##### Table of Contents



As filed with the Securities and Exchange Commission on
November 21, 2006








UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 20-F


|           |  |                                                                                                     
|---------- |  | ----------------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                                     
|o          |  | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
    12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
|          
|OR        
|          
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934            
|           |  | For the fiscal year ended September 30, 2006.                                                       
|          
|OR        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934        
|          
|OR        
|          
|o          |  | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
    THE SECURITIES EXCHANGE ACT OF 1934     
|           |  | Date of event requiring this shell company report                                                   
|          

For the transition period from

to


Commission file number 001-32972


QIMONDA AG


(Exact name of Registrant as specified in its charter)


Gustav-Heinemann-Ring 212


81739 Munich, Germany


+(49)(89) 234-20390


(Address of principal executive offices)





Securities registered or to be registered pursuant to
Section 12(b) of the Act.


|                                                                                       |  |                                           
|-------------------------------------------------------------------------------------- |  | ------------------------------------------
|Title of Each Class:                                                                   |  | Name of Each Exchange on Which Registered:
|                                                                                       |  |                                           
|American Depositary Shares representing Qimonda AG
    ordinary shares of no par value |  | New York Stock Exchange                   
|Qimonda AG ordinary shares of no par value                                             |  | New York Stock Exchange*                  



|  |                                                                                                 
|- | ------------------------------------------------------------------------------------------------
|* | Not for trading, but only in connection with the registration of
    American Depositary Shares.

Securities registered or to be registered pursuant to
Section 12(g) of the Act.


None




Securities for which there is a reporting obligation pursuant
to Section 15(d) of the Act.


None










o þ




o þ






þ o o


12b-2


o o þ




o þ


12b-2


o þ






o o










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##### Table of Contents



CROSS REFERENCES TO FORM 20-F


|         |  |                                                       |  |      |         | 
|-------- |  | ----------------------------------------------------- |  | ---- | ------- | 
|         |  |                                                       |  | Page |        
|         |  |                                                       |  |      |        
|PART I:  |  |                                                       |  |      |         | 
|Item 1:  |  | Identity of Directors, Senior Management and Advisers |  |      | n/a     | 
|Item 2:  |  | Offer Statistics and Expected Timetable               |  |      | n/a     | 
|Item 3:  |  | Key Information                                       |  |      |         | 
|         |  | Selected Financial Data                               |  |      | 30      | 
|         |  | Exchange Rate Information                             |  |      | 140     | 
|         |  | Risk Factors                                          |  |      | 3       | 
|Item 4:  |  | Information on the Company                            |  |      | 2       | 
|         |  | History and Development of the
    Company            |  |      | 81      | 
|         |  | Business Overview                                     |  |      | 78      | 
|         |  | Organizational Structure                              |  |      | 81, 139 | 
|         |  | Property, Plant and
    Equipment                     |  |      | 116     | 
|Item 4A  |  | Unresolved Staff Comments                             |  |      | n/a     | 
|Item 5:  |  | Operating and Financial Review and
    Prospects      |  |      | 32      | 
|         |  | Operating Results                                     |  |      | 45      | 
|         |  | Liquidity and Capital
    Resources                   |  |      | 56      | 
|         |  | Research and Development;
    Patents and Licenses    |  |      | 90, 102 | 
|         |  | Trend Information                                     |  |      | 65      | 
|         |  | Off-Balance Sheet
    Arrangements                    |  |      | 65      | 
|         |  | Contractual Obligations                               |  |      | 60      | 
|Item 6:  |  | Directors, Senior Management and Employees            |  |      |         | 
|         |  | Directors and Senior
    Management                   |  |      | 117     | 
|         |  | Compensation                                          |  |      | 122     | 
|         |  | Board Practices                                       |  |      | 118     | 
|         |  | Employees                                             |  |      | 106     | 
|         |  | Share Ownership                                       |  |      | 124     | 
|Item 7:  |  | Major Shareholders and Related Party Transactions     |  |      |         | 
|         |  | Major Shareholders                                    |  |      | 126     | 
|         |  | Related Party Transactions                            |  |      | 127     | 
|Item 8:  |  | Financial Information                                 |  |      | F-1     | 
|         |  | Litigation                                            |  |      | 107     | 
|         |  | Dividend Policy                                       |  |      | 139     | 
|         |  | Significant Changes                                   |  |      | 139     | 
|Item 9:  |  | The Offer and Listing                                 |  |      |         | 
|         |  | Price History of the Stock                            |  |      | 140     | 
|         |  | Markets                                               |  |      | 140     | 
|Item 10: |  | Additional Information                                |  |      |         | 
|         |  | Articles of Association                               |  |      | 135     | 
|         |  | Material Contracts                                    |  |      | 147     | 
|         |  | Exchange Controls                                     |  |      | 145     | 
|         |  | Taxation                                              |  |      | 141     | 
|         |  | Documents on Display                                  |  |      | 145     | 

i



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|          |  |                                                                                  |  |      |      | 
|--------- |  | -------------------------------------------------------------------------------- |  | ---- | ---- | 
|          |  |                                                                                  |  | Page |     
|          |  |                                                                                  |  |      |     
|          |  | Subsidiary Information                                                           |  |      | 139  | 
|Item 11:  |  | Quantitative and Qualitative Disclosure
    About Market Risk                    |  |      | 63   | 
|Item 12:  |  | Description of Securities Other Than Equity Securities                           |  |      | n/a  | 
|PART II:  |  |                                                                                  |  |      |      | 
|Item 13:  |  | Defaults, Dividend Arrearages and Delinquencies                                  |  |      | none | 
|Item 14:  |  | Material Modifications to the Rights of
    Security Holders and Use of Proceeds |  |      | 146  | 
|Item 15:  |  | Controls and Procedures                                                          |  |      | 145  | 
|Item 16A: |  | Audit Committee Financial Expert                                                 |  |      | 146  | 
|Item 16B: |  | Code of Ethics                                                                   |  |      | 147  | 
|Item 16C: |  | Principal Accountant Fees and Services                                           |  |      | 146  | 
|Item 16D: |  | Exemption from the Listing Standards for
    Audit Committees                    |  |      | 147  | 
|Item 16E: |  | Purchases of Equity Securities by the Issuer and Affiliated
    Purchasers       |  |      | none | 
|PART III: |  |                                                                                  |  |      |      | 
|Item 18:  |  | Financial Statements                                                             |  |      | F-1  | 
|Item 19:  |  | Exhibits (See Exhibit Index)                                                     |  |      |     | 

