the closing day rate of exchange. Revenue and expenses in the respective group company's profit and loss account are translated to SEK at the average rate of exchange that is a reasonable approximation of actual rates on the respective transaction dates. The average rate is calculated on quarterly basis. All exchange differences arising from the translation of foreign operations are recognized in a separate translation reserve within consolidated equity.

Net investments in foreign operations

Exchange differences arising on translation of long-term loans that form part of the net investment in a foreign operation are deferred to a translation reserve in equity together with the related tax effects.

Investments in foreign subsidiaries are not hedged.

Cumulative translation differences are presented in a separate component of equity and include translation differences arising after the date of transition to IFRS (January 1, 2004). When a foreign operation is disposed of, the cumulative exchange differences relating to that foreign operation are recognized in consolidated profit or loss.

Segment reporting

The company's business is based on development, manufacturing and marketing of extremely accurate laser pattern generators for the production of photomasks. The systems are used by electronics companies to manufacture photomasks for displays and semiconductors. The systems for photomask production are produced in a similar way despite different application areas, are distributed in a similar manner and are largely sold to the same customers regardless of application area. Micronic considers itself to be a one-product company and its business risks to be primarily product-related. Consequently, the company's primary segment consists of a single product area, while secondary segment comprises the geographical markets where the company operates.

Intangible assets

Capitalized costs for business systems

Capitalized costs for business systems are recognized at cost with a deduction for accumulated amortization. The investment in a business system refers to costs incurred for adaptation and implementation of a fully integrated business system and consists of both internally generated and externally acquired assets. Capitalized costs for business systems are amortized straight-line over the expected useful life of the asset, which is three years. Amortization is started when the business system is ready for use.

Costs for maintenance of the business system are expensed as incurred.

Capitalized development costs

Costs related to research undertaken with the prospect of gaining new scientific or technical knowledge in the Group's operations are expensed as incurred.

Development projects where knowledge and understanding gained from research and practical experience are directed towards producing new products, processes or systems are recognized as intangible assets in the balance sheet when they meet the criteria for capitalization. Development costs may be capitalized if, and only if, the company can demonstrate the technical feasibility of completing the intangible asset, the intention and ability to complete the asset and use or sell it, the probability that the asset will generate future economic benefits, the availability of adequate resources to complete the development and to use or sell the asset and the ability to reliably measure the costs attributable to the asset during its development. The reported value includes all directly attributable costs, such as those for materials, salaries and compensation to employees engaged in R&D activities.

Other development costs are expensed in the profit and loss account for the period in which they arise.

Individual assessment is made of all ongoing research and development projects to determine which costs for the respective project are capitalizable and to look for any indications of impairment.

Amortization of capitalized development costs is started when the respective development project is completed, normally when it begins generating revenue, and is carried out on a straight-line basis over a period of three years.

License

The license is linked to patent rights in the maskless lithography application area. Amortization of this license was started at the end of 2003 on a straight-line basis over a period of five years based on the expected useful life of the asset.

Tangible assets

Items of property, plant and equipment are initially measured at capitalized cost less accumulated depreciation and impairment. Buildings and land refer to the Group's property and production facility in Täby outside Stockholm, which also contains office premises. The building itself and the related permanent equipment have been divided into a number of components with different expected useful lives. The components defined for the building are frame and foundation, heating and ventilation, exterior and insulation, roofing, elevators, high tension installations and other. Permanent equipment includes permanent modifications to the property, such as cleanroom facilities.

The balance sheet item "equipment" includes self-produced equipment that is used primarily for research and development as well as test and training equipment.

Borrowing costs attributable to the construction or production of an asset are not capitalized as part of the cost of that asset.

Subsequent expenditure is added to the recorded value of an asset or recognized as a separate asset when it is probable that the future economic benefits associated with the asset will flow the Group and the cost of the asset can be measured reliably. All other types of repair and maintenance are expensed in the profit and loss account for the period in which they arise.

Land is not depreciated. Other tangible assets are depreciated on a straight-line basis over the expected useful lives, starting from the month of completion or acquisition as follows:

Building components
Frame and foundation	60 years
Heating and ventilation	30 years
Exterior and insulation	40 years
Roofing	30 years
Elevators	30 years
High tension installations	20 years
Other	15 years
Other tangible assets
---	---
Land improvements	20 years
Cleanroom facilities	10 years
Other permanent equipment	5–40 years
Machinery and equipment	5 years
Computers	3 years

The balance sheet item "other permanent equipment" is of lesser significance and includes components such as boilers and lightning conductors.

Gains/losses on the sale of tangible assets are calculated as the difference between the net realizable value and carrying amount of the item and are recognized over the profit and loss account among other operating income/expenses.

Leases

Leases for machinery and equipment where the risks and rewards incident to ownership have been substantially transferred to the Group are classified as finance leases. Assets held through finance leases are reported in the consolidated balance sheet as fixed assets and are depreciated according to the same principles as other tangible assets. The corresponding obligation to pay future leasing charges is reported in the balance sheet under interest-bearing liabilities. The lease expense is reported in the consolidated profit and loss account within depreciation and interest expenses. Each lease payment is divided between amortization of the lease liability and interest expense according to the annuity principle.

Other leases are classified as operating leases. In these cases, the lease expense is reported within operating expenses, although not depreciation, in the consolidated profit and loss account.

Financial instruments

The financial assets recognized in the balance sheet include cash and cash equivalents, accounts receivable and derivatives. Financial liabilities and equity include accounts payable, loans payable and derivatives.

Recognition and derecognition

A financial asset or liability is recognized in the balance sheet when the company initially becomes party to the contractual provisions of the instrument. Accounts receivable are recorded in the balance sheet when an invoice has been sent. Financial liabilities are recognized when the counterparty has performed and there is contractual obligation to pay, even if no invoice has been received. Accounts payable are recorded when an invoice has been received.

A financial asset is derecognized from the balance sheet when the company's rights under the agreement are realized, expire or the company has relinquished control of the asset. The same applies to a part of a financial asset. A financial liability is derecognized from the balance sheet when the obligation specified in the agreement is discharged or otherwise extinguished. The same applies to a part of a financial liability.

A financial asset and a financial liability are set off and netted in the balance sheet only when a legal right of setoff exists and there is an intent and ability to set off and net these items or to simultaneously realize the asset and settle the liability.

The purchase or sale of a financial asset is recognized on the trade date, which is the date on which the company commits to purchase or sell the asset.

MICRONIC 2007

Classification and valuation

Non-derivative financial instruments are initially measured at cost, corresponding to fair value including transaction costs for all financial assets and liabilities not measured at fair value through profit or loss, which are measured at fair value less transaction costs.

The fair value of a listed financial asset is equal to the asset's quoted market price on the closing date. The Group has no such assets. The fair value of unlisted financial assets is established by using valuation techniques (see also information about derivatives in Note 33).

On initial recognition, a financial instrument is classified based on the intent for acquisition of the financial instrument. Subsequent measurement depends on how the instruments have been classified upon initial recognition.

Micronic uses the following two categories:

Financial assets at fair value through profit or loss

This category consists of two subgroups – financial assets held for trading and other financial assets which the company has designated to this category on initial recognition. Assets in this category are subsequently measured at fair value with fair value changes in profit or loss. A financial asset is classified as held for trading when it is acquired for the purpose of selling in the short term. Derivatives are classified as held for trading except when used for hedging. Derivatives are classified as held for trading when hedge accounting has been discontinued. For financial assets other than those held for trading, the company has chosen not to classify these as financial assets at fair value through profit or loss.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted on an active market. These are included in current assets, with the exception of items maturing more than 12 months from the closing date which are classified as fixed assets. Assets in this category are recognized at amortized cost. "Accounts receivable" and "other receivables" in the balance sheet belong to the category "Loans and receivables". Cash and cash equivalents are also included in this category.

Financial liabilities at fair value through profit or loss

This category consists of financial liabilities held for trading and derivatives not designated as hedging instruments. Liabilities in this category are subsequently measured at fair value and changes in fair value are recognized in the profit and loss account. A financial liability is classified as held for trading when it is acquired for the purpose of selling in the short term. Derivatives are classified as held for trading when hedge accounting is discontinued. For financial liabilities other than those held for trading, the company has chosen not to classify these financial liabilities at fair value through profit or loss.

Other financial liabilities

Financial liabilities not held for trading are measured at amortized cost less transaction costs. This category includes the Group's loans payable, finance lease liabilities and accounts payable.

Derivatives used for hedging purposes

All derivatives are initially measured at fair value in the balance sheet. Changes in the fair value of derivatives designated as fair value hedges are recognized in profit or loss. Changes in the fair value of derivatives designated as cash flow hedges and hedges of net investments in foreign currency are deferred to a special reserve in equity and are transferred to the profit and loss account when the hedged item is recognized in profit or loss.

Derivatives and hedge accounting

Derivatives consist of forward exchange contracts entered into to reduce transaction exposure in foreign currencies, and are not used for speculative purposes. Derivatives are recognized in the balance sheet and are stated at fair value. The method for reporting gains/losses on changes in the fair value of derivatives depends on the nature of the hedged risk. In hedge accounting, the Group identifies derivatives as:

a hedge of the exposure to changes in fair value of a recognized asset or liability or a previously unrecognized firm commitment (fair value hedge)
a hedge of the fair value of a highly probable forecast transaction or the hedge of a foreign exchange risk in a firm commitment (cash flow hedge)
a hedge of a net investment in a foreign operation

At present, only cash flow hedges are used.

When a contract is entered into, the relationship between the hedge instrument and the hedged risk is formally documented, including the company's risk management objective and strategy for undertaking the hedge. The Group also documents its assessments, both at the inception of a hedge and at each reporting date, on the effectiveness of the derivatives used in the hedge transaction in offsetting changes in the fair value or cash flows of the hedged item.

Changes in the hedge reserve in equity are presented in the Statement of changes in Equity.

In the Group, derivates used to hedge probable future commercial inflows in foreign currency are reported according to the rules for hedge accounting for cash flow hedges. This means that the effective portion of fair value changes for derivative instruments is recognized in the balance sheet within derivatives and in a fair value reserve within equity. The gain or loss attributable to the ineffective portion is recognized immediately in the profit and loss account. The fair value of derivatives is measured as the quoted market prices of the forward exchange contracts on the closing date.

Amounts accumulated in equity are recycled to the profit and loss account when the hedged item is reflected in profit or loss, i.e. upon issuance of the invoice.

When a hedge instrument expires, is sold or no longer meets the hedge accounting criteria and the cumulative gains/losses are deferred in equity, these are retained in equity until the hedged item is recognized in profit or loss. The effective portion is recognized in net sales when the hedged item affects profit or loss, while the ineffective portion is recognized in other operating income/expense. When a forecast transaction is no longer expected to occur, the cumulative gains/losses deferred in equity are immediately released to the profit and loss account, among other operating income/expense.

Liquid assets

Cash and cash equivalents cash and cash equivalents comprise cash in hand and at bank or equivalent institutions and other highly liquid short-term investments that have original maturities of less than three months and are not subject to any material risk for value fluctuations.

The Group had no short-term investments during the financial year.

Accounts receivable

Accounts receivable are classified as part of the category "loans and receivables". Accounts receivable are stated at the amount in which they are expected to be received after deduction of probable credit losses, which are assessed individually. Accounts payable have a short expected term and are stated at the nominal amount without discounting. Write-downs of accounts receivable are recorded in operating expenses.

