Thales Fund Management Raises Stake in Ultratech (UTEK), Suggests The Company Consider a Sale

In a 13D filing on Ultratech Inc. (Nasdaq: UTEK), Thales Fund Management disclosed an 11% stake (2.55 million shares) and disclosed a letter sent to the company suggesting a sale of the company. The firm held 2.51 million shares for the quarter ended 09/30/06. The firm changed their filing status from 13G (passive) to 13D (active).

In the letter the firm said, "These repeated operating disappointments have led to a disconnect between the high strategic value of Ultratech's technology and the price of Ultratech stock. Both Advanced Packaging and Laser Spike Annealing have significant growth prospects, and if the current underperformance continues into 2007 we will have to conclude that these opportunities can be better monetized as part of a larger organization. To that end, we hope that the board as well as senior management will be open-minded and proactive in contemplating a sale of the company as a way to maximize shareholder value."

A Copy of the Letter:

Dear Board Members,

We are the largest shareholder in your company with over 2.5m shares(representing 11.0% of the shares outstanding, per our 13D-filing of today towhich a copy of this letter is attached).

We believe that Ultratech has unique, market leading technologies that areseverely undervalued at its current stock price. In our judgment thisundervaluation is mostly due to chronic underperformance of the businessrelative to management expectations. For example, on a public conference callthat took place October 20, 2005, Chairman and CEO Arthur Zafiropoulo wasquestioned why 2006 earnings forecasts had been reduced. At the time he said:"We are getting tired...of not doing our job. And so, we're going to be very,very conservative in our guidance with you, and we're going to work to improvethe performance of this company". Subsequent to that guidance reduction,Ultratech has lowered forward guidance below analyst consensus expectations onseven separate occasions. The last two reductions have come since Mr.Zafiropoulo said during the Sep 19th 2006 analyst day that he was being"ultra-conservative" in 2007 guidance because he was "tired of getting beat up"and is "going to start exceeding analyst estimates."

This unusually high frequency of operational disappointments lends credence toMr. Zafiropoulo's assessment from the February 2, 2006 public conference callthat "the biggest problem that we have in our company is not our technology butour size. And so that may provide [customers with] a risk factor. If we were alarger company, maybe we would be getting the successes faster." We also believethe disappointments have been exacerbated by poor disclosure regarding currentoperating trends. For example, on the conference call discussing second quarter2006 results, CFO Bruce Wright said "This increase [in gross margin] was dueprimarily to cost savings programs undertaken in manufacturing and product mix."In a subsequent conversation with Mr. Wright after third quarter 2006 resultsshowed surprisingly weak gross margins, we were disappointed to learn that thesecond quarter of 2006 gross margins reflected over-earning in AdvancedPackaging due to over-building of systems that led to greater than usualabsorption of overhead costs.

These repeated operating disappointments have led to a disconnect between thehigh strategic value of Ultratech's technology and the price of Ultratech stock.Both Advanced Packaging and Laser Spike Annealing have significant growthprospects, and if the current underperformance continues into 2007 we will haveto conclude that these opportunities can be better monetized as part of a largerorganization. To that end, we hope that the board as well as senior managementwill be open-minded and proactive in contemplating a sale of the company as away to maximize shareholder value.

Sincerely,

Marco A. Battaglia, Senior Portfolio Manager, Thales Fund Management, LLC; CEOof Temujin Holdings Ltd.

Kenneth J. Ruskin, Portfolio Manager, Thales Fund Management, LLC; PortfolioManager, Temujin Holdings Ltd.