ii



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CONTENT OVERVIEW


|                                                      |                                                                                                               |     |    
|----------------------------------------------------- | ------------------------------------------------------------------------------------------------------------- | --- | ---
|Content Overview                                      |                                                                                                               | iii
|PRESENTATION OF FINANCIAL AND OTHER
    INFORMATION   |                                                                                                               | 1  
|                                                      | Forward-Looking Statements And Market
    Data                                                                |     | 1  
|                                                      | Company Information                                                                                           |     | 2  
|                                                      | Use of Non-U.S. GAAP Financial
    Measures                                                                   |     | 2  
|RISK FACTORS                                          |                                                                                                               | 3  
|                                                      | Risks related to the semiconductor memory
    products industry                                               |     | 3  
|                                                      | Risks related to our operations                                                                               |     | 6  
|                                                      | Risks related to our carve-out as a
    stand-alone company and our continuing relationship with
    Infineon |     | 21 
|                                                      | Risks related to the securities markets and
    ownership of our shares or ADSs                               |     | 26 
|SELECTED COMBINED AND CONSOLIDATED
    FINANCIAL DATA |                                                                                                               | 30 
|OPERATING AND FINANCIAL REVIEW                        |                                                                                                               | 32 
|                                                      | Executive Summary                                                                                             |     | 32 
|                                                      | Overview                                                                                                      |     | 33 
|                                                      | Factors that Affect our Results of
    Operations                                                             |     | 35 
|                                                      | Strategic Cooperations                                                                                        |     | 37 
|                                                      | Critical Accounting Policies                                                                                  |     | 39 
|                                                      | Results of Operations                                                                                         |     | 45 
|                                                      | Financial Condition                                                                                           |     | 56 
|                                                      | Liquidity                                                                                                     |     | 56 
|                                                      | Capital Requirements                                                                                          |     | 59 
|                                                      | Quantitative and Qualitative Disclosure
    About Market Risk                                                 |     | 63 
|                                                      | Off-Balance Sheet Arrangements                                                                                |     | 65 
|                                                      | Outlook                                                                                                       |     | 65 
|                                                      | Recent Accounting Pronouncements                                                                              |     | 66 
|THE SEMICONDUCTOR MEMORY INDUSTRY                     |                                                                                                               | 69 
|                                                      | Semiconductor Memory Product Features                                                                         |     | 69 
|                                                      | DRAM Technologies                                                                                             |     | 71 
|                                                      | The Semiconductor Manufacturing Process                                                                       |     | 72 
|                                                      | DRAM Applications                                                                                             |     | 73 
|                                                      | Drivers of DRAM Demand and Recent Trends                                                                      |     | 74 
|                                                      | Drivers of DRAM Supply and Recent Trends                                                                      |     | 75 
|OUR BUSINESS                                          |                                                                                                               | 78 
|                                                      | Overview                                                                                                      |     | 78 
|                                                      | Our Strengths                                                                                                 |     | 79 
|                                                      | Our Strategy                                                                                                  |     | 80 
|                                                      | Our History                                                                                                   |     | 81 
|                                                      | Expected Benefits of our Carve-out                                                                            |     | 81 
|                                                      | Products and Applications                                                                                     |     | 82 
|                                                      | Customers, Sales and Marketing                                                                                |     | 87 
|                                                      | Competition                                                                                                   |     | 89 
|                                                      | Research and Development                                                                                      |     | 90 
|                                                      | Strategic Alliances and Agreements                                                                            |     | 93 
|                                                      | Facilities and Manufacturing                                                                                  |     | 98 
|                                                      | Intellectual Property                                                                                         |     | 102
|                                                      | Equipment                                                                                                     |     | 105
|                                                      | Raw Materials                                                                                                 |     | 105
|                                                      | Employees                                                                                                     |     | 106
|                                                      | Backlog                                                                                                       |     | 107
|                                                      | Legal Matters                                                                                                 |     | 107

iii



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|                                                 |                                                               |     |    
|------------------------------------------------ | ------------------------------------------------------------- | --- | ---
|                                                 | Environmental Protection, Safety and
    Health               |     | 113
|                                                 | Real Property                                                 |     | 115
|MANAGEMENT                                       |                                                               | 117
|                                                 | Overview of Corporate Governance
    Structure                |     | 117
|                                                 | Supervisory Board                                             |     | 118
|                                                 | Management Board                                              |     | 121
|                                                 | Employee Stock Option Program                                 |     | 124
|                                                 | Employee Share Purchase Programs                              |     | 125
|PRINCIPAL SHAREHOLDERS                           |                                                               | 126
|RELATED PARTY TRANSACTIONS AND
    RELATIONSHIPS |                                                               | 127
|                                                 | With Infineon                                                 |     | 127
|                                                 | With Management                                               |     | 133
|                                                 | With Siemens                                                  |     | 134
|ARTICLES OF ASSOCIATION                          |                                                               | 135
|                                                 | Share Capital                                                 |     | 135
|                                                 | Authorized Capital                                            |     | 135
|                                                 | Conditional Capital                                           |     | 136
|                                                 | Preemptive Rights                                             |     | 136
|                                                 | Shareholders Meetings and Voting
    Rights                  |     | 136
|                                                 | Dividend Rights                                               |     | 137
|                                                 | Liquidation Rights                                            |     | 137
|                                                 | Repurchase of Our Own Shares                                  |     | 138
|                                                 | Corporate Purpose of Our Company                              |     | 138
|                                                 | Registration of the Company with Commercial
    Register      |     | 138
|ADDITIONAL INFORMATION                           |                                                               | 139
|                                                 | Group Structure                                               |     | 139
|                                                 | Dividend Policy                                               |     | 139
|                                                 | Significant Changes                                           |     | 139
|                                                 | Market Information                                            |     | 140
|                                                 | Exchange Rates                                                |     | 140
|                                                 | Taxation                                                      |     | 141
|                                                 | Exchange Controls and Limitations Affecting
    Shareholders  |     | 145
|                                                 | Documents on Display                                          |     | 145
|                                                 | Controls and Procedures                                       |     | 145
|                                                 | Audit Committee Financial Expert                              |     | 146
|                                                 | Principal Accountant Fees and Services                        |     | 146
|                                                 | Code of Ethics                                                |     | 147
|                                                 | Exemptions from the Listing Standards for
    Audit Committee |     | 147
|                                                 | Material Contracts                                            |     | 147
|GLOSSARY                                         |                                                               | 148
|FINANCIAL STATEMENTS                             |                                                               | F-1
|EXHIBIT INDEX                                    |                                                               |   
|Exhibit 1(i)                                    
|Exhibit 1(ii)(A)                                
|Exhibit 4(i)(C)                                 
|Exhibit 4(i)(T)                                 
|Exhibit 4(i)(U)                                 
|Exhibit 4(i)(V)                                 
|Exhibit 4(i)(W)                                 
|Exhibit 12(i)                                   
|Exhibit 12(ii)                                  
|Exhibit 13                                      



iv



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PRESENTATION OF FINANCIAL AND OTHER INFORMATION


  






tm ® ® ® ®










| |   |                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our company are to Qimonda AG; and                                                                                                                                                                    
|
| |  | we, us or Qimonda are to
    Qimonda AG and, unless the context otherwise requires, to our
    subsidiaries and our predecessor, the former memory products
    group of Infineon Technologies AG.