Inventories

Inventories are stated at the lower of cost and net realizable value. inventories are valued at cost calculated on a First-in, First-out (FIFO) basis and include all costs of purchase, costs of conversion and other costs incurred in bringing the goods to their existing condition and location. Self-produced finished and semi-finished goods are valued at direct production cost including a reasonable share of indirect manufacturing overheads. net realizable value is the estimated selling price less the estimated cost of completion and the estimated costs necessary to make the sale.

Impairment

The carrying amounts of the Group's assets are reviewed at each balance sheet date to look for any indication that an asset may be impaired.

Impairment testing of tangible and intangible assets and participations in group companies

If there is an indication of impairment, the asset's recoverable amount is calculated. The recoverable amount is the higher of fair value less costs to sell and value in use. The calculation of value in use reflects an estimate of discounted future cash flows. Impairment losses are recognized in the profit and loss account. Impairment testing is done for all tangible and intangible assets, including intangible assets not yet available for use.

Impairment testing of financial assets

A review is carried out at each balance sheet date to look for any indication that a financial asset may be impaired. Indicators of impairment may arise from adverse changes in circumstances that affect the ability to recover an asset's carrying amount or parts of it, such as assessment of accounts receivable. The recoverable amount of financial assets carried at amortized cost is measured as the present value of future cash flows discounted at the effective interest rate on initial recognition of the asset. Assets with a short time to maturity are not discounted in calculation of recoverable value. Impairment losses are recognized in the profit and loss account.

Taxation

Current tax refers to tax payable on the year's taxable profit and adjustments in current tax from earlier periods. Deferred tax refers to the tax calculated partly on the basis of temporary differences and partly on taxable deficits. Total tax consists of current tax and deferred tax. Unlike deferred tax, current tax requires immediate payment. Current and deferred tax are reported over the profit and loss account unless the tax refers to items recognized directly in consolidated equity.

MICRONIC 2007

Deferred tax is calculated according to the balance sheet method on the basis of temporary differences between the carrying amount of an asset or liability and its tax base. Deferred tax receivables are recognized to the extent that they are expected to be used against future taxable profits.

Employee benefits

Pension commitments

Pension commitments are normally fulfilled through payment of premiums according to a defined contribution pension plan. These are charged to the profit and loss account for the period in which the employees render the related service.

Other long-term employee benefits

There is a minor long-term employee benefit obligation in the Japanese subsidiary. When employment ceases, through termination or retirement, the accumulated amount of benefit is paid out immediately.

Termination benefits

A provision is recognized on the termination of employees only if the company is demonstrably committed to terminate an employee or group of employees before the normal retirement date.

Short-term employee benefits

For short-term employee benefits, the undiscounted amount of the benefits expected to be paid in respect of service rendered by employees in a period should be recognized in that period. A provision for the expected cost of bonus payments is recognized when, and only when, the Group has a legal or constructive obligation to make such payments as a result of past events and a reliable estimate of the expected cost can be made.

Share-based payment

A decision was made in 2007 to implement an employee stock option program that will enable the employees to acquire shares in the company. The fair value of granted share options is recognized as a personnel expense with a corresponding increase in equity. Fair value is measured at the date of grant and is recognized over the remaining vesting period. The fair value of the stock options has been measured according to the Black & Scholes method, with consideration to the terms and conditions that applied on the date of grant. The amount recognized as an expense is adjusted to reflect the current number of vested options.

Social security liabilities arising from the employee stock option program are recognized over the same period or periods in which the employees render the services. Provisions for social security expenses are based on the fair market value of the options on the closing date. Fair market value is measured according to the same valuation model used on the date of grant, i.e. Black & Scholes.

Revenue recognition

The company's net sales consist entirely of revenue arising from the sale of goods (systems and system upgrades) and services. Sales are denominated in USD and JPY.

Revenue is recognized when it is probable that the economic benefits associated with a transaction will flow to the company and when the amount of revenue can be measured reliably. Revenue arising from the sale of goods to a customer is recognized upon delivery in accordance with the agreed conditions of sale and delivery, i.e. when the significant risks and rewards of ownership have been transferred to the buyer. Revenue is reported net of any discounts.

Revenue relating to the sale of services, primarily linked to service agreements, is recognized upon provision of the service. Payments due under service agreements are invoiced in advance and are progressively recognized over the term of the agreement.

Expense recognition

In connection with the delivery of goods and recognition of income from a sale, all expenses related to the delivered goods are recognized in the profit and loss account. These expenses include all estimated remaining costs at the time of delivery, including provisions for setup and warranties, which are reported under "Accrued expenses" and "Warranty provisions" in the balance sheet. The cost of setting up a system at a customer site is easy to estimate and is relatively small in relation to the value of the system as a whole. After setup is completed, the warranty period begins and normally lasts for twelve months. These costs are assessed on an individual basis and are relatively easy to predict, based on previous experience.

Costs for the provision of services are expensed as incurred.

Interest income and expense

Interest income on receivables and interest expense on liabilities are recognized in the profit and loss account for the period in which they arise.

No portion of interest expense is capitalized in the balance sheet.

Interest income on receivables and interest expense on liabilities is calculated using the effective interest method.

Interest income and expense are recorded on an accruals basis and include amortized transaction costs or other differences between the initial carrying amount of the receivable or liability and the sum of the amount to be settled at maturity and estimated future cash payments or receipts over the life of the receivable or liability. The effective interest rate is the rate that discounts estimated future cash payments or receipts through the expected life of the financial instrument to the net carrying amount of the financial asset or liability. Calculation of the effective interest rate takes into account fees receivable, that are an integral part of the instrument's yield, premiums or discounts on acquisition or issue, early redemption fees and transaction costs.

Operating expenses

The Group's expenses mainly refer to materials and supplies, personnel costs and other external expenses, primarily consisting of consulting fees. An assessment is made of costs incurred but not invoiced by suppliers for work performed during the financial year, and a corresponding provision is recognized in "Accrued expenses" in the balance sheet.

Individual assessment is made of all ongoing research and development projects. Costs related to research are expensed as incurred. Costs for development projects that meet the criteria for capitalization are reported as intangible assets.

Earnings per share

Basic earnings per share are calculated on consolidated profit for the year attributable to equity holders in the Parent Company divided by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share are calculated on profit for the period and the average number of shares outstanding adjusted for the effects of all dilutive potential ordinary shares, which during the reported periods consisted of options/warrants granted to employees. Dilution arises only when the strike price of the options/warrants falls below the market price, and increases in proportion to the difference between the strike price and market price. Earnings per share are not affected when the company records a loss or when the strike price exceeds the market price.

NOTE 3. PARENT COMPANY ACCOUNTING POLICIES

The annual financial statements of the Parent Company are presented in accordance with the Swedish Annual Accounts Act (1995:1554), the Swedish Financial Accounting Standards council's (SFASC) recommendation RR 32, Accounting for Legal Entities. Also statements issued by the SFASC's Emerging issues Task Force for listed companies are applied. RR 32 states that in the report for the legal entity, the Parent Company shall apply all EU-endorsed IFRS and statements as far as possible within the framework of the Annual Accounts Act and with respect to the connection between accounting and taxation. The areas where the accounting policies of the Parent Company differ from of the Group are described below.

Changes in accounting policies

The financial statements of the Parent Company are presented in accordance with the same accounting policies applied in 2006.

Development costs

All costs, for both research and development, are expensed as incurred.

Leases

The Parent Company classifies all leases as operating leases, which means that the lease expense is recorded as an operating expense in the profit and loss account.

Taxation

In the Parent Company, untaxed reserves are reported gross including the deferred tax portion. In the Group, however, untaxed reserves are divided between deferred tax liability and equity.

Subsidiaries

In the Parent Company, shares in subsidiaries are accounted for according to the purchase method.

Intra-group receivables that comprise net investments in foreign operations

The Parent Company's long-term loans to a foreign operation that form part of the Parent Company's net investment in the foreign operation are translated at the closing day rate of exchange. Foreign exchange differences arising on translation of such monetary items are recorded separately within a translation reserve in equity.

Derivatives and hedge accounting

In view of the changed rules in RR 32 and the connection between accounting

MICRONIC 2007

and taxation, the rules on financial instruments and hedge accounting in IAS 39 are not applied by the Parent Company as a legal entity and will continue to be applied only in the Group. Derivatives consist of forward exchange contracts that are used to reduce transaction exposure in foreign currencies for which hedge accounting is applied. Derivatives are not recorded in the balance sheet in cases where the hedged item is held off-balance sheet. When recognized in the balance sheet, the hedged item is measured with respect to the effects of the hedging instrument. In cases where receivables and liabilities are hedged against foreign exchange risk, the hedged asset or liability is measured at the exchange rate prevailing on the hedging date.

NOTE 4. CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

The preparation of financial statements in conformity with IFRS requires the management to make assumptions that affect the application of the Group's accounting policies. When preparing the financial statements, the company's management is also required to make certain estimates and assumptions about the future that affect the reported amounts of assets and liabilities on the closing date and the reported amounts of revenues and expenses during the reporting period. The actual results may differ from these estimates. The significant assumptions and estimates are specified below.

Capitalized development costs

Development projects where knowledge gained from research and practical experience are directed towards producing new products, processes or systems are recognized as intangible assets in the balance sheet when they meet the criteria for capitalization. Development costs may be capitalized only when the company can demonstrate the technical feasibility of completing the intangible asset, the intention and ability to complete the asset and use or sell it, the probability that the asset will generate future economic benefits, the availability of adequate resources to complete the development and to use or sell the asset and the ability to reliably measure the costs attributable to the asset during its development. The reported value includes all directly attributable costs, such as those for materials, salaries and compensation to employees engaged in R&D activities. Individual assessment is made of all ongoing research and development projects to determine whether these criteria have been met.

However, because it may be difficult to distinguish between research and development projects, this judgment can be affected by individual interpretations.

Useful life and impairment of capitalized development costs

The company regularly reviews capitalized development costs to look for any indication of impairment. Each development project is individually tested for impairment through a quarterly estimation of discounted future cash flows.

This valuation is made and judged by the company's management and is also reviewed by the audit committee.

Amortization of intangible assets is based on the estimated useful life of the asset. Depending on which useful life is determined for an asset, this can have a significant impact on Group's reported profit. The expected residual value of an intangible asset at the end of its useful life is always set at zero.

Amortization of capitalized development costs is started when the respective development project is completed, normally when it begins generating revenue. At that time, a straight-line amortization is started over a three-year period.

This judgment can have a large impact on a large impact on the Group's reported profit.

Warranty and installation commitments

In connection with delivery of systems and recognition of income from the sale, provisions are made for setup and warranty expenses. The costs for setting up a system at a customer site are easy to assess and are relatively small in relation to the value of the system as a whole. When setup is completed, a warranty period begins and normally lasts for 12 months. These expenses are estimated on an individual basis and are comparatively easy to determine based on previous experience. Assessments at the overall level have been historically accurate. Although deviations do occur between the amount of provisions and actual expenses, these are limited in size.

NOTE 5. REPORTING BY SEGMENT

	GROUP		PARENT COMPANY
Net sales by market	2007	2006	2007	2006
Europe	2,541	335	2,541	335
USA	16,628	33,360	4,934	27,176
Asia	503,812	1,170,448	404,948	1,112,926
Total	522,981	1,204,143	412,423	1,140,437
of which, sale of goods	358,976	1,028,101	365,639	1,107,834
of which, sale of services	164,005	176,042	46,784	32,603
	522,981	1,204,143	412,423	1,140,437

Intra-group transactions:

Of the year's purchases, 8 percent (9) is attributable to group companies. Of the year's sales, 17 percent (28) is attributable to group companies.

