Significant events 2005

	In March, Carlo Bozotti was appointed President and Chief Executive Officer.
	Joint semiconductor R&D activities within the Crolles2 Alliance now include R&D related to wafer testing and packaging.
	Our creation in October of a new ‘Greater China’ sales region covering China, Hong Kong, and Taiwan reflects the growing importance of this region.

In January, we created a Corporate Executive Committee, consisting of five corporate executives in addition to the COO and the CEO. The Committee is responsible for corporate policy, coordinating the strategy of individual corporate functions, and driving major cross-functional programs. In March, Carlo Bozotti was appointed as both our President and Chief Executive Officer, making him the new sole member of the Managing Board.

Also in January, we expanded the scope of our joint semiconductor R&D activities with Philips Semiconductors and Freescale to include R&D related to wafer testing and packaging, in addition to the original development of sub-100nm CMOS process technologies. This was the first of two significant events for the Crolles2 Alliance in 2005. The second came in April when we reached a preliminary agreement to cooperate on the creation and validation of high-level System-on-Chip (SoC) intellectual property (IP) blocks. We also announced our intention to collaborate across libraries.

Another significant development that took effect from the start of 2005 was the realignment of our products groups to increase market focus and realize the full potential of our products, technologies, and sales and marketing channels. As a result, we now report our sales and operating income in three product segments:

• The Application Specific Product Groups, consisting of three product lines – our Home, Personal and Communication products (HPC), our Computer Peripherals Group (CPG) and our Automotive Products Group (APG)
• The Memory Products Group (MPG), consisting of our memories and Smart card businesses
• The Micro, Power, Analog Group (MPA), consisting of the greater part of our former Discrete and Standard ICs Group, and our standard microcontroller and industrial devices – including the Programmable Systems Memories (PSM) division previously forming part of the MPG.

In April, together with Hynix Semiconductors, we began construction at the site of a new front-end memory-manufacturing facility in Wuxi City, Jiangsu Province, China. This follows our announcement in November 2004 of a joint-venture agreement with Hynix Semiconductors.

The following month, in May, we announced additional restructuring measures to recover our profitability including the reduction of our workforce outside Asia to a total of approximately 3,000 people by mid-2006. We anticipated that these new measures would create additional savings of US$90m per year when they had been fully implemented.

Our creation in October of a new 'Greater China' sales region covering China, Hong Kong, and Taiwan reflects the growing importance of this region. Today, customers in the Asia-Pacific region account for close to 50% of our total sales, with shipments within China responsible for more than 50% of the Asia-Pacific volume. Looking ahead, China is expected to make up one-fifth of the global semiconductor market within the next five years. Our creation of a Greater China sales region is therefore an important step in strengthening our success in this fast-growing economic zone.