Forward-Looking Statements And Market Data




1



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Company Information


http://www.qimonda.com.





Use of
Non-U.S.GAAP
Financial Measures


non-U.S. Non-U.S. non-U.S. non-U.S.


2



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RISK FACTORS


Investing in our ADSs involves a high degree of risk. You
should carefully consider the risk factors set forth below and
all other information contained in this annual report, including
our combined and consolidated financial statements and the
related notes, before making an investment decision regarding
our securities. The risks described below are those significant
risk factors, currently known and specific to us, that we
believe are relevant to an investment in our securities. If any
of these risks materialize, our business, financial condition or
results of operations could suffer, the price of our ADSs could
decline and you could lose part or all of your investment.
Additional risks not currently known to us or that we now deem
immaterial may also harm us and adversely affect your investment
in our ADSs.





Risks related to the semiconductor memory products
industry




| |                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The DRAM industry is subject to cyclical fluctuations,
    including recurring periods of oversupply, which result in large
    swings in our operating results, including large losses.





| |                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The reluctance of DRAM manufacturers to run their
    facilities at less than full capacity can cause
    oversupply-driven downturns to last for prolonged periods,
    keeping DRAM prices low.



3



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| |                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Demand weakness in any of the end markets that use our
    products, especially the personal computer industry, could have
    a material adverse effect on our results of operations.





| |                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A mismatch between the specific DRAM chips we or the DRAM
    industry generally are producing and the platforms for which
    equipment manufacturers require DRAMs can lead to declining
    prices for the DRAMs we produce and consequently to material
    inventory write-downs.





| |                                                                                         
| | ----------------------------------------------------------------------------------------
| | We may not respond quickly enough to the rapid
    technological change in our industry.





| |   |                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | increasing the amount of data storage capacity per DRAM chip, or
    density (DRAM manufacturers have generally doubled the density
    of DRAM chips approximately every 24 months);
|
| |  | increasing data transfer rates, or bandwidth, between the DRAM
    and the central processing unit, or CPU, of the PC or other
    device; and                                       
|
| |  | decreasing operating voltage and power consumption of the DRAM.                                                                                                                      

ramp-up


4



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| |                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The semiconductor memory products industry is
    characterized by intense competition, which could reduce our
    sales or put continued pressure on our prices.







| |   |                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------
| |  | design and develop new products and introduce them in a timely
    manner;                                                                   
|
| |  | develop and successfully implement improved manufacturing
    process technologies to reduce our per-megabit costs; and                      
|
| |  | broaden our DRAM customer base, to reduce our dependence on a
    small number of customers and position us to increase our market
    share.





| |   |                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the extent to which and the pace at which customers incorporate
    our memory products into their devices;                                     
|
| |  | whether electronics manufacturers design their products to use
    DRAM configurations or new types of memory products that we do
    not offer;
|
| |  | the number and nature of our competitors; and                                                                                                   
|
| |  | general economic conditions.                                                                                                                    

5



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| |                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our results of operations are subject to the effects of
    seasonal sales patterns that apply to the demand for the
    products our customers sell and these seasonal sales patterns
    may interact with existing DRAM supply and demand dynamics in a
    way that further harms our results.






Risks related to our operations




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Some of our agreements with strategic partners, such as
    our Inotera Memories, Inc. joint venture with Nanya, have
    restrictions on transfers of the shares of the ventures they
    create that could cause our ownership or equity interest in
    these ventures to revert to Infineon, if Infineon ceases to be
    our majority owner, and Infineon is holding our interest in
    Inotera in trust for us, which could subject us to loss were
    Infineon to become insolvent.





6



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| |                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We have suffered substantial losses in the recent past,
    including in more recent financial quarters. Even during
    profitable years, we have suffered losses in individual
    quarters. Losses in the future and the unpredictability of our
    results may cause our share price to fall.

 








7



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| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | Our results may suffer if we are not able to adequately
    forecast demand for our products.







| |                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We expect the average selling prices of the semiconductor
    memory products we sell to continue to decline irrespective of
    cyclical fluctuations in the industry, and if prices decrease
    faster than we are able to reduce our costs, our margins will be
    adversely affected.



8



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| |                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | To reduce our costs, we need to make investments to
    implement improvements and developments in our process
    technologies quickly. If we are unable to do so, we may not be
    able to reduce per-megabit manufacturing costs quickly enough to
    keep pace with declines in average selling prices for DRAMs and
    other memory products.





| |                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to respond to customer demand for
    diversified DRAM products or are unable to do so in a cost
    efficient manner, we may fail to gain, or even lose, market
    share.





| |                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------
| | We may be unable to recoup our investments if we bring new
    production facilities on-stream in times of overcapacity.







9



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| |                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may lose sales or customers or incur losses if we are
    unable to successfully modify existing production facilities or
    bring new production facilities on-stream in times of high
    demand.



ramp-up




| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | The loss of one or more of our significant customers may
    adversely affect our business.





| |                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Sanctions in the United States and other countries against
    us and other DRAM producers for anticompetitive practices in the
    DRAM industry and related civil litigation may have a direct or
    indirect material adverse effect on our operations.



10



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non-U.S.









11



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| |                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | An unfavorable outcome in the pending securities
    litigation against Infineon or the incurrence of significant
    costs in the defense of this litigation may have a direct or
    indirect material adverse effect on our operations.







| |                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may not be able to protect our proprietary intellectual
    property or obtain rights to intellectual property of third
    parties needed to operate our business.





12



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| |                                                                                
| | -------------------------------------------------------------------------------
| | We may be accused of infringing the intellectual property
    rights of others.







13



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| |                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------
| | We may face difficulties in implementing next generations
    of our proprietary DRAM trench cell architecture.







| |                                                                                                  
| | -------------------------------------------------------------------------------------------------
| | We may face difficulties in shifting to new memory
    technologies that are not based on silicon





| |                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may misallocate our research and development resources
    or have insufficient resources to conduct the necessary level of
    research and development to remain competitive.



