Looking forward to 2007

2007 is a very special year for STMicroelectronics
20 years since the merger of SGS Microelettronica and Thomson Semiconductors to form SGS-Thomson

Throughout these years, we have demonstrated our ability to face difficult challenges and to grow faster than the market. We are well positioned to outperform our competitors:

• we are a pioneer and a leader in ‘System- On-Chip’ solutions
• our portfolio is very diverse and focuses on high growth applications
• we enjoy a world class customer base and we have developed strategic alliances
• we have leading technologies, powerful IPs (Intellectual Property) and a broad range patent portfolio
• we have developed a global, state-of-the-art manufacturing infrastructure
• we have a strong financial position
• our management team is experienced, cohesive and stable
• we have deployed a winning corporate culture committed to Corporate Responsibility.

However, the semiconductor industry is undergoing several structural changes characterized by the:

• changing long-term growth which has moved from double-digit growth to singledigit growth over the last several years
• strong development of new emerging applications in areas such as wireless communications, solid-state storage, digital TV and video products and games
• increasing importance of the Asia Pacific region and emerging countries, particularly China which represents the fastest growing regional market
• importance of convergence between wireless, consumer and computer applications
• evolution of the customer base to a mix of OEM (Original Equipment Manufacturers), EMS (Electronic Manufacturing Services providers) and ODM (Original Design Manufacturers)
• increased participation in the semiconductor industry of private equity firms, exemplified by the takeovers in 2006 of two of the top ten semiconductor companies.

Our strategy within this challenging environment is designed to focus on the following complementary key elements:

• have a broad and balanced market exposure, with a diversified product portfolio focusing on customized, system-level solutions for high-growth digital and mixedsignal applications
• separate our Flash business with the objective to achieve - with a partner - the dimension of scale which, in this business, is absolutely crucial
• be the undisputed leaders in multimedia convergence (cellular phone, digital consumer, etc) and power applications (motor control, lighting, factory automation, etc), dedicating significant resources to product innovation and increasingly becoming a solution provider
• reinforce our historical strategic alliances while developing new major key accounts as well as the mass market
• remain an integrated device manufacturing company, but develop our relationships with outside contractors (both foundries and back end services) in order to reduce our capital intensity
• remain committed to our strategy of alliances to reinforce cooperation in the area of technology development
• have an integrated presence in each of the world’s economic zones that we target
• develop the quality excellence of our products in the various applications we serve, through robust processes, robust products, and robust management systems
• provide our shareholders with value creation
• maintain and develop our culture of Corporate Responsibility, focusing in 2007 on energy savings, on the health program and on integrity compliance.

(For more details, also read our 20-F report, pages 24, 25, as well as the Social and Environmental sections of this report)

Our aim is to be the leading ‘one-stop-shop’ for OEM customers, and to become one of the top three semiconductor manufacturers in the world, with a clear and undisputed leadership in power application solutions (automotive, industrial, power supply, motor control, etc.) and in solutions for multimedia convergence (wireless, consumer platforms and computer peripherals applications).