GROUP 2007
Assets	Asia	USA	Europe
Intangible assets	-	-	83,928
Other fixed assets	17,767	1,482	310,232
Inventories	41,531	7,989	284,087
Current receivables	88,414	2,821	217,750
Cash and cash equivalents	23,330	3,506	423,826
	171,042	15,798	1,319,823
Capital expenditure
Capitalized development	-	-	34,141
Other fixed assets	276	323	10,989
	276	323	45,130
GROUP 2006
---	---	---	---
Assets	Asia	USA	Europe
Intangible assets	-	-	168,190
Other fixed assets	19,727	1,536	293,351
Inventories	40,871	9,128	303,310
Current receivables	173,168	2,500	70,154
Cash and cash equivalents	19,448	4,023	604,325
	253,214	17,187	1,439,330
Capital expenditure
Capitalized development	-	-	32,401
Other fixed assets	3,899	194	60,894
	3,899	194	93,295

NOTE 6. OPERATING EXPENSES

	GROUP
	2007	2006
Costs allocated by function and cost type (excl. work performed by the company for its own use and capitalized)
Raw materials and consumables	109,930	217,597
Changes in product inventories and products in progress	39,287	5,446
Personnel costs	344,007	354,205
Depreciation/amortization	193,965	202,603
Other external costs	178,526	281,909
	865,715	1,061,760

MICRONIC 2007

Financial reports

NOTE 7. AMORTIZATION BY FUNCTION

Group 2007	Business system	Development expenses	License right	Buildings and land	Machinery	Equipment	Total
Cost of goods sold	685	–	–	1,738	466	18,098	20,987
Research and development expenses	561	–	–	1,753	–	48,880	51,194
Research and development, capitalized development	–	114,739	–	–	–	–	114,739
Selling expenses	57	–	–	178	–	970	1,205
Administrative expenses	154	–	3,417	481	–	2,018	6,070
	1,457	114,739	3,417	4,150	466	69,966	194,195
Group 2006
Cost of goods sold	381	–	–	1,889	359	18,910	21,539
Research and development expenses	233	–	–	1,689	215	43,921	46,058
Research and development, capitalized development	–	129,242	–	–	–	–	129,242
Selling expenses	40	–	–	297	–	990	1,327
Administrative expenses	34	–	3,417	267	6	713	4,437
	688	129,242	3,417	4,142	580	64,534	202,603
Parent Company 2007
Cost of goods sold	685		–	1,738	466	16,032	18,921
Research and development expenses	561		–	1,753	–	38,432	40,746
Selling expenses	57		–	178	–	946	1,181
Administrative expenses	154		3,417	481	–	872	4,924
	1,457		3,417	4,150	466	56,282	65,772
Parent Company 2006
Cost of goods sold	381		–	1,889	359	16,276	18,905
Research and development expenses	233		–	1,689	215	29,740	31,877
Selling expenses	40		–	297	–	891	1,228
Administrative expenses	34		3,417	267	6	672	4,396
	688		3,417	4,142	580	47,579	56,405

NOTE 8. FEES AND COMPENSATION PAID TO AUDITORS

	GROUP		PARENT COMPANY
	2007	2006	2007	2006
Fees and compensation, auditing, etc.
Auditing assignments	961	1,329	800	939
Other assignments	336	810	300	779

Auditing assignments refer to the auditing of the consolidated financial statements, the accounts and the administration of the Board of Directors and the President of the company, other tasks that befall on the company's auditor, and advice or other assistance prompted by observations from such audits or the performance of other such tasks. All other work is classified as "other assignments. During 2007 2006 "other assignments" include participation in a project to develop processes to evaluate internal control. The 2006 AGM elected KPMG as auditor.

NOTE 9. OTHER OPERATING INCOME/EXPENSES

	GROUP		PARENT COMPANY
	2007	2006	2007	2006
Other operating income
Foreign exchange gains	–	1,750	7,714	1,750
Other	302	1,694	177	1,674
	302	3,444	7,891	3,424
of which, exchange rate differences on non-hedge accounting derivatives	–	1,750	7,714	1,750
Other operating expenses
Foreign exchange losses	7,046	23,237	6,416	26,112
Other	6,288	34	6,149	–
	13,334	23,271	12,565	26,112
of which, exchange rate differences on non-hedge accounting derivatives	710	–	–	–

NOTE 10. RESEARCH AND DEVELOPMENT EXPENSES

	GROUP		PARENT COMPANY
	2007	2006	2007	2006
Research and development expenditure	198,406	221,646	199,450	222,279
Capitalized development costs	-34,141	-32,401	–	–
Amortization of previously capitalized development costs	114,739	129,242	–	–
	279,004	318,487	199,450	222,279

MICRONIC 2007

NOTE II. EMPLOYEES, PERSONNEL COSTS AND REMUNERATION TO SENIOR EXECUTIVES

Remuneration to the Board, CEO and other senior executives
	Board Committee fees	Committee fees	Basic salary	Other remuneration	Variable remuneration	Other benefits	Pension costs	Employee stock options	Total	Employee stock options, number
Göran Malm, Board Chairman as of September 17, 2007	286	50	–	–	–	–	–	–	336	–
Lars Nyberg, Board Chairman until September 17, 2007	358	36	330	–	–	–	–	–	724	–
Christer Zetterberg, Vice Chairman	275	50	–	–	–	–	–	–	325	–
Jörgen Centerman	200	50	–	–	–	–	–	–	250	–
Sigrun Hjelmquist	200	14	–	–	–	–	–	–	214	–
Magnus Lindquist	200	50	–	–	–	–	–	–	250	–
Lena Treschow Torell	200	50	–	–	–	–	–	–	250	–
Total remuneration to the Board	1,719	300	330	–	–	–	–	–	2,349	–
Sven Löfquist, CEO	–	–	2,160	38	409	70	1,202	385	4,263	75,000
Other senior executives (7 persons)	–	–	8,446	262	1,210	321	2,298	1,254	13,791	245,000
Total remuneration to the CEO and other senior executives	–	–	10,606	300	1,619	391	3,500	1,639	18,054	320,000
Total remuneration to the Board, CEO and other senior executives	1,719	300	10,936	300	1,619	391	3,500	1,639	20,403	320,000

Remuneration and benefits of the Board of Directors

The members of the Board, with the exception of the CEO, receive remuneration according to the decision of the AGM. No fees are paid to the boards of the subsidiaries. Additional fees are paid for work in the audit and nomination committees.

Lars Nyberg was Board Chairman until September 17, 2007. Aside from Board fees, he has assisted the CEO in strategic matters and has been compensated for this in the form of salary. This remuneration has been approved by the AGM. Göran Malm, who succeeded Lars Nyberg as Board Chairman, receives no remuneration other than Board fees.

Remuneration and benefits to senior executives

Other senior executives refer to the individuals who, together with the CEO make up the executive management team. For the composition of the management team, see pages 36–37. The principles for remuneration to the CEO and other senior executives have been approved by the AGM. Proposals are prepared by the remuneration committee and a decision is then made by the Board of Directors. Remuneration to the CEO and other senior executives consists of basic salary, variable remuneration, pension benefits and other benefits. In 2007 a decision was made to adopt an employee stock option program covering all employees in the Parent Company. Other benefits consist of company cars and in certain cases a home computer and healthcare insurance.

Remuneration and benefits to the CEO

For 2007, basic salary to the CEO amounted to SEK 3,307,500. This is a total compensation which the CEO may, at his own discretion, receive in the form of cash salary and/or for payment of pension premiums to an insurance company. In 2007 the CEO chose to allocate SEK 1,202,000 million to pension premiums. There are no other pension obligations with respect to the CEO. The maximum amount of variable remuneration is equivalent to 50 percent of basic salary. Of total variable remuneration 50 percent is based on the Group's profit before tax and the other 50 percent on the attainment of individual goals set by the Board. For 2007, the company did not meet the established profit targets. However, variable salary for the individually set goals is payable to the CEO. Variable salary for 2007, SEK 409 thousand, has been paid out in 2008. The amount differs somewhat from the provision made in the accounts for 2007. Under the employee stock option that was approved by the 2007 AGM, the CEO was granted 75,000 options, of which 52,500 options had been granted as of December 31, 2007. The cost for this benefit is estimated at SEK 385 thousand, excluding social security expenses.

The employment contract with the CEO specifies a mutual notice period of six months. In the event of dismissal from his duties, the CEO is entitled to 18 months' termination benefits. In cases where termination benefits are received, no other benefits are payable. The contractual retirement age for the CEO is 60 years.

Remuneration and benefits to other senior executives

The Micronic Group Management Team during 2007 consisted of 8 persons (9), of whom 1 (1) was a woman.

Variable salary is individualized and the maximum amount is between 30 and 40 percent of basic salary. Of total variable salary, 50 percent is based on the Group's net profit and the other 50 percent on individual goals set in consultation with the CEO and approved by the remuneration committee. For 2007 the company has not met the established profit targets. However, variable salary for the individual goals is payable to other senior executives. Variable salary for 2007, SEK 1,210 thousand, has been paid out in 2008. The amount differs somewhat from the provision made in the accounts for 2007. Under the employee stock option program that was adopted by the 2007 AGM, other senior executives have been granted 35,000 options each, for a total of 245,000 options, of which 171,500 options had been granted as of December 31, 2007. The cost of this benefit is estimated at SEK 1,254 thousand excluding social security expenses.

The employment contracts with the CFO, CTO and VP Corporate Sales specify a notice period of nine months in the event of dismissal by the company, in which case these individuals are entitled to termination benefits corresponding 12 months' salary after the period of notice. In cases where termination benefits are received, no other benefits are payable. For other senior executives there is a notice period of six months in the event of dismissal by the company, with termination benefits equal to six months' salary. The employment contract, with related benefits, is valid during the notice period. In cases where termination benefits are received, no other benefits are payable.

Sickness absence as a percentage of scheduled working hours, Parent Company	2007	2006
Total sickness absence	1.74	1.84
of which, sickness absence for a continuous period of 60 days or more	0.70	0.60
Sickness absence for women	4.12	2.55
Sickness absence for men	1.37	1.68
Sickness absence, employees up to 29 years	0.01	0.26
Sickness absence, employees 30–49 years	3.14	1.78
Sickness absence, employees 50 years and older	2.41	4.04

MICRONIC 2007

Note 11, cont'd.

Average number of employees	2007			2006
Parent Company	Women	Men	Total	Women	Men	Total
Sweden	55	247	302	68	279	347
China	1	-	1	1	-	1
Total in Parent Company	56	247	303	69	279	348
Subsidiaries
Japan	8	58	66	8	59	67
South Korea	3	23	26	3	22	25
USA	3	13	16	3	13	16
Taiwan	1	4	5	1	5	6
Total in subsidiaries	15	98	113	15	99	114
Total in Group	71	345	416	84	378	462
Number of employees at end of year	2007			2006
---	---	---	---	---	---	---
Parent Company	Women	Men	Total	Women	Men	Total
Sweden	61	240	301	67	266	333
China	1	-	1	1	-	1
Total in Parent Company	62	240	302	68	266	334
Subsidiaries
Japan	8	57	65	8	58	66
South Korea	3	22	25	3	26	29
USA	3	13	16	3	12	15
Taiwan	1	4	5	1	5	6
Total in subsidiaries	15	96	111	15	101	116
Total in Group	77	336	413	83	367	450
Gender distribution in executive management		2007			2006
---	---	---	---	---	---	---
Parent Company	% of women	% of men		% of women	% of men
Board of Directors	29%	71%		14%	86%
Other senior executives	13%	87%		13%	87%
Total Group
Board of Directors	9%	91%		5%	95%
Other senior executives	9%	91%		9%	91%
Salaries and other remuneration	2007			2006
---	---	---	---	---	---	---
Parent Company	Board and senior executives	Other employees	Total	Board and CEO	Other employees	Total
Sweden	16,964	148,993	165,957	4,385	166,515	170,900
China	-	60	60	-	53	53
Total in the Parent Company	16,964	149,053	166,017	4,385	166,568	170,953
Subsidiaries	4,653	56,810	61,463	4,109	56,547	60,656
Total in Group	21,617	205,863	227,480	8,494	223,115	231,609

The reported remuneration to employees includes accrued variable salary payable on the attainment of individual goals for 2007 amounting to a total of SEK 11 million excluding social security expenses, of which SEK 7.1 million in the Parent Company. The variable salary was paid out in the beginning of 2008, and differs somewhat from the cost accounted for in 2007, which is presented in the table above. Expensed share-based payments in the Parent Company amounted to SEK 4.5 million excluding social security expenses and consists of costs for the employee stock option program that was adopted by the 2007 AGM.