14



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| |                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We have a limited number of suppliers of manufacturing
    equipment and raw materials, and our business would be harmed if
    they were to interrupt supply or increase prices.











| |                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------
| | The success of our business may be dependent on our
    ability to maintain our third-party foundry
    relationships.







| |   |                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------
| |  | the potential inability of our manufacturing partners to develop
    manufacturing methods appropriate for our products;  
|
| |  | inability of our partners to construct and equip manufacturing
    facilities or to ramp up production in a timely manner;
|
| |  | unwillingness or inability of partners to devote adequate
    capacity to the manufacture of our products;                
|
| |  | potential product quality issues, where we do not have
    sufficient control to resolve them quickly or at all;          

15



---



##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our partners inability to acquire manufacturing machinery
    and equipment required to manufacture our products due to
    controls on the export or import of technology into the country
    where the partner is located or limited supply of the necessary
    equipment; and
|
| |  | reduced control over delivery schedules and product costs.                                                                                                                                                                                                                         







| |                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our strategic alliance partners or joint ventures fail
    to meet their business or technological goals we may lose our
    investments in them, and we may fail to keep pace with the rapid
    developments in our industry.

 






| |   |                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our alliance partners could encounter financial difficulties;                                                                                                                         
|
| |  | our interests could diverge from those of our alliance partners
    in the future;                                                                                                    
|
| |  | we may not be able to agree with a joint venture or alliance
    partner on the amount or timing of further investments in our
    joint projects;                                    
|
| |  | the management of one of our joint ventures may not be able to
    control costs;                                                                                                     
|
| |  | a joint venture may experience ramp up or manufacturing problems;                                                                                                                     
|
| |  | a joint venture may experience delays or difficulties in
    reaching its research and development targets;                                                                           
|
| |  | political instability may occur in the countries where our joint
    ventures and/or alliance partners are located; and                                                               
|
| |  | economic instability, including currency devaluations or
    exchange rate fluctuations, may occur in the countries where our
    joint ventures and/or alliance partners are located.



16



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| |                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------
| | We may be unable to fund our research and development
    efforts and capital expenditures if we do not have adequate
    access to capital.

   ramp-up 


     


 






| |                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our manufacturing processes are delayed or disrupted,
    our business, financial condition and results of operations
    could be materially adversely affected.



17



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| |                                                           
| | ----------------------------------------------------------
| | Our business can be hurt by changes in exchange
    rates.





 


    




| |                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our business could suffer as a result of negative economic
    developments, political instability, unfavorable legal
    environments or negative currency developments in the different
    parts of the world in which we operate, especially in Taiwan and
    the developing markets of China and Malaysia.



18



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| |   |                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | negative economic developments in foreign economies, in
    particular China, Malaysia and Taiwan, where we have or share
    substantial manufacturing facilities;                   
|
| |  | political instability, including the threat of war, terrorist
    attacks, epidemic or civil unrest, in particular in Taiwan,
    which experiences recurring tensions with China;    
|
| |  | uncertainties as to the effectiveness of intellectual property
    protection, especially in China;                                                                                   
|
| |  | devaluations of local currencies, especially in Asia;                                                                                                                                 
|
| |  | changes in laws and policies affecting trade and investment,
    including exchange controls and expropriation, particularly in
    China; and                                        
|
| |  | varying laws and varying practices of the regulatory, tax,
    judicial and administrative bodies in the jurisdictions where we
    operate, especially in developing Asian countries.





| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | Reductions in the amount of government subsidies we
    receive or demands for repayment could increase our reported
    expenses.

 










| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | An inability to attract and retain skilled technical
    personnel could adversely impact our business.



19



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##### Table of Contents







| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | Environmental laws and regulations may expose us to
    liability and increase our costs.











20



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| |                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Products that do not meet customer specifications or that
    contain, or are perceived to contain, defects or errors or that
    are otherwise incompatible with their intended end use could
    impose significant costs on us.





| |                                                                                                            
| | -----------------------------------------------------------------------------------------------------------
| | We may be unable to make desirable acquisitions or to
    integrate successfully any businesses we acquire.







| |                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are subject to the risk of loss due to explosion and
    fire because some of the materials we use in our manufacturing
    processes are highly combustible.






Risks related to our carve-out as a stand-alone company and
our continuing relationship with Infineon




| |                                                                    
| | -------------------------------------------------------------------
| | We have limited experience operating as an independent
    company.



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| |                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our ability to operate our business effectively may suffer
    if we do not, quickly and cost-effectively, establish our own
    financial, administrative and other support functions in order
    to operate as a stand-alone company, and we cannot assure you
    that the transitional services Infineon has agreed to provide us
    will be sufficient for our needs.





| |                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------
| | Our pre-carve-out financial information may not be
    representative of our results as an independent company.



22



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| |                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------
| | We may lose rights to intellectual property arrangements
    if Infineons ownership in our company drops below certain
    levels.







| |                                                               
| | --------------------------------------------------------------
| | We may not be successful in establishing a brand
    identity.

® ® tm


23



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##### Table of Contents





| |                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------
| | We have and may continue to face increased administrative
    and related expenses as a result of operating as an independent
    company.







| |                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------
| | We may experience increased costs resulting from a
    decrease in the purchasing power we have historically had as a
    segment of Infineon.





| |                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our agreements with Infineon relating to our carve-out may
    be less favorable to us than similar agreements negotiated
    between unaffiliated third parties.





| |                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Infineon will initially control the outcome of shareholder
    actions in our company, and may thereby limit our ability to
    obtain additional financing or make acquisitions.





24



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| |                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may have conflicts of interest with Infineon and,
    because of Infineons controlling ownership interest in our
    company, may not be able to resolve such conflicts on favorable
    terms for us.





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Indemnification arrangements in connection with our carve-out
    from Infineon. We have agreed to indemnify Infineon with
    respect to lawsuits and other matters as part of our carve-out
    from Infineon. These indemnification arrangements could result
    in us having interests that are adverse to those of Infineon,
    for example different interests with respect to settlement
    arrangements in a litigation matter. In addition, under these
    arrangements, we agreed to reimburse Infineon for liabilities
    incurred (including legal defense costs) in connection with
    certain litigation, while Infineon will be the party prosecuting
    or defending the litigation.                                                                                             
|
| |  | Employee recruiting and retention. Because we operate in
    many of the same geographical areas, we expect to compete with
    Infineon in the hiring and retention of employees, in particular
    with respect to highly-skilled technical employees. We have no
    agreement with Infineon that would restrict either Infineon or
    us from hiring any of the others employees.                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Members of our Supervisory Board and Management Board may
    have conflicts of interest. Certain members of our
    Supervisory Board and Management Board own shares in Infineon or
    options to purchase Infineon shares. In addition, two
    members of our Supervisory Board are members of the Management
    Board or other senior management of Infineon. Mr. Fischl is
    CFO of Infineon and a member of its Management Board and
    Mr. von Eickstedt is General Counsel of Infineon. These
    relationships could create, or appear to create, conflicts of
    interest when these persons are faced with decisions with
    potentially different implications for Infineon and us, even
    though these persons owe a duty of loyalty to take into account
    only our interests.
|
| |  | Sale of shares in our company. Infineon may decide to
    sell all or a portion of the shares that it holds in us to a
    third party, including to one of our competitors, thereby giving
    that third party substantial influence over our business and our
    affairs. Such a sale could be contrary to the interests of
    certain of our stakeholders, including our employees or our
    public shareholders.                                                                                                                                                                                                                                                                                                                                                                                



| | 
| | 
| | 



| |   |                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Allocation of business opportunities. Business
    opportunities may arise that both we and Infineon find
    attractive, and which would complement our respective
    businesses. Infineon may decide to take the opportunities
    itself, which would prevent us from taking advantage of the
    opportunity ourselves.



