Thales Fund Management LLC – ‘SC 13D’ on 1/12/07 re: Ultratech Inc – EX-99.2

On:  Friday, 1/12/07, at 8:47am ET   ·   Accession #:  909012-7-57   ·   File #:  5-44773

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General Statement of Beneficial Ownership   —   Schedule 13D
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: SC 13D      Ultratech, Inc.                                        8     36K 
 2: EX-99.1     Joint Filing Agreement                                 1      6K 
 3: EX-99.2     Letter to Board                                        2      9K 

EX-99.2   —   Letter to Board

EX-99.2
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 EXHIBIT 2

 LETTER TO BOARD OF DIRECTORS OF ULTRATECH, INC.

January 12, 2007                                                                

Board of Directors                                                              
Ultratech, Inc.                                                                 
3050 Zanker Road                                                                
San Jose, CA  95134                                                             

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 to   
which a copy of this letter is attached).                                       

We believe that Ultratech has unique, market leading technologies that are      
severely undervalued at its current stock price. In our judgment this           
undervaluation is mostly due to chronic underperformance of the business        
relative to management expectations. For example, on a public conference call   
that took place October 20, 2005, Chairman and CEO Arthur Zafiropoulo was       
questioned 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 improve  
the performance of this company". Subsequent to that guidance reduction,        
Ultratech has lowered forward guidance below analyst consensus expectations on  
seven 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 to  
Mr. Zafiropoulo's assessment from the February 2, 2006 public conference call   
that "the biggest problem that we have in our company is not our technology but 
our size. And so that may provide [customers with] a risk factor. If we were a  
larger company, maybe we would be getting the successes faster." We also believe
the disappointments have been exacerbated by poor disclosure regarding current  
operating trends. For example, on the conference call discussing second quarter 
2006 results, CFO Bruce Wright said "This increase [in gross margin] was due    
primarily to cost savings programs undertaken in manufacturing and product mix."
In a subsequent conversation with Mr. Wright after third quarter 2006 results   
showed surprisingly weak gross margins, we were disappointed to learn that the  
second quarter of 2006 gross margins reflected over-earning in Advanced         
Packaging due to over-building of systems that led to greater than usual        
absorption of overhead costs.                                                   

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.                                              

Sincerely,                                                                      

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

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

EX-99.2
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(1) The remainder of this cover page shall be filled out for a reporting        
person's initial filing on this form with respect to the subject class of       
securities, and for any subsequent amendment containing information which would 
alter the disclosures provided in a prior cover page.                           

        The information required in the remainder of this cover page shall not
be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 or otherwise subject to the liabilities of that section of the Act  
but shall be subject to all other provisions of the Act (however, SEE the       
NOTES).                                                                         

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘SC 13D’ Filing		Date		First		Last			Other Filings
Filed on:		1/12/07		1
		2/2/06		1					4,  8-K
		10/20/05		1					8-K
									List all Filings