Total salaries and social security expenses	2007			2006
	Salaries and other remuneration	Social security expenses	Total	Salaries and other remuneration	Social security expenses	Total
Parent Company	166,017	86,366	252,333	170,953	86,956	257,909
(of which, pension costs)		(26,808)			(24,874)
Subsidiaries	61,463	7,516	68,979	60,656	9,800	70,455
(of which, pension costs)		(2,584)			(3,652)
Total in Group	227,480	93,882	321,312	231,609	96,756	328,364
(of which, pension costs)		(29,392)			(28,526)

MICRONIC 2007

NOTE 12. EMPLOYEE STOCK OPTION PROGRAM

The Annual General Meeting of Micronic on March 29, 2007, resolved to approve an employee stock option program 2007/2012.

Under the program Micronic may issue 1,540,000 warrants for subscription to shares, of which a total of 1,155,000 may be awarded to the employees. In order to ensure Micronic's completion of its obligations to the holders of employee stock options, including payment of social security expenses arising on the benefit upon exercise of the employee stock options, the AGM also decided approved the issuance of 1,540,000 warrants to Micronic Treasury AB for subscription to shares.

Of these, 385,000 are intended to cover the cost of the social security expenses. As a consequence of this, the company's share capital may be increased by not more than SEK 1,540,000. All employees in the Parent Company are covered by the employee stock option program. The Board has established four categories with different terms of grant.

The options will be issued in an amount of 40, 30 and 30 percent of the total number of options on the dates falling ten trading days after publication of the interim reports for the second, third and fourth quarters of 2007.

The employee stock options are granted free of charge. The strike price will be equal to 115 percent of the average market value on the ten trading days following publication of the respective interim reports. By decision of the AGM, any options not yet issued may be granted to employees at a later date, for example in connection with hiring. The original valuation of the employee stock options, as a basis for reporting the costs of the program, was carried out on the date of grant which was set at July 19, 2007. The valuation is based on assumptions that have affected the amount expensed as a cost. The costs of the employee stock option program will be recognized in reported profit through the first quarter of 2010. The following parameters have been used in the initial valuation, which has been performed according to the Black & Scholes model:

	Grant period 1	Grant period 2	Grant period 3	Total
Maximum number of new shares to be issued	616,000	462,000	462,000	1,540,000
Maximum number of options available for grant to employees	462,000	346,500	346,500	1,155,000
Actual number of options granted	434,800	326,100	326,100	1,087,000
Value per option	11.96	13.26	14.53
Valuation date, so-called date of grant	07-07-19	07-07-19	07-07-19
Share price	48.70	48.70	48.70
Strike price	54.00	54.00	54.00
Estimated average maturity	3 years	3.5 years	4 years
Interest (STIBOR plus interest on treasury bills, time-weighted)	4.17%	4.25%	4.34%
Anticipated volatility	35%	35%	35%
Dividends	-	-	-
Assumption about the share of employees remaining on the respective exercise dates	80%	80%	80%
Total estimated cost during term of the program (including social security expenses)	5,574	4,635	5,079

The above valuation is fixed, with the exception of the assumption about the share of employees remaining on the respective exercise dates. This assumption may be changed on the basis of actual conditions. The total cost will also be changed, since social security expenses are calculated on fair market value and a new estimation of fair market value is carried out every quarter. The cost excluding social security expense is recognized as an administrative expense and directly in equity, while the social security expenses are recognized as an administrative expense and an accrued expense in the balance sheet.

Anticipated volatility corresponds to historical volatility during the six months prior to the AGM decision.

Of the total number of options granted, members of the executive management have been granted 320,000, of which 224,000 had been granted as of December 31, 2007.

In 2007, costs for the employee stock option program were charged to operating profit in an amount of approximately SEK 4.5 million, including social security expenses of SEK 0.3 million.

NOTE 13. NET FINANCIAL ITEMS

	GROUP
	2007	2006
Interest income	14,161	13,758
Financial income	14,161	13,758
Interest expenses	10,910	10,094
Financial expenses	10,910	10,094
Net financial items	3,251	3,664

Interest expenses are expensed as incurred, while accrued expenses are calculated to obtain the total interest expense for the entire period. No interest expense has been capitalized as an asset item.

NOTE 14. RESULT FROM FINANCIAL INVESTMENTS

	PARENT COMPANY
	2007	2006
Interest income from group companies	1,060	786
Other interest income	14,093	13,662
Interest income and similar profit/loss items	15,153	14,448
Interest expenses and similar profit/loss items	9,104	7,703
Interest expenses and similar profit/loss items	9,104	7,703
Result from financial investments	6,049	6,745

MICRONIC 2007

NOTE 15. TAX

Group
Recognized in profit and loss	2007	2006
Current tax
The year's tax expense	-6,063	-5,657
	-6,063	-5,657
Deferred tax
Deferred tax on temporary differences	846	742
Deferred tax arising from utilization of previously capitalized tax loss carryforwards	60,754	-57,298
Deferred tax on capitalized development costs	22,567	27,115
Deferred tax on intra-group profit carried in inventory	-694	522
Deferred tax arising from utilization of previously uncapitalized loss carryforwards	1,648	-
Adjustment for prior year deferred tax	-	1,245
Deferred tax on derivatives from hedge-accounting	726	-
Other	231	14
	86,078	-27,661
Total current and deferred tax according to the profit and loss account	80,015	-33,318
Reconciliation of effective tax rate	2007	2006
Profit before tax	-287,556	126,218
Tax according to applicable tax rate in the Parent Company	28.0%	-35,341
Effect of different tax rates in foreign subsidiaries	-0.0%	-0.5%
Non-deductible/non-taxable items	-0.9%	-2,527
Adjustment of prior year deferred tax	-	2.1%
Utilization of previously uncapitalized loss carryforwards	0.6%	1,648
Other	-0.2%	-477
Effective tax	27.8%	80,015
	26.4%	-33,318
Tax items recognized directly in equity	2007	2006
Hedge reserve	-1,571	-
Translation reserve	285	1,326
	-1,286	1,326
Recognized deferred tax assets and liabilities	2007	2006
Tangible assets	586	-112
Intangible assets	-	-21,701
Long-term receivables	1,611	-
Financial instruments	846	-
Accounts receivable	143	-
Inventories	2,619	-36
Provisions	1,864	-
Untaxed reserves	-	-1,526
Accrued expenses	1,267	-
Other	666	-
Accumulated tax loss carry forwards	69,485	-
Deferred tax assets/liabilities	80,283	-23,374
Setoff	-2,471	2,471
Net deferred tax assets/liabilities	76,616	-20,903
	3,363	-32,365
Changes in deferred tax	Opening balance January 1, 2007	Recognized in profit and loss	Closing balance December 31, 2007
Tangible assets	1,525	-1,051	-
Intangible assets	-44,268	22,567	-
Financial instruments	-	725	-1,571
Accounts receivable	101	42	-
Inventories	3,050	-467	-
Provisions	1,939	-75	-
Untaxed reserves	-1,526	-	-
Accrued expenses	621	646	-
Long-term receivables	1,261	65	285
Other	1,295	1,282	-
Tax loss carryforwards	6,998	62,344	-
	-29,002	86,078	-1,286

MICRONIC 2007

Note 15, cont'd.

Parent Company

Recognized in profit and loss	2007	2006
Current tax
The years's tax expense	-	-
Adjustment of prior year tax	-	-
	-	-
Deferred tax
Deferred tax on temporary differences	590	486
Deferred tax arising from utilization of previously capitalized tax loss carryforwards	60,754	-57,298
Deferred tax arising from utilization of previously uncapitalized tax loss carryforwards	1,648	-
Other	-454	-
Total current and deferred tax, Parent Company	62,538	-56,812
Reconciliation of effective tax rate	2007
---	---	---
Profit before tax		-220,945
Tax according to applicable tax rate in Parent Company	28.0%	61,865
Non-deductible/non-taxable items	-0.7%	-1,452
Adjustment of prior year deferred tax		-
Utilization of previously uncapitalized tax loss carryforwards	0.7%	1,648
Other	0.2%	477
Effective tax	28.3%	62,538
Tax items recognized directly in equity	2007	2006
---	---	---
Foreign exchange differences	285	1,326
	285	1,326

Accumulated loss carryforwards in the Parent Company amounted to SEK 247 million (30) at year end and the assessment is that it will be fully used towards taxable profit in the Parent Company.

	2007		2006
Deferred tax assets and liabilities	Deferred tax assets	Deferred tax liabilities	Deferred tax assets	Deferred tax liabilities
Tangible assets	586	-	1,091	-
Long-term receivables	1,611	-	1,326	-
Other	1,267	-	173	-
Accumulated tax loss carryforwards	69,342	-	6,940	-
	72,807	-	9,531	-
Changes in deferred tax	Opening balance January 1, 2007	Recognized in profit and loss	Recognized in equity	Closing balance December 31, 2007
---	---	---	---	---
Tangible assets	1,091	-505	-	586
Long-term receivables	1,326	-	285	1,611
Other	173	1,095	-	1,268
Tax loss carryforwards	6,940	62,402	-	69,342
	9,531	62,992	285	72,807

NOTE 16. INTANGIBLE ASSETS

Group	Business system	Development costs	License right	Intangibles under construction	Total
Accumulated cost
Opening balance at January 1, 2006	15,947	438,619	17,084	-	471,650
Costs incurred during the year	-	32,401	-	2,846	35,147
Closing balance, accumulated cost at December 31, 2006	15,947	471,020	17,084	2,846	506,897
Accumulated amortization
Opening balance at January 1, 2006	-14,566	-183,676	-7,117	-	-205,359
The year's amortization	-688	-129,242	-3,417	-	-133,347
Closing balance, accumulated amortization at December 31, 2006	-15,254	-312,918	-10,534	-	-338,707
Closing balance, residual value	693	158,102	6,549	2,846	168,190
Accumulated cost
Opening balance at January 1, 2007	15,947	471,020	17,084	2,846	506,897
Costs incurred during the year	1,210	34,141	-	-	35,351
Reclassification to business system	2,846	-	-	-2,846	-
Closing balance, accumulated cost at December 31, 2007	20,003	505,161	17,084	-	542,248

60
MICRONIC 2007

Note 16, cont'd.