25



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| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | Third parties may seek to hold us responsible for
    liabilities of Infineon that we did not assume in the
    contribution agreement.







| |                                                                                       
| | --------------------------------------------------------------------------------------
| | We may experience difficulty in separating our assets and
    resources from Infineon.






Risks related to the securities markets and ownership of our
shares or ADSs




| |                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------
| | Sales of substantial numbers of shares or ADSs in the
    public market could adversely affect the market price of our
    securities.





| |                                                               
| | --------------------------------------------------------------
| | The price of our ADSs may be subject to wide
    fluctuations.





| |   |                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------
| |  | the volatility of DRAM prices and therefore of our revenues;                                                   
|
| |  | changes in market valuations of technology companies in general
    and memory product companies in particular;
|
| |  | variations in our operating results;                                                                           
|
| |  | changes in demand for, and supply of, our products;                                                            
|
| |  | technological changes that hurt our competitive position;                                                      
|
| |  | unfavorable developments in litigation or governmental
    investigations in which we are involved;            
|
| |  | strategic moves by us or our competitors, such as acquisitions
    or restructurings;                          
|
| |  | failure of our quarterly operating results to meet market
    expectations;                                    

26



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| |   |                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------
| |  | changes in expectations as to our future financial performance,
    including financial estimates by securities analysts;   
|
| |  | review of the long-term values of our assets, which could lead
    to impairment charges that could reduce our earnings; and
|
| |  | general market conditions.                                                                                                  





| |                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Exchange rate fluctuations may reduce the amount of
    U.S. dollars you receive in respect of dividends or other
    distributions in respect of your ADSs.





| |                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------
| | You may not be able to participate in rights offerings and
    may experience dilution of your holdings as a result.







| |                                                                                                 
| | ------------------------------------------------------------------------------------------------
| | You may not be able to exercise your right to vote the
    ordinary shares underlying your ADSs.





27



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| |                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | You may not receive distributions on our ordinary shares
    represented by our ADSs or any value for them if it is illegal
    or impractical to make them available to holders of ADSs.





| |                                                                
| | ---------------------------------------------------------------
| | You may be subject to limitations on transfer of your
    ADSs.





| |                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The rights of shareholders in German companies differ in
    material respects from the rights of shareholders of
    corporations incorporated in the United States.





| |                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | It may be difficult for you to bring any action or enforce
    any judgment obtained in the United States against our company
    or members of our Supervisory Board or Management Board, which
    may limit the remedies otherwise available to our
    shareholders.



28



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| |                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We have no present intention to pay dividends on our
    ordinary shares in the foreseeable future and, consequently,
    your only opportunity to achieve a return on your investment
    during that time is if the price of our ADSs appreciates.

Bilanzverlust


29



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SELECTED COMBINED AND CONSOLIDATED FINANCIAL DATA






  


