864559--3/16/2006--CASCADE_MICROTECH

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The cyclicality of the semiconductor industry affects our financial results, and, as a result, we may experience reduced sales or operating losses in a semiconductor industry downturn. As is the case with other companies in our industry, many of our customers defer purchasing decisions until late each quarter. As a result, we are significantly dependent upon the sale of our products in the third month of each quarter, and, if we do not generate enough revenue in the third month of each quarter to meet the earnings expectations of analysts or investors, the price of our common stock could decline. Because we generally do not have a sufficient backlog of unfilled orders to meet our quarterly revenue targets, revenue in any quarter is substantially dependent upon customer orders received and fulfilled in that quarter. We continue to devote significant effort and resources to the growth and development of our Pyramid Probe products, which has had, and could continue to have, an adverse effect on our operating margins. If we do not keep pace with technological developments in the semiconductor industry, especially the trend toward faster, smaller and lower cost chips, our revenue and operating results could suffer as potential customers decide to adopt our competitors products. There is no assurance that products recently introduced for micro-fluidics research for the life sciences industry will generate revenues and profits. Intense competition in the semiconductor wafer probing business may reduce demand for our products and reduce our sales. We obtain some of the materials, components and subassemblies used in our products from a single source or a limited group of suppliers. If these suppliers are unable to provide us with these materials, components or subassemblies in adequate quantities and on a timely basis, we may be unable to manufacture our products or meet our customers needs. We depend upon the sale of our engineering probe stations for a significant portion of our revenue, and a decline in demand for our engineering probe stations would have a more significant impact on our revenue than a downturn in demand for our analytical probes or production probe cards. We may make future acquisitions, which may be costly, difficult to integrate with our operations, divert management resources and dilute shareholder value. We face economic, political and other risks associated with our international sales and operations, which could materially harm our operating results. We rely on independent manufacturers representatives and distributors for a significant portion of our revenue, and a disruption in our relationship with our manufacturers representatives or distributors would have a material adverse effect on our revenue. If semiconductor manufacturers do not convert to 300mm wafers, or do not convert at the rate we anticipate, our growth and profitability could be harmed. Failure to retain key managerial, technical, and sales and marketing personnel or to attract new key personnel could harm our business. Our customers evaluation processes can lead to lengthy sales cycles, during which we may incur significant costs that may not result in sales. If our products contain defects, our reputation would be damaged, and we could lose customers and revenue and incur warranty expenses. If we fail to protect our proprietary technology and rights, competitors may be able to use our technologies, which would weaken our competitive position and could reduce our sales. Intellectual property infringement claims by or against us may result in litigation, the cost of which could be substantial and could prevent us from selling our products. Our growth could strain our personnel and infrastructure resources, and, if we are unable to implement appropriate controls and procedures to manage our growth, we may not be able to successfully implement our business plan. Our success depends on our continued investment in research and development, the level and effectiveness of which could reduce our profitability. We manufacture nearly all of our products at our Oregon facilities, and any disruption in the operations of these facilities could harm our business. A disruption in our strategic relationship with Agilent Technologies could have a negative effect on our ability to market our products and could result in a decline in the price of our common stock. We may fail to comply with environmental regulations, which could result in significant costs and harm our business. Product liability claims may be asserted against us, resulting in costly litigation for which we may not have sufficient liability insurance. We rely on a small number of customers for a significant portion of our revenue, and the termination of any of these relationships would adversely affect our business. Our employment costs in the short-term are, to a large extent, fixed, and therefore, any shortfall in sales would harm our operating results. The additional costs that we incur as a result of being a public company will affect our operating results. Unanticipated changes in our tax rates or exposure to additional income tax liabilities could affect our profitability. Our officers and directors and their affiliates will control the outcome of matters requiring shareholder approval.

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864559--3/16/2006--CASCADE_MICROTECH_INC