Group	Business system	Development costs	License right	Intangibles under construction	Total
Accumulated amortization
Opening balance at January 1, 2007	-15,254	-312,918	-10,534	–	-338,706
The year’s amortization	-1,457	-114,739	-3,417	–	-119,613
Closing balance, accumulated amortization at December 31, 2007	-16,711	-427,657	-13,951	–	-458,320
Closing balance, residual value	3,292	77,504	3,132	–	83,928
Book value of intangible assets, Group
At January 1, 2006	1,381	254,943	9,966	–	266,289
At December 31, 2006	693	158,102	6,549	2,846	168,190
At January 1, 2007	693	158,102	6,549	2,846	168,190
At December 31, 2007	3,292	77,504	3,132	–	83,928
Parent Company	Business system	License right	Intangibles under construction	Total
---	---	---	---	---
Accumulated cost
Opening balance at January 1, 2006	15,947	17,084	–	33,031
Costs incurred during the year	–	–	2,846	2,846
Closing balance, accumulated cost at December 31, 2006	15,947	17,084	2,846	35,877
Accumulated amortization
Opening balance at January 1, 2006	-14,566	-7,118	–	-21,684
The year’s amortization	-688	-3,417	–	-4,105
Closing balance, accumulated amortization at December 31, 2006	-15,254	-10,535	–	-25,789
Closing balance, residual value	693	6,549	2,846	10,088
Accumulated cost
Opening balance at January 1, 2007	15,947	17,084	2,846	35,877
Costs incurred during the year	1,210	–	–	1,210
Reclassification to business system	2,846	–	-2,846	–
Closing balance, accumulated cost at December 31, 2007	20,003	17,084	–	37,087
Accumulated amortization
Opening balance at January 1, 2007	-15,254	-10,535	–	-25,789
The year’s amortization	-1,457	-3,417	–	-4,874
Closing balance, accumulated amortization at December 31, 2007	-16,711	-13,952	–	-30,663
Closing balance, residual value	3,292	3,132	–	6,425
Book value of intangible assets, Parent Company
At January 1, 2006	1,381	9,966	–	11,347
At December 31, 2006	693	6,549	2,846	10,088
At January 1, 2007	693	6,549	2,846	10,088
At December 31, 2007	3,292	3,132	–	6,425

The investment in a business system refers to costs incurred for the adaptation and implementation of a fully integrated business information system.

Capitalized costs include both internally produced and externally acquired assets. Amortization was started when the system was deployed in the fourth quarter of 2002.

An individual assessment has been made of all ongoing research and development projects. Development costs that meet the criteria for capitalization are recognized in intangible assets. Capitalized costs consist of internally produced assets. Amortization commenced at different points in time between 2002 and the fourth quarter of 2004.

The externally acquired license refers to the right to exploit know-how in maskless lithography applications, and relates to patent rights under the agreement with the Fraunhofer Institute for Microelectronic Circuits and System (IMS). Amortization was started at the end of 2003 and will continue for a period of five years. Starting in 2003, license fees are also paid to Fraunhofer. See Note 32.

Information about amortization by function is provided in Note 7.

MICRONIC 2007

NOTE 17. TANGIBLE ASSETS

Group	Buildings and land	Machinery	Equipment	Construction in progress	Total
Accumulated cost
Opening balance at January 1, 2006	133,656	27,473	309,917	82,294	553,340
Purchases	263	880	43,665	5,537	50,351
Reclassification to equipment	–	–	82,247	–82,247	–
Reclassification from component inventory	–	–	13,821	–	13,821
Reclassification to products in progress	–	–	–15,046	–	–15,046
Reclassification to buildings and land	41	–	–	–41	–
Acquisition cost of sold/scrapped equipment	–	–	–14,635	–	–14,635
The year’s foreign exchange differences	–	–	–1,984	–	–1,984
Closing balance, accumulated cost at December 31, 2006	133,960	28,353	417,985	5,543	585,841
Accumulated depreciation
Opening balance at January 1, 2006	–22,446	–26,301	–173,390	–	–222,137
Reclassification to products in progress	–	–	2,133	–	2,133
Depreciation of sold/scrapped equipment	–	–	9,343	–	9,343
The year’s depreciation	–4,142	–580	–64,408	–	–69,130
Closing balance, accumulated depreciation at December 31, 2006	–26,588	–26,881	–226,322	–	–279,791
Closing balance, residual value at December 31, 2006	107,372	1,472	191,663	5,543	306,051
of which, land	8,781				8,781
Tax assessment value
Buildings	81,396
Land	10,800
	92,196
Accumulated cost
Opening balance at January 1, 2007	133,960	28,353	417,985	5,543	585,841
Purchases	–	26	8,301	674	9,001
Reclassification to equipment	–	–	3,914	–3,914	–
Reclassification from component inventory	–	–	41,632	–	41,632
Reclassification to products in progress	–	277	–	–277	–
Reclassification to buildings and land	–	–	–40,536	–879	–41,415
Acquisition cost of sold/scrapped equipment	–	–49	–33,064	–	–33,113
The year’s foreign exchange differences	–	–	231	–	231
Closing balance, accumulated cost at December 31, 2007	133,960	28,607	398,463	1,147	562,177
Accumulated depreciation
Opening balance at January 1, 2007	–26,588	–26,881	–226,322	–	–279,791
Reclassification to products in progress	–	–	12,992	–	12,992
Depreciation of sold/scrapped equipment	–	49	25,513	–	25,562
The year’s depreciation	–4,150	–466	–69,966	–	–74,582
Closing balance, accumulated cost at December 31, 2007	–30,738	–27,298	–257,783	–	–315,819
Closing balance, residual value at December 31, 2007	103,222	1,309	140,680	1,147	246,358
of which, land	8,781				8,781
Tax assessment value
Buildings	80,479
Land	10,800
	91,297
Book value of tangible assets, Group
At January 1, 2006	111,210	1,172	136,527	82,294	331,203
At December 31, 2006	107,372	1,472	191,663	5,543	306,050
At January 1, 2007	107,372	1,472	191,663	5,543	306,050
At December 31, 2007	103,222	1,309	140,680	1,147	246,358

Equipment used primarily in R&D activities has been reclassified from products in progress to equipment. In a similar manner, certain equipment has been reclassified from equipment to products in progress. The value of this reclassified equipment amounts to SEK 42 million (14) and SEK 41 million (15).

62
MICRONIC 2007

Note 17, cont'd.

Parent Company	Buildings and land	Machinery	Equipment	Construction in progress	Total
Accumulated cost
Opening balance at January 1, 2006	130,971	27,473	204,769	82,294	445,507
Purchases	269	880	37,973	5,537	44,659
Reclassification to equipment	–	–	82,247	–82,247	–
Reclassification from component inventory	–	–	13,821	–	13,821
Reclassification to products in progress	–	–	–15,046	–	–15,046
Reclassification to buildings and land	41	–	–	–41	–
Acquisition cost of sold/scrapped equipment	–	–	–13,848	–	–13,848
Effect of change to component accounting	1,445	–	443	–	1,888
Closing balance, accumulated cost at December 31, 2007	132,726	28,353	310,359	5,543	476,981
Accumulated depreciation
Opening balance at January 1, 2006	–20,335	–26,301	–105,336	–	–151,972
Reclassification to products in progress	–	–	2,133	–	2,133
Depreciation of sold/scrapped equipment	–	–	9,272	–	9,272
Effect of change to component accounting	–877	–	–3,110	–	–3,987
The year’s depreciation	–4,142	–580	–45,579	–	–52,301
Closing balance, accumulated depreciation at December 31, 2006	–25,354	–26,881	–144,620	–	–196,855

Closing balance, residual value	107,372	1,472	165,739	5,543	280,126
of which, land	8,781				8,781
Tax assessment value
Buildings	81,396
Land	10,800
	92,196
Accumulated cost
Opening balance at January 1, 2007	132,726	28,353	310,359	5,543	476,981
Purchases	–	26	7,867	674	8,567
Reclassification to equipment	–	–	3,914	–3,914	–
Reclassification from component inventory	–	–	41,632	–	41,632
Reclassification to machinery	–	277	–	–277	–
Reclassification to products in progress	–	–	–40,536	–879	–41,415
Acquisition cost of sold/scrapped equipment	–	–49	–33,064	–	–33,113
Closing balance, accumulated cost at December 31, 2007	132,726	28,607	290,172	1,147	452,652
Accumulated depreciation
Opening balance at January 1, 2007	–25,354	–26,881	–144,620	–	–196,855
Reclassification to products in progress	–	–	12,992	–	12,992
Depreciation of sold/scrapped equipment	–	49	25,513	–	25,562
The year’s depreciation	–4,150	–466	–56,282	–	–60,898
Closing balance, accumulated depreciation at December 31, 2007	–29,504	–27,298	–162,397	–	–219,199

Closing balance, residual value	103,222	1,309	127,775	1,147	233,453
of which, land	8,781				8,781
Tax assessment value
Buildings	80,497
Land	10,800
	91,297
Book value of tangible assets, Group
At January 1, 2006	110,636	1,172	99,433	82,294	293,535
At December 31, 2006	107,372	1,472	165,739	5,543	280,126
At January 1, 2007	107,372	1,472	165,739	5,543	280,126
At December 31, 2007	103,222	1,309	127,775	1,147	233,453

MICRONIC 2007

Note 17, cont'd.

Leases

	GROUP		PARENT COMPANY
	2007	2006	2007	2006
Equipment held under finance leases:
Opening balance, historical cost	78,460	78,460	-	-
The year's purchases	-	-	-	-
Historical cost of equipment held under finance leases	78,460	78,460	-	-
Opening balance, depreciation	-64,942	-50,908	-	-
The year's depreciation	-10,911	-14,034	-	-
Accumulated depreciation of equipment held under finance leases	-75,853	-64,942	-	-
Closing balance, residual value of equipment held under finance leases	2,607	13,518	-	-
The year's booked lease charges	10,531	13,295	10,531	13,295
Future minimum payments under operating leases and other lease agreements (nominal):
Within one year	5,889	7,335	431	755
Between one and five years	446	6,354	30	449
Later than five years	-	-	-	-

The finance leases refer to two contracts which refer to major production equipment units. See also note 26.

The Group's operating leases refer mainly to cars and property leases.

In the Parent Company all finance lease agreements are accounted for as operational.

NOTE 18. PARTICIPATIONS IN GROUP COMPANIES

	PARENT COMPANY
	2007	2006
Opening balance, historical cost	27,084	14,253
Increase in share capital of group companies	-	12,831
Closing balance, accumulated cost	27,084	27,084
Opening balance, impairment	-2,407	-2,407
Closing balance, accumulated impairment	-2,407	-2,407
Closing balance, book value	24,677	24,677
	Corp. ID no.	Domicile
---	---	---
Micronic Treasury AB	556501-0989	Täby
Micronic Japan K.K.	607215	Tokyo
Micronic Laser Systems, Inc.	94-3344558	Wilmington
Micronic Laser Systems Far East Co. Ltd.	80271004	Taipei
Micronic Laser Systems Korea Co. Ltd	134111-0136974	Anyang

24,677

NOTE 19. RECEIVABLES FROM GROUP COMPANIES

	PARENT COMPANY
	2007	2006
Opening balance, book value	27,227	1,823
Additions	-	25,404
Deductions	-1,018	-
Closing balance, book value	26,209	27,227

NOTE 20. OTHER LONG-TERM RECEIVABLES

	GROUP		PARENT COMPANY
	2007	2006	2007	2006
Opening balance, book value	5,200	4,973	80	80
Additions	418	2,878	-	-
Deductions	-309	-2,651	-	-
Closing balance, book value	5,309	5,200	80	80

Items added during the year refer primarily to deposits paid on property leases in the Japanese subsidiary.

NOTE 21. INVENTORIES

	GROUP		PARENT COMPANY
	2007	2006	2007	2006
Components	106,973	100,285	106,973	100,285
Spare parts	104,021	91,124	54,500	41,125
Products in progress	122,614	161,900	122,614	161,900
	333,608	353,309	284,087	303,310

Equipment that is used primarily in R&D activities has been reclassified from products in progress to equipment in an amount of SEK 42 million (14).