30



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##### Table of Contents



|                                                                     |                                  |                                                      |       |   |             |   |       |         |   |   |        |         |   |             |       |         |         |   |       |         |  |   |       |         | 
|-------------------------------------------------------------------- | -------------------------------- | ---------------------------------------------------- | ----- | - | ----------- | - | ----- | ------- | - | - | ------ | ------- | - | ----------- | ----- | ------- | ------- | - | ----- | ------- |  | - | ----- | ------- | 
|                                                                     |                                  | As of and for the financial year ended September 30, |      
|                                                                     |                                  |                                                      |      
|                                                                     |                                  | 2002                                                 |       |   | 2003        |   |       | 2004    |   |   | 2005   |         |   | 2006        |       |         | 2006(2) |  
|                                                                     |                                  |                                                      |       |   |             |   |       |         |   |   |        |         |   |             |       |         |         |  
|                                                                     |                                  | (Unaudited)(1)                                       |       |   | (Unaudited) |   |       |         |   |   |        |         |   | (Unaudited) |      
|                                                                     |                                  | (in millions, except share and per share data)       |      
|Selected Combined and Consolidated Statement of Operations
    data: |                                  |                                                      |       |   |             |   |       |         |   |   |        |         |   |             |       |         |         |   |       |         |  |   |       |        
|Net sales                                                            |                                  |                                                     | 1,971 |   |             |  | 2,544 |         |   |  | 3,008  |         |   |            | 2,825 |         |         |  | 3,815 |         |  | $ | 4,840 |        
|Cost of goods sold                                                   |                                  |                                                      | 2,106 |   |             |   | 2,090 |         |   |   | 2,063  |         |   |             | 2,164 |         |         |   | 3,048 |         |  |   | 3,867 |        
|                                                                     |                                  |                                                      |       |   |             |   |       |         |   |   |        |         |   |             |       |         |         |  
|Gross (loss) profit                                                  |                                  |                                                      | (135  | ) |             |   | 454   |         |   |   | 945    |         |   |             | 661   |         |         |   | 767   |         |  |   | 973   |        
|Research and development expenses                                    |                                  |                                                      | 311   |   |             |   | 298   |         |   |   | 347    |         |   |             | 390   |         |         |   | 433   |         |  |   | 549   |        
|Selling, general and administrative expenses                         |                                  |                                                      | 179   |   |             |   | 209   |         |   |   | 232    |         |   |             | 206   |         |         |   | 215   |         |  |   | 273   |        
|Restructuring charges                                                |                                  |                                                      | 7     |   |             |   | 3     |         |   |   | 2      |         |   |             | 1     |         |         |   |      |         |  |   |      |        
|Other operating expenses (income), net                               |                                  |                                                      | (6    | ) |             |   | 16    |         |   |   | 194    |         |   |             | 13    |         |         |   | 60    |         |  |   | 76    |        
|                                                                     |                                  |                                                      |       |   |             |   |       |         |   |   |        |         |   |             |       |         |         |  
|Operating (loss) income                                              |                                  |                                                      | (626  | ) |             |   | (72   | )       |   |   | 170    |         |   |             | 51    |         |         |   | 59    |         |  |   | 75    |        
|Interest income (expense), net                                       |                                  |                                                      |       |   |             |   | (35   | )       |   |   | (30    | )       |   |             | (7    | )       |         |   | (25   | )       |  |   | (32   | )      
|Equity in earnings (losses) of associated companies                  |                                  |                                                      |       |   |             |   | 22    |         |   |   | (16    | )       |   |             | 45    |         |         |   | 80    |         |  |   | 102   |        
|Gain (loss) on associated company share issuance                     |                                  |                                                      |       |   |             |   | (2    | )       |   |   | 2      |         |   |             |      |         |         |   | 72    |         |  |   | 92    |        
|Other non-operating income (expense), net                            |                                  |                                                      |       |   |             |   | 56    |         |   |   | (11    | )       |   |             | 13    |         |         |   | 8     |         |  |   | 10    |        
|Minority interests                                                   |                                  |                                                      |       |   |             |   | 11    |         |   |   | 17     |         |   |             | 2     |         |         |   | (6    | )       |  |   | (8    | )      
|                                                                     |                                  |                                                      |       |   |             |   |       |         |   |   |        |         |   |             |       |         |         |  
|Income (loss) before income taxes                                    |                                  |                                                      |       |   |             |   | (20   | )       |   |   | 132    |         |   |             | 104   |         |         |   | 188   |         |  |   | 239   |        
|Income tax expense                                                   |                                  |                                                      |       |   |             |   | (55   | )       |   |   | (211   | )       |   |             | (86   | )       |         |   | (114  | )       |  |   | (145  | )      
|                                                                     |                                  |                                                      |       |   |             |   |       |         |   |   |        |         |   |             |       |         |         |  
|Net (loss) income                                                    |                                  |                                                      |       |   |             |  | (75   | )       |   |  | (79    | )       |   |            | 18    |         |         |  | 74    |         |  | $ | 94    |        
|                                                                     |                                  |                                                      |       |   |             |   |       |         |   |   |        |         |   |             |       |         |         |  
|Net (loss) income per share and ADS (unaudited)
    (3):             |                                  |                                                      |       |   |             |   |       |         |   |   |        |         |   |             |       |         |         |   |       |         |  |   |       |        
|                                                                     | Basic and diluted                |                                                      |       |   |             |   |      | (0.25   | ) |   |       | (0.26   | ) |             |      | 0.06    |         |   |      | 0.24    |  |   | $     | 0.30    | 
|Number of shares used in earnings per share
    computation(3):      |                                  |                                                      |       |   |             |   |       |         |   |   |        |         |   |             |       |         |         |   |       |         |  |   |       |        
|                                                                     | Basic and diluted (in thousands) |                                                      |       |   |             |   |       | 300,000 |   |   |        | 300,000 |   |             |       | 300,000 |         |   |       | 305,984 |  |   |       | 305,984 | 
|Summary Combined and Consolidated Balance Sheet data:                |                                  |                                                      |       |   |             |   |       |         |   |   |        |         |   |             |       |         |         |   |       |         |  |   |       |        
|Cash and cash equivalents                                            |                                  |                                                      |       |   |             |  | 544   |         |   |  | 577    |         |   |            | 632   |         |         |  | 932   |         |  | $ | 1,182 |        
|Marketable securities                                                |                                  |                                                      |       |   |             |   | 23    |         |   |   | 2      |         |   |             |      |         |         |   | 138   |         |  |   | 175   |        
|Working capital,
    net(4)                                          |                                  |                                                      |       |   |             |   | 787   |         |   |   | 78     |         |   |             | 437   |         |         |   | 1,328 |         |  |   | 1,684 |        
|Total assets                                                         |                                  |                                                      |       |   |             |   | 4,634 |         |   |   | 4,750  |         |   |             | 4,861 |         |         |   | 5,861 |         |  |   | 7,436 |        
|Short-term debt, including current portion of long-term debt         |                                  |                                                      |       |   |             |   | 51    |         |   |   | 551    |         |   |             | 524   |         |         |   | 344   |         |  |   | 435   |        
|Long-term debt, excluding current portion                            |                                  |                                                      |       |   |             |   | 516   |         |   |   | 27     |         |   |             | 108   |         |         |   | 151   |         |  |   | 192   |        
|Business/shareholders equity                                        |                                  |                                                      |       |   |             |   | 2,736 |         |   |   | 2,779  |         |   |             | 2,967 |         |         |   | 3,871 |         |  |   | 4,911 |        
|Summary Combined and Consolidated Cash Flow data:                    |                                  |                                                      |       |   |             |   |       |         |   |   |        |         |   |             |       |         |         |   |       |         |  |   |       |        
|Net cash provided by operating activities                            |                                  |                                                      |       |   |             |  | 300   |         |   |  | 693    |         |   |            | 483   |         |         |  | 297   |         |  | $ | 377   |        
|Net cash used in investing activities                                |                                  |                                                      |       |   |             |   | (242  | )       |   |   | (1,048 | )       |   |             | (971  | )       |         |   | (772  | )       |  |   | (981  | )      
|Depreciation and amortization                                        |                                  |                                                      |       |   |             |   | 815   |         |   |   | 752    |         |   |             | 528   |         |         |   | 703   |         |  |   | 892   |        






|    |                                                                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Figures for 2002, other than those provided, are not available
    without undue effort to properly prepare, compile and verify all
    the financial information needed to present the complete results
    of operations and financial position as a stand-alone company
    for periods so long ago.                
|   
|(2) | Translated into U.S. dollars solely for convenience of the
    reader at the rate of
    1.00 = $1.2687,
    the noon buying rate of the Federal Reserve Bank of New York for
    euro on September 29, 2006, the last currency trading day
    in September 2006.                                                    
|   
|(3) | Before the carve-out, the Memory Products business was wholly
    owned by Infineon, and there were no earnings (loss) per share
    for our company. Following the carve-out, earnings (loss) per
    share reflects the contributed capital structure and the
    additions due to the IPO for all periods presented.
|   
|(4) | Calculated by subtracting current liabilities from current
    assets.                                                                                                                                                                                                                                                 

31



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OPERATING AND FINANCIAL REVIEW


This discussion and analysis of our financial condition and
results of operations is based on, and should be read in
conjunction with, our audited combined and consolidated
financial statements as of and for the years ended
September 30, 2004, 2005 and 2006 and the accompanying
notes and the other financial information included elsewhere in
this annual report. We have prepared our combined and
consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America
(U.S. GAAP).







Executive Summary







ramp-up




32



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  









Overview




| |                  
| | -----------------
| | Business Overview

quarter-to year-to


     




| |                            
| | ---------------------------
| | Our Carve-Out from Infineon



33



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##### Table of Contents







| |                                                               
| | --------------------------------------------------------------
| | Basis of Presentation of Our Combined Financial
    Statements



Methodology.




Statements of Operations.


34



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##### Table of Contents





Balance Sheets.




Investments by and Advances from Infineon and our Capital
Structure. 


Capital Structure.  







Factors that Affect our Results of Operations




| |                                                            
| | -----------------------------------------------------------
| | Relationship between DRAM prices and reduced unit
    costs



35



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ramp-up




| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | Relationship between the Capital Intensive Nature of our
    Business and the Industrys Cyclicality

 




| |                           
| | --------------------------
| | Exchange Rate Fluctuations







| |   |                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our margins (in euros) decline or become negative to the extent
    our costs were incurred in euros and the sales were generated in
    currencies weaker than the euro, and                                                                                                                                         
|
| |  | our competitiveness may decline as compared with competitors
    based in the countries with weaker currencies because our
    products manufactured in Europe will have been produced at
    constant costs (in euro) while their (constant) costs
    denominated in weaker currencies will appear to have declined.





| |   |                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our margins (in euros) increase to the extent our costs were
    incurred in euros and the sales were generated in currencies
    stronger than the euro, and                                                                                                                                                               
|
| |  | our competitiveness may increase as compared with competitors
    based in the countries with stronger currencies because our
    products manufactured in Europe will have been produced at
    constant costs (in euro) while their (constant) costs
    denominated in stronger currencies will appear to have increased.



36



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Strategic Cooperations


  






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Nanya. In November 2002, Infineon entered into agreements
    with Nanya Technology Corporation, a Taiwanese corporation, that
    set out the terms of a strategic cooperation for the development
    of DRAM products and DRAM process technology and for the
    foundation of a joint venture to construct and operate a 300mm
    manufacturing facility in Taiwan, called Inotera Memories, Inc.
    Inoteras 300mm manufacturing facilities in Taiwan employs
    production technology developed under Infineons joint
    development agreements with Nanya. Under the first of these
    agreements, we are co-developing and sharing the development
    costs for advanced 90nm and 75nm process technologies. Infineon
    also entered into a new agreement with Nanya in September 2005,
    under which we will jointly develop

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | advanced 58nm technologies. Inoteras current capacity is
    approximately 62,000 300mm wafer starts per month. Under the
    terms of the venture, Nanya and we each purchase 50% of
    Inoteras output. Inotera completed an initial public
    offering of its common stock in Taiwan in March 2006. In May
    2006, Inotera listed Global Depositary Receipts, or GDRs, on the
    Luxembourg Stock Exchange. After these transactions we owned
    36.0% of Inoteras shares. Infineon currently holds the
    investment in Inotera in trust for us. We expect the investment
    to be transferred to us by December 31, 2006. We account
    for Inotera by the equity method. Because of Inoteras
    significance for us within the meaning of
    Rule 3-09 of the
    SECs
    Regulation S-X, we
    have included, elsewhere in this annual report, Inoteras
    audited consolidated financial statements as of and for the
    years ended December 31, 2004 and 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | CSVC. In June 2003, Infineon established a venture with
    China Singapore Suzhou Industrial Park Ventures Co., Ltd.
    (CSVC) in Suzhou, China. CSVC is a limited liability
    company organized under the laws of the Peoples Republic
    of China. The venture, Infineon Technologies Suzhou Co., Ltd.
    (recently renamed Qimonda Technologies (Suzhou) Co., Ltd. and
    herein referred to as Qimonda Suzhou), constructed a back-end
    facility for the assembly and testing of our products, which
    officially opened in September 2004. Infineon is required to
    purchase the entire output of the facility. In the 2005
    financial year Infineon invested $29 million in the venture
    and is contractually required to invest an additional
    $167 million through 2008. We undertook these commitments
    as part of the carve-out. Infineon contributed its ownership in
    Qimonda Suzhou to us in the carve-out effective May 1, 2006
    (45% of the ventures share capital, representing 72.5% of
    the voting rights in the venture). Because we exercise voting
    control over this venture, we consolidate it in our combined and
    consolidated financial statements. We plan to increase our
    investment in Qimonda Suzhou such that we will hold
    approximately 72.5% of its share capital by the end of 2008,
    with CSVC owning the remaining 27.5%. We have the option to
    acquire CSVCs stake at the nominal investment value plus
    accrued and undistributed returns on that investment. The joint
    venture intends to arrange external financing for any further
    investment required to purchase additional equipment. There can
    be no assurance that this external financing can be obtained at
    favorable terms or at all.
|
| |  | SMIC. In December 2002 Infineon entered into an
    agreement, as most recently amended in November 2006, with
    Semiconductor Manufacturing International Corporation (SMIC), a
    Cayman Islands corporation with head offices in Shanghai, China.
    As amended, the agreement provides access to additional DRAM
    manufacturing capacity (up to 20,000 200mm wafer starts per
    month plus up to 15,000 300mm wafer starts per month). This
    agreement has been assigned to us as part of the carve-out.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Winbond. In May 2002 and August 2004, Infineon entered
    into product purchase and capacity reservation agreements with
    Winbond Electronics Corporation, a Taiwanese corporation, which
    give us access to additional DRAM production capacity (up to
    19,000 200mm wafer starts per month plus up to 15,000 300mm
    wafer starts per month). We procure an immaterial quantity of
    our finished products under the 2002 agreement. These agreements
    have been assigned to us as part of the carve-out. On
    August 29, 2006, we signed agreements with Winbond to
    expand our existing cooperation with Winbond and our reservation
    of capacity at Winbonds facility. Under the terms of the
    agreements, we will transfer our 80nm DRAM trench technology to
    Winbonds 300mm-wafer facility. In return, Winbond will
    manufacture DRAMs for computing applications using this
    technology exclusively for us.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          