In a similar manner, certain equipment has been reclassified from equipment to products in progress in an amount of SEK 41 million (15).

Inventories were written down by approximately SEK 14 million. The write-down refer to parts used in products that are no longer marketed.

MICRONIC 2007

Financial reports

NOTE 22. OTHER RECEIVABLES

	GROUP		PARENT COMPANY
	2007	2006	2007	2006
VAT receivable	4,270	5,618	4,270	5,618
Derivatives, non-hedge accounting	7,792	-	-	-
Advance payments to suppliers	2,869	5,831	2,869	5,831
Other receivables	1,079	915	859	260
	16,010	12,364	7,998	11,709

NOTE 23. PREPAID EXPENSES AND ACCRUED INCOME

	GROUP		PARENT COMPANY
	2007	2006	2007	2006
Sales revenues	20,444	5,879	20,444	5,879
Cost of goods and services	3,666	1,842	3,666	1,842
Commission costs	2,177	2,637	2,177	2,637
Other	12,467	8,191	13,867	6,893
	38,754	18,549	40,154	17,251

NOTE 24. CASH AND CASH EQUIVALENTS

	GROUP		PARENT COMPANY
	2007	2006	2007	2006
Unutilized bank overdraft facility	25,000	25,000	25,000	25,000

As in previous year, the balance sheet item "cash and cash equivalents" consisted only of bank deposits at year-end 2007.

NOTE 25. UNTAXED RESERVES/APPROPRIATIONS

	PARENT COMPANY
	2007	2006
Untaxed reserves
Opening balance, excess depreciation, Machinery and equipment	5,451	5,451
The year's change	-	-
Closing balance, excess depreciation	5,451	5,451
In the Parent Company, deferred tax liabilities on untaxed reserves are reported as a part of untaxed reserves. The closing balance of untaxed reserves includes a deferred tax liability of	1,526	1,526

NOTE 26. INTEREST-BEARING LIABILITIES/LIABILITIES TO CREDIT INSTITUTIONS

	GROUP		PARENT COMPANY
	2007	2006	2007	2006
Long-term interest-bearing liabilities
Bank loans	90,903	103,653	79,142	82,582
Other interest-bearing liabilities	89,998	117,650	89,998	117,650
Liabilities under finance leases	-	9,539	-	-
	180,901	230,842	169,140	200,232
Current interest-bearing liabilities
Current portion of bank loans	22,587	21,706	3,440	3,440
Other interest-bearing liabilities	33,157	31,675	33,157	31,675
Current portion of liabilities under finance leases	9,762	11,477	-	-
	65,506	64,858	36,597	35,115
Total interest-bearing liabilities	246,407	295,700	205,737	235,347
Bank loans fall due for payment as follows:
Within one year	22,587	21,706	3,440	3,440
Between one and five years	85,742	98,159	73,981	77,088
Later than five years	5,161	5,494	5,161	5,494
	113,490	125,359	82,582	86,022

Collateral for bank loans has been furnished in an amount of SEK 102 million (102) in the company's land and buildings and SEK 89 million (89) in floating charges.

Other interest-bearing liabilities

Within one year	33,157	31,675	33,157	31,675
Between one and five years	89,998	117,650	89,998	117,650
Later than five years	-	-	-	-
	123,155	149,325	123,155	149,325
Finance lease charges fall due as follows:	GROUP 2007			GROUP 2006
---	---	---	---	---
	Minimum lease payments	Interest	Principal amount	Minimum lease payments
Within one year	9,862	-100	9,762	11,700
Between one and five years	-	-	-	9,639
Later than five years	-	-	-	-
	9,862	-100	9,762	21,339

MICRONIC 2007

Note 26, cont'd.

Interest-bearing liabilities; contractual maturity structure, Group

	Nominal amount, original currency	Book value	Effective interest	Maturity date according to loan contract <1 year	1–5 years	Later than 5 years
Bank loans
SEK, fixed interest	75,751	75,751	4.38%	3,106	72,645	–
SEK, variable interest	6,831	6,831	4.39%	334	1,336	5,161
JPY, fixed interest	540,351	30,908	1.09%	19,147	11,761	–
Liabilities under finance leases	9,762	9,762	4.68%	9,762	–	–
Other interest-bearing liabilities
EUR, fixed interest	13,000	123,155	3.73%	33,157	89,998	–
Total interest-bearing liabilities		246,407		65,506	175,740	5,161

Interest-bearing liabilities; contractual maturity structure, Parent Company

	Nominal amount, original currency	Book value	Effective interest	Maturity date according to loan contract <1 year	1–5 years	Later than 5 years
Liabilities to credit institutions
SEK, fixed interest	75,751	75,751	4.38%	3,106	72,645	–
SEK, variable interest	6,831	6,831	4.39%	334	1,336	5,161
Total liabilities to credit institutions		82,582		3,440	73,981	5,161
Other interest-bearing liabilities
EUR, fixed interest	13,000	123,155	3.73%	33,157	89,998	–
Total interest-bearing liabilities		205,737		36,597	163,979	5,161

Effect of change in interest rate on cash flow, Group

	Nominal amount, original currency	Book value	Effective interest rate	1% change in interest rate	Annual interest expense Actual	Annual interest expense with 1% increase
Bank loans
SEK, fixed interest	75,751	75,751	4.38%	5.38%	3,318	4,075
SEK, variable interest	6,831	6,831	4.39%	5.39%	300	368
JPY, fixed interest	540,351	30,908	1.09%	2.09%	337	646
Liabilities under finance leases	9,762	9,762	4.68%	5.68%	482	585
Other interest-bearing liabilities
EUR, fixed interest	13,000	123,155	3.73%	4.73%	4,595	5,825
Total interest-bearing liabilities		246,407			9,032	11,499

Effect of change in interest rate on cash flow, Parent Company

	Nominal amount, original currency	Book value	Effective interest rate	1% change in interest rate	Annual interest expense Actual	Annual interest expense with 1% increase
Bank loans
SEK, fixed interest	75,751	75,751	4.38%	5.38%	3,318	4,075
SEK, variable interest	6,831	6,831	4.39%	5.39%	300	368
Other interest-bearing liabilities
EUR, fixed interest	13,000	123,155	3.73%	4.73%	4,595	5,825
Total interest-bearing liabilities		246,407			8,213	10,268

NOTE 27. LONG-TERM PROVISIONS

	GROUP
	2007	2006
Employee benefits
Opening balance, book value	4,977	4,536
The year's provision	559	441
Closing balance, book value	5,536	4,977

NOTE 28. OTHER LIABILITIES

	GROUP		PARENT COMPANY
	2007	2006	2007	2006
Employee withholding tax	4,499	5,665	4,499	5,665
Other	3,426	17,729	8	3,931
	7,925	23,394	4,507	9,596

In the Japanese subsidiary, provisions are made for long-term employee benefits. On certain conditions, a lump-sum payment is made to employees when their employment is terminated, either due to retirement or when the employee leaves the company for some other reason.

MICRONIC 2007

Financial reports

NOTE 29. ACCRUED EXPENSES AND DEFERRED INCOME

	GROUP		PARENT COMPANY
	2007	2006	2007	2006
Setup costs	3,986	7,456	3,986	7,456
Payroll costs and overheads	63,586	52,255	61,692	52,255
Commission costs	8,886	19,211	8,886	19,211
Other	42,824	27,101	30,675	20,836
	119,282	106,023	105,239	99,758

Accrued setup costs consist of the estimated remaining costs for setting up a system at a customer site. These costs are estimated on an individual basis for each system delivered. The accrual is accounted for at revenue recognition. Costs for setup are easy to assess. They are also relatively small in relation to the value of the system as a whole. When setup is completed at the customer site, a warranty period begins and normally lasts for 12 months.

NOTE 30. CURRENT PROVISIONS

	GROUP		PARENT COMPANY
	2007	2006	2007	2006
Warranty provisions
Opening balance, book value	32,749	44,078	32,749	44,078
The year's provision/reversal	-19,718	-11,329	-19,718	-11,329
Closing balance, book value	13,031	32,749	13,031	32,749

The warranty provision includes estimated remaining costs for warranty commitments. These costs are estimated on an individual basis for each system that is shipped to a customer. The provision is accounted for at revenue recognition.

NOTE 31. PLEDGED ASSETS

	GROUP		PARENT COMPANY
	2007	2006	2007	2006
Collateral provided for liability items in the balance sheet
Liabilities to credit institutions
Property mortgages	102,000	102,000	102,000	102,000
Lien over equipment held under finance leases	2,606	13,517	-	-
Floating charges	89,000	89,000	89,000	89,000
	193,606	204,517	191,000	191,000

As collateral for the advance received on future royalties, Micronic has pledged a number of patents relating to SLM and datapath technology. As these are not recorded in the balance sheet, they have not been assigned any value in the table above.

NOTE 32. CONTINGENT LIABILITIES

	GROUP		PARENT COMPANY
	2007	2006	2007	2006
Future payment obligations to joint ventures	99,472	154,755	99,472	154,755
	99,472	154,755	99,472	154,755
of which, falling due: within one year	14,210	17,195	14,210	17,195
between one and five years	35,526	68,780	35,526	68,780
later than five years	49,736	68,780	49,736	68,780
	99,472	154,755	99,472	154,755

Under an agreement with the Fraunhofer Institute for Microelectronic Circuits and Systems (IMS) for future collaboration in development of the SLM technology, there are future payment obligations conditional on the fulfillment of a number of considerations.

NOTE 33. FINANCIAL ASSETS AND LIABILITIES

The following tables present the Group's financial assets and liabilities, stated at book and fair value and classified in the categories;

Derivatives, non-hedge accounting
Loans and receivables
Other liabilities

Fair value and carrying amount are recognized in the balance sheet as shown below:

The fair value of interest-bearing liabilities is based on expected future cash flows of principal and interest payments, discounted to the current market interest rate on the balance sheet date. For this calculation, the company uses the swap rate at December 31, 2007. The applied interest rates are based on the remaining maturity of the respective loans until the coming interest conversion date.

Group 2007	Derivatives, non-hedge accounting	Loans and receivables	Other liabilities	Total carrying amount	Total fair value
Accounts receivable		253,295		253,295	253,295
Other receivables
Forward exchange contracts
JYP	7,792			7,792	7,792
Cash and cash equivalents
SEK		231,013		231,013	231,013
USD		10,030		10,030	10,030
JPY		70,993		70,993	70,993
EUR		126,465		126,465	126,465
TWD		1,304		1,304	1,304
KRW		10,720		10,720	10,720
RMB		137		137	137
Total assets	7,792	703,957	-	711,749	711,749

MICRONIC 2007

Note 33, cont'd.

Group 2007	Derivatives, non-hedge accounting	Loans and receivables	Other liabilities	Total carrying amount	Total fair value
Long-term interest-bearing liabilities
Long-term interest-bearing liabilities to credit institutions			90,903	90,903	90,762
Other long-term interest-bearing liabilities			89,998	89,998	89,998
Short-term interest-bearing liabilities
Liabilities to credit institutions			22,587	22,587	22,587
Liabilities under finance leases			33,157	33,157	33,157
Other interest-bearing liabilities			9,762	9,762	9,762
Accounts payable			43,011	43,011	43,011
Other financial liabilities
Advance payments from customers			139,346	139,346	139,346
Other financial liabilities			2,079	2,079	2,079
Total liabilities	-	-	430,843	430,843	430,702
Recognized loss (revaluation)	710	-	-	-	-
Group 2006	Derivatives, non-hedge accounting	Loans and receivables	Other liabilities	Total carrying amount	Total fair value
---	---	---	---	---	---
Accounts receivable		213,487		213,487	213,487
Other receivables
Cash and cash equivalents
SEK		355,280		355,280	355,280
USD		59,791		59,791	59,791
JPY		53,318		53,318	53,318
EUR		151,937		151,937	151,937
TWD		1,242		1,242	1,242
KRW		6,194		6,194	6,194
RMB		35		35	35
Total assets	-	841,284	-	841,284	841,284
Long-term interest-bearing liabilities
Long-term interest-bearing liabilities to credit institutions			103,653	103,653	103,376
Other long-term interest-bearing liabilities			117,650	117,650	117,650
Liabilities under finance leases			9,539	9,539	9,539
Short-term interest-bearing liabilities
Long-term interest-bearing liabilities to credit institutions			21,706	21,706	21,706
Other long-term interest-bearing liabilities			31,675	31,675	31,675
Liabilities under finance leases			11,477	11,477	11,477
Accounts payable			63,281	63,281	63,281
Other financial liabilities
Advance payments from customers			38,086	38,086	38,086
Other financial liabilities			11,415	11,415	11,415
Total liabilities	-	-	408,482	408,482	408,205
Recognized gain (revaluation)	1,750	-	-	-	-

MICRONIC 2007

Note 33, cont'd.

Accounts receivable, Group; Impairment, age analysis and other information

	2007			2006
	Gross	Collateral	Impairment	Gross	Collateral	Impairment
Accounts receivable not yet due	250,188	–	–	155,582	–	–
Overdue accounts receivable 0–30 days	1,950	–	–	5,104	–	–
Overdue accounts receivable >30–90 days	369	–	–	1,543	–	–
Overdue accounts receivable >90–180 days	312	–	–	42,776	–	–
Overdue accounts receivable >180 days	1,085	–	609	10,280	–	1,799
Overdue accounts receivable >360 days	111	–	111	123	–	123
Total	254,015	–	720	215,409	–	1,922

In 2007 an impairment loss of SEK 419 thousand was recognized due to a customer bankruptcy, and there are no indications that this receivable can be recovered. Other financial assets refer to accounts receivable with estimated good credit quality.

Outstanding foreign exchange contracts at December 31, 2007

The Group's holding of foreign exchange contracts at December 31, 2007, can be broken down into the following underlying amounts and maturities.

	Currency	Amount, thousands	Maturity
JPY, sell	JPY	1,150,000	Q1-08
JPY, sell	JPY	1,600,000	Q2-08
Total		2,750,000

Risk management

A description of the Group's risks and risk management is provided in the Report of the directors.

Financial liabilities, maturity structure, Group

	Currency	Nom. amount in original currency	Total SEK	Within 1 month	1–3 months	3 months – 1 year	1–5 years	5 years and later
Bank loans
Bank loans	SEK	82,582	82,582		860	2,580	13,760	65,382
Bank loans	JPY	540,351	30,908		4,787	14,361	11,762
Advance payments from customers
Advance payments from customers	SEK	130,774	130,774	129		71,122	59,523
Advance payments from customers	JPY	182,730	8,572			8,572
Liabilities under finance leases	SEK	9,762	9,762			9,762
Accounts payable
Accounts payable	SEK	18,622	18,622	16,225	2,397
Accounts payable	EUR	1,278	12,108	11,852	256
Accounts payable	JPY	109,003	6,235	4,355	1,880
Accounts payable	USD	890	5,759	5,178		581
Accounts payable	KRW	41,500	287	287
Other financial liabilities
Other interest-bearing liabilities	EUR	13,000	123,155			33,157	89,998
Other financial liabilities	JPY	36,341	2,079		2,079
Total			430,843	38,026	12,259	140,135	175,042	65,382

Advance payments from customers fall due at revenue recognition of systems delivered.

The bank loans in SEK refer to property loans. On maturity, an extension of the loan is normally negotiated. The loan has a mix of contracted maturities in order to limit interest rate risk and liquidity risk.

MICRONIC 2007

Note 33, cont'd.

	Group 2006
	Currency	Nom. amount in original currency	Total SEK	Within 1 month	1–3 months	3 months – 1 year	1–5 years	5 years and later
Bank loans
Bank loans	SEK	86,021	86,021		860	2,580	13,760	68,821
Bank loans	JPY	689,840	39,873		4,567	13,700	21,607
Advance payments from customers
Advance payments from customers	SEK	27,524	27,524			24,920	2,604
Advance payments from customers	JPY	178,950	10,343				10,343
Liabilities under finance leases	SEK	21,339	21,339		2,760	8,281	10,298
Accounts payable
Accounts payable	SEK	29,234	28,956	26,466	2,488	2
Accounts payable	EUR	3,086	27,929	10,069	17,838	22
Accounts payable	JPY	62,873	2,939	2,198	741
Accounts payable	USD	503	3,455	2,812	643
Accounts payable	KRW	228	2	2
Other financial liabilities
Other interest-bearing liabilities	EUR	16,500	149,325			31,675	117,650
Other financial liabilities	JPY	197,493	11,415			11,415
Total			409,121	41,547	29,897	92,594	176,262	68,821

NOTE 34. SUBSEQUENT EVENTS

After the end of the financial year, no events have taken place in the Micronic Group which have had a significant financial impact on the company.

NOTE 35. CAPITAL MANAGEMENT

The Board of Micronic has established a financial goal for the company to maintain a good capital structure that ensures financial stability and provides a solid foundation for ongoing development of business operations.

Micronic has not paid dividends on any occasion, and has instead reinvested the generated profits mainly to finance ongoing development activities and thereby create growth for the company.

Micronic defines capital as shareholders' equity less unrealized gains/losses recognized directly in equity and share-based payments recognized directly in equity.

Capital according to the above definition	2007	2006
Share capital	39,167	39,167
Other contributed capital	855,400	855,400
Translation reserve	-9,807	-6,474
Retained profit excl. IFRS 2 transactions	14,212	221,754
Total capital	898,972	1,109,846
Hedging reserve	4,041	-
IFRS 2 transactions	4,451	-
Total equity according to balance sheet	907,464	1,109,846

The Group's long-term goal is to achieve an operating margin of more than 15 percent and to maintain an equity/assets ratio of more than 60 percent.

Neither the Parent Company nor any of the subsidiaries is subject to any external capital requirements.

MICRONIC 2007

Proposed disposition of accumulated deficit

The Board of Directors proposes that the Parent Company's accumulated deficit of SEK 61,366,963 be carried forward to new account.

Approval and adoption

As stated above, the annual report and consolidated annual report were approved for publication by the Board of Directors on February 20, 2008. The profit and loss accounts and balance sheets of the Parent Company and the Group will be put before the Annual General meeting for adoption on April 3, 2008.

Statement of assurance

The consolidated financial statements and annual report have been prepared in accordance with Regulation (EC) No. 1606/2002 of the European Parliament and of the Council of July 19, 2002, on the Application of International Accounting Standards and Generally Accepted Accounting Standards, and give a true and fair view of the financial position and performance of the Group and the Parent Company. The report of the directors for the Group and the Parent Company gives a true and fair view of the business activities, financial position and results of operations of the Parent Company and the Group, and describes the significant risks and uncertainties to which the Parent Company and the Group companies are exposed.

Täby, February 20, 2008

Göran Malm
Chairman

Jörgen Centerman
Board member

Sven Löfquist
President & CEO

Sigrun Hjelmquist
Board member

Lena Treschow Torell
Board member

Christer Zetterberg
Board member

Magnus Lindquist
Board member

Our audit report was submitted on February 20, 2008.

KPMG Bohline AB
Anders Malmeby
Authorized Public Accountant

Audit report*

To the annual meeting of the shareholders of Micronic Laser Systems AB (publ)
Corporate identity number 556351-2374

We have audited the annual accounts, the consolidated accounts, the accounting records and the administration of the Board of Directors and the Managing Director of Micronic Laser Systems AB (publ) for the year 2006. The Board of Directors and the Managing Director are responsible for these accounts and the administration of the company as well as for the application of the Annual Accounts Act when preparing the annual accounts and the application of international financial reporting standards IFRS as adopted by the EU and the Annual Accounts Act when preparing the consolidated accounts. Our responsibility is to express an opinion on the annual accounts, the consolidated accounts and the administration based on our audit.

We conducted our audit in accordance with generally accepted auditing standards in Sweden. Those standards require that we plan and perform the audit to obtain high but not absolute assurance that the annual accounts and the consolidated accounts are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the accounts. An audit also includes assessing the accounting principles used and their application by the Board of Directors and the Managing Director and significant estimates made by the Board of Directors and the Managing Director when preparing the annual accounts and consolidated accounts as well as evaluating the overall presentation of information in the annual accounts and the consolidated accounts. As a basis for our opinion concerning discharge from liability, we examined significant decisions, actions taken and circumstances of the company in order to be able to determine the liability, if any, to the company of any Board member or the Managing Director. We also examined whether any Board member or the Managing Director has, in any other way, acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association. We believe that our audit provides reasonable basis for our opinion set out below.

The annual accounts have been prepared in accordance with the Annual Accounts Act and give a true and fair view of the company's financial position and results of operations in accordance with generally accepted accounting principles in Sweden. The consolidated accounts have been prepared in accordance with international financial reporting standards IFRS as adopted by the EU and the Annual Accounts Act and give a true and fair view of the group's financial position and results of operations. The Report of the directors is consistent with the other parts of the annual accounts and the consolidated accounts.

We recommend to the annual meeting of shareholders that the income statements and balance sheets of the Parent Company and the group be adopted, that the profit of the Parent Company be dealt with in accordance with the proposal in the Report of the directors and that the members of the Board of Directors and the Managing Director be discharged from liability for the financial year.

Stockholm, 20 February 2008

Anders Malmeby
Authorized Public Accountant
KPMG Bohlin AB

*) This is a translated version of the Audit Report relating to the statutory annual report which corresponds to pages 38–71 in the printed version of the annual report. Accordingly, this translated version of the Audit Report does not relate to the printed version of the annual report.

MICRONIC 2007

Micronic's history

1970

Micronic's history dates back to the 1970s when a group of researchers headed by Gerhard Westerberg began studies in the field of microlithography at the Royal Institute of Technology in Stockholm. Their aim was to develop equipment capable of writing photomasks for the semiconductor industry.

1984

Together with seven employees, Gerhard Westerberg formed a company to commercialize the research results and went on to launch the first laser pattern generator.

1989

Following the death of Gerhard Westerberg, the employees and CEO Nils Björk took over the company with the support of venture capital from Småföretagsfonden.

1993–1995

A weak semiconductor industry forced Micronic to seek other markets for its technology. The company developed a laser pattern generator that gave designers almost total freedom in design of shadow masks for TV displays (CRT).

1996

The LRS1100 became the industry standard for production of shadow masks. Around the same time, laptop computers began to appear on the market. As this market opened up, Micronic worked closely with its customers to continue development of the laser pattern generators that are now used to produce flat panel displays for both laptop and desktop computers.

1999

Micronic reentered the semiconductor market with the launch of the first Omega6000 system. Parallel to this, Micronic found several other application areas and developed the MP80+ series. The company's unique SLM technology was introduced the same year.

2000

Micronic was listed on the Stockholm Stock Exchange and sales reached an all-time high of SEK 704 million.

2003

The highest order intake in the company's history – passing SEK 1 billion, driven by the display market. A new generation of laser pattern generators for TFT-LCDs was launched. Micronic expanded its product program and launched a metrology system for photomasks for display production. Fully subscribed rights issue.

2005

A sharp rise in shipments of the LRS15000 for production of display photomasks pushed sales to an all-time high of SEK 1,276 million. Micronic opens the Asia Technical and Applications Center (ATAC) in Japan. The Sigma7500 was launched.

2006

A subsidiary is established in South Korea.

MICRONIC'S DEVELOPMENT IN THE DISPLAY MARKET 1993-2007

MICRONIC 2007

Technical glossary

Acousto-optics

A science and technology dealing with interactions between sound waves and light waves passing through a solid material, such as a crystal. Sound waves can be used to deflect, modulate, or focus light waves.

AOD, Acousto-Optic Deflector

A component in Micronic's laser pattern generators that is used to scan a laser beam over a range of angles, or to control the output angle of a laser beam.

CAD data

CAD (Computer Aided Design) data describing the pattern to be written in Micronic's pattern generators. The data is created using software for the design of electronic circuits. Three common data formats created with CAD software are DXF, Gerber and GDS II.

CCD, CMOS

CCD (Charge Coupled Device) and CMOS (Complementary Metal Oxide Semiconductor) are two image sensor technologies used in devices such as digital cameras and camera phones. An image sensor is a device that converts a visual image into an electric signal. CMOS is also the standard technology used in semiconductor chips.

DRAM

Dynamic Random Access Memory. Used among other things as the primary storage in most personal computers. DRAM memory is fast, but it does not retain data when the power supply is removed. Other types of memory are therefore needed, such as devices that have greater capacity but are not as fast as DRAM.

DUV

Deep Ultra Violet. Light with a very short wavelength. In Micronic's case, this refers to the 248 nm wavelength of the laser in the Sigma system.

Electronic packaging

The manufacturing step that packages a semiconductor chip so that it is protected and can be connected to other electronic components in electronic equipment.

HDTV

High Definition TV, a TV standard with considerably improved picture quality. There are two versions, with 720 or 1,080 lines of resolution in the vertical direction, compared to standard TV with 576 (PAL, SECAM) or 484 (NTSC) lines of resolution. To use HDTV, both the TV programming and TV set must support the format.

LCD

Liquid Crystal Display, a display technology based on electrically active matrix of liquid crystal material. LCD technology is used in the most common type of flat panel displays. There are two main types of LCD; passive (PM-LCD or TN/STN LCD) and active (TFT-LCD).

MEMS

Micro-Electro-Mechanical Systems. The integration of micromechanical and electronic elements on the same silicon substrate. MEMS are most commonly manufactured in semiconductor processes with extra steps to form the mechanical and electromechanical devices. Micronic's SLM with one million individually titable mirrors is an example of a MEMS.

Micron, $\mu \mathrm{m}$

One millionth of a meter $(10^{-6}\mathrm{m})$, or one thousandth of a millimeter.

Mura

A Japanese word that is used to describe irregularities or systematic defects in display panels.

Although the defects are often so small that measurement is difficult or impractical, they are visible to the human eye.

Nanometer, nm

One billionth of a meter $(10^{-6}\mathrm{m})$, or one millionth of a millimeter.

OPC

Optical Proximity Correction. The smallest features on today's most advanced semiconductor chips are so small that they are difficult to manufacture using the shortest available light wavelength in microlithography. OPC consists of small support features that are added to the design pattern on the photomask for correct transfer to the chip in the micro-lithography process. The OPC features themselves do not resolve on the chip, but enhance resolution of the minute structures in the design pattern.

Phase Shift Mask

(PSM). Normal photomasks are binary; light is either blocked or transmitted. The smallest structures on today's most advanced semiconductor chips are so small that they cannot be manufactured by exposing a normal photomask with the shortest available light wavelength. Unlike a normal photomask, a phase shift mask also has areas that transmit 180-degree phase shifted light. The combination of light with opposite phases results in increased contrast and allows resolution of the smallest features on the chip.

Photomask

A photomask can be described as a photo negative. The image on the negative is written with Micronic's pattern generator and then transferred to the customer's end product via a lithographic process. The photomask consists of a transparent substrate of glass or quartz that is covered with a thin layer of chrome and a film of photoresist, a light sensitive material that can be developed and washed away once it has been exposed. After writing, the photoresist is developed and the pattern is transferred to the chrome layer by etching.

Plasma Display Panel (PDP)

A type of flat panel display that can be manufactured very large (30-80 inches diagonally) and relatively thin (approximately $100\mathrm{mm}$).

Semiconductor chip/component

An electronic component containing more than one circuit element on the same silicon chip, such as memories, processors and amplifiers.

SLM

Spatial Light Modulator, an electro optical device that uses an array of individually controlled micro mirrors on a silicon chip.

Technology node

A generation of semiconductor manufacturing. The nodes are named based on the smallest feature or minimum spacing between features, for example 130 nm, 90 nm, and 65 nm. The later the generation, the smaller and faster the transistors and the more that can be placed on a single chip.

TFT-LCD

A TFT-LCD is an active LCD providing better image quality and faster response than a passive LCD. The standard technology for flat panel computer monitors, laptops and LCD-TVs. TFT-LCD is increasingly common in mobile phones. The active LCDs have a Thin Film Transistor (TFT) in each pixel.

Uptime

The time during when a system can be utilized for production.

Financial definitions

Adjusted operating margin

Operating profit adjusted for capitalized development expenditure and amortization of previously capitalized development expenditure as a percentage of net sales.

Capital employed

Total assets reduced by non interest-bearing liabilities and deferred tax.

Capital turnover rate

Net sales divided by average capital employed.

Cash flow after investing activities before financing

Cash flow from operating activities and from changes in working capital less investments.

Cash flow from investing activities

Net capital investments in buildings, machinery and equipment as well as capitalized development costs and financial assets.

Cash flow from operating activities

Profit after financial items adjusted for non-cash items, income tax paid and changes in working capital.

Cash flow per share

Cash flow from operating activities divided by the average number of shares.

Dilution

A weighed average number of shares, affected by new issues of shares.

Earnings per share

Net profit divided by the average number of shares.

Equity per share

Equity divided by the average number of shares.

Equity/total assets

Equity as a percentage of total assets.

Gross margin

Gross profit as a percentage of net sales.

Net debt

Interest-bearing liabilities less cash and cash equivalents.

Operating margin

Operating profit as a percentage of net sales.

P/E ratio per share

Share price at December 30 divided by earnings per share.

Profit margin

Profit after financial items as a percentage of net sales.

R&D expenditure

Expenditure for R&D activities that has affected cash flow.

R&D expenses

Costs attributable to research and development activities including costs of personnel engaged in R&D work and amortization of previously capitalized development costs.

Return on capital employed

Profit after financial items plus financial expenses as a percentage of average capital employed.

Return on equity

Net profit as a percentage of average equity.

Pushing the limits

MICRONIC LASER SYSTEMS AB (PUBL)
Nytorpsvägen 9
Box 3141
SE-18303 Täby, Sweden
Tel: +46 8 638 52 00
Fax: +46 8 638 52 90
E-mail: [email protected]
www.micronic.se

MICRONIC LASER SYSTEMS STRATEGIC DEVELOPMENT
Mölndalsvägen 91
SE-412 63 Gothenburg, Sweden
Tel: +46 3170 306 80
Fax: +46 3170 306 90

MICRONIC LASER SYSTEMS INC.
1922 Zanker Road
San Jose, CA 95112, USA
Tel: +1 408 392 2260
Fax: +1 408 392 2261

MICRONIC JAPAN K.K.
Mitsugi-Kotobukicho Bldg.
1-1-3 Kotobuki-cho, Fuchu-shi
Tokyo 183-0056, Japan
Tel: +81 42 354 1320
Fax: +81 42 354 1321

MICRONIC LASER SYSTEMS KOREA CO., LTD.

9, Dong-A Plaza, 1608-4

Guanyang-Dong, Dongan-Gu
Anyang-si Gyeonggi-Do
South Korea (430-060)
Tel: +82 31 387 5111
Fax: +82 31 388 0087

MICRONIC LASER SYSTEMS FAR EAST CO., LTD.
2nd Floor, #18 Pu-Ding Road,
Der-An Building, Hsin-Chu, 300, Taiwan, R.O.C.
Tel: +886 3 564 6656
Fax: +886 3 564 6664

MICRONIC LASER SYSTEMS AB
SHANGHAI REPRESENTATIVE OFFICE
39th Floor, Sino Life Tower
707 Zhang Yang Road, Pudong
Shanghai 200120, China
Tel: +86 215 835 8383
Fax: +86 215 835 8181

MICRONIC LASER SYSTEMS

AI assistant

Mycronic — Annual Report 2007

2946_10-k_2020-07-23_83f4f149-3c98-4d5b-95e4-c6618af9a58c.pdf

Micronic

Contents

FINANCIAL REPORTS

FINANCIAL CALENDAR 2008

Micronic in brief

MICRONIC'S OPERATIONS

DRIVERS

TECHNOLOGY

MARKETS AND PRODUCTS

MICRONIC IS CLOSE TO ITS CUSTOMERS

Highlights of 2007

Comments by the CEO

2007 RESULTS

MODEST RECOVERY IN THE DISPLAY MARKET

FLAT SEMICONDUCTOR MARKET IN 2007

AFTER MARKET GAINING IMPORTANCE

IMPROVED OPERATIONAL MANAGEMENT AND COMMUNICATION

THE FUTURE

The Micronic share

SHARE PRICE TREND

TRADING AND LIQUIDITY

DIVIDEND POLICY

EMPLOYEE STOCK OPTION PROGRAM

OWNERSHIP STRUCTURE

Micronic's markets

Display market

THE MARKET FOR DISPLAY MANUFACTURING EQUIPMENT

NEXT GENERATION DISPLAY MANUFACTURING

MICRONIC IN THE DISPLAY MARKET

MARKET OUTLOOK

Semiconductor market

THE PHOTOMASK - A CRITICAL COMPONENT

Photomasks for different groundrules

THE MARKET FOR PATTERN GENERATORS

MICRONIC IN THE SEMICONDUCTOR MARKET

MARKET OUTLOOK

Market for electronic packaging

MARKET OUTLOOK

Micronic in everyday life

LCD-TV

MUSIC PLAYERS

COMPUTERS

DIGITAL CAMERAS

MOBILE PHONES

Micronic's long-term strategic model

BUSINESS PLANNING PROCESS

FINANCES

CUSTOMERS

OPERATIONS

PRODUCTS

EMPLOYEES

MICRONIC'S VALUES

MICRONIC'S LEADERSHIP PROFILE

Micronic's values

PUSHING THE LIMITS

CAPTURING THE HEART OF THE CUSTOMER

TEAMWORK AND CLARITY

RESPECTFUL INTERACTION

Micronic's strategic model

ORGANIZATION

Micronic's operations

CUSTOMER-DRIVEN PRODUCT DEVELOPMENT

MARKET AND SALES

PRODUCTION OF COMPLEX SYSTEMS IN SMALL VOLUMES WITH HIGH QUALITY

SETUP, SHIPMENT AND INSTALLATION

FULL-SCALE PRODUCTION AT THE CUSTOMER SITE

QUALITY MANAGEMENT

Micronic's after market

MORE FOCUSED SALES OF AFTER MARKET PRODUCTS

REINFORCEMENT OF SERVICE OPERATIONS IN ASIA

HIGH LEVEL OF SERVICE

MARKET OUTLOOK

SUBSIDIARIES

MICRONIC IN JAPAN

MICRONIC IN THE USA

MICRONIC IN SOUTH KOREA

MICRONIC IN TAIWAN AND CHINA

Mycronic Annual Report 2007