38



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Critical Accounting Policies






| |   |                                                                                                
| | - | -----------------------------------------------------------------------------------------------
| |  | those made in connection with our initial preparation of the
    combined financial statements;
|
| |  | recoverability of long-lived assets;                                                           
|
| |  | valuation of inventory;                                                                        
|
| |  | pension plan accounting;                                                                       
|
| |  | realization of deferred tax assets;                                                            
|
| |  | revenue recognition; and                                                                       
|
| |  | contingencies.                                                                                 



| |                                                                                     
| | ------------------------------------------------------------------------------------
| | Assumptions and Estimates We Made in Preparing Our
    Combined Financial Statements





|                                             |  |                        |      |  |      |  |      |      |  |  |      | 
|-------------------------------------------- |  | ---------------------- | ---- |  | ---- |  | ---- | ---- |  |  | ---- | 
|                                             |  | For the financial year |     
|                                             |  | ended September 30,    |     
|                                             |  |                        |     
|                                             |  | 2004                   |      |  | 2005 |  |      | 2006 | 
|                                             |  |                        |      |  |      |  |      |      | 
|                                             |  | (in millions)          |     
|Cost of goods sold                           |  |                        | 180 |  |      |  | 168 |      |  |  | 111 | 
|Research and development expenses            |  |                        | 43   |  |      |  | 27   |      |  |  | 17   | 
|Selling, general and administrative expenses |  |                        | 160  |  |      |  | 109  |      |  |  | 75   | 
|Other operating expenses, net                |  |                        | 2    |  |      |  |     |      |  |  |     | 
|Restructuring charges                        |  |                        | 2    |  |      |  | 1    |      |  |  |     | 
|                                             |  |                        |      |  |      |  |      |      | 
|                                             |  |                        | 387 |  |      |  | 305 |      |  |  | 203 | 
|                                             |  |                        |      |  |      |  |      |      | 

39



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##### Table of Contents







| |                                    
| | -----------------------------------
| | Recoverability of Long-Lived Assets

 


   


Goodwill and
Other Intangible Assets




®   




| |                       
| | ----------------------
| | Valuation of Inventory



40



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##### Table of Contents





work-in  






| |   |                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | temporary or fundamental price declines as a consequence of an
    imbalance of demand and supply, which can occur due to weak
    demand and/or greatly increased supply;
|
| |  | technological obsolescence due to rapid developments of new
    products and technological improvements; and                                                              
|
| |  | changes in economic circumstances or in other conditions that
    impact the market price for our products.                                                               





| |                        
| | -----------------------
| | Pension Plan Accounting






41



---



##### Table of Contents





 




| |                                        
| | ---------------------------------------
| | Pension Benefits  Sensitivity Analysis




|                                           |  |                        |       |   |             |  |      |  
|------------------------------------------ |  | ---------------------- | ----- | - | ----------- |  | ---- | -
|                                           |  | Effect on net periodic |      
|                                           |  | pension costs          |      
|                                           |  |                        |      
|                                           |  | One percent            |       |   | One percent | 
|                                           |  | increase               |       |   | decrease    | 
|                                           |  |                        |       |   |             | 
|                                           |  | (in millions)          |      
|Discount rate                              |  |                        | (2.3 | ) |             |  | 2.8 |  
|Rate of compensation increase              |  |                        | 1.4   |   |             |  | (1.7 | )
|Rate of projected future pension increases |  |                        | 1.4   |   |             |  | (1.6 | )
|Expected return on plan assets             |  |                        | (0.5  | ) |             |  | 0.0  |  



      




| |                                   
| | ----------------------------------
| | Realization of Deferred Tax Assets



42



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##### Table of Contents





       


  




| |                    
| | -------------------
| | Revenue Recognition







43



---



##### Table of Contents



00-21,




| |              
| | -------------
| | Contingencies





44



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##### Table of Contents









Results of Operations




|                                                    |  |                              |       |    |      |  |       |      |  |  |       |  
|--------------------------------------------------- |  | ---------------------------- | ----- | -- | ---- |  | ----- | ---- |  |  | ----- | -
|                                                    |  | For the financial year ended |      
|                                                    |  | September 30,                |      
|                                                    |  |                              |      
|                                                    |  | 2004                         |       |    | 2005 |  |       | 2006 | 
|                                                    |  |                              |       |    |      |  |       |      | 
|                                                    |  | (in percent)                 |      
|Net sales                                           |  |                              | 100.0 | %  |      |  | 100.0 | %    |  |  | 100.0 | %
|Cost of goods sold                                  |  |                              | 68.6  |    |      |  | 76.6  |      |  |  | 79.9  |  
|                                                    |  |                              |       |    |      |  |       |      | 
|Gross profit                                        |  |                              | 31.4  |    |      |  | 23.4  |      |  |  | 20.1  |  
|                                                    |  |                              |       |    |      |  |       |      | 
|Research and development expenses                   |  |                              | 11.5  |    |      |  | 13.8  |      |  |  | 11.3  |  
|Selling, general and administrative expenses        |  |                              | 7.7   |    |      |  | 7.3   |      |  |  | 5.6   |  
|Restructuring charges                               |  |                              | 0.1   |    |      |  |      |      |  |  |      |  
|Other operating expenses, net                       |  |                              | 6.4   |    |      |  | 0.5   |      |  |  | 1.6   |  
|                                                    |  |                              |       |    |      |  |       |      | 
|Operating income                                    |  |                              | 5.7   |    |      |  | 1.8   |      |  |  | 1.6   |  
|Interest expense, net                               |  |                              | (1.0  | )  |      |  | (0.2  | )    |  |  | (0.7  | )
|Equity in (losses) earnings of associated companies |  |                              | (0.5  | )  |      |  | 1.6   |      |  |  | 2.1   |  
|Gain on associated company share issuance           |  |                              | 0.1   |    |      |  |      |      |  |  | 1.9   |  
|Other non-operating (expense) income, net           |  |                              | (0.4  | )  |      |  | 0.4   |      |  |  | 0.2   |  
|Minority interests                                  |  |                              | 0.5   |    |      |  | 0.1   |      |  |  | (0.2  | )
|                                                    |  |                              |       |    |      |  |       |      | 
|Income before income taxes                          |  |                              | 4.4   |    |      |  | 3.7   |      |  |  | 4.9   |  
|                                                    |  |                              |       |    |      |  |       |      | 
|Income tax expense                                  |  |                              | (7.0  | )  |      |  | (3.1  | )    |  |  | (3.0  | )
|                                                    |  |                              |       |    |      |  |       |      | 
|Net (loss) income                                   |  |                              | (2.6  | )% |      |  | 0.6   | %    |  |  | 1.9   | %
|                                                    |  |                              |       |    |      |  |       |      | 



| |          
| | ---------
| | Net Sales





45



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##### Table of Contents





|                                           |                 |                              |                |                 |      |   |       |       |    |    |       |       |     |   |       | 
|------------------------------------------ | --------------- | ---------------------------- | -------------- | --------------- | ---- | - | ----- | ----- | -- | -- | ----- | ----- | --- | - | ----- | 
|                                           |                 | For the financial year ended |               
|                                           |                 | September 30,                |               
|                                           |                 |                              |               
|                                           |                 | 2004                         |                |                 | 2005 |   |       | 2006  |   
|                                           |                 |                              |                |                 |      |   |       |       |   
|                                           |                 | (in millions, except         |               
|                                           |                 | percentages)                 |               
|Net sales:                                 |                 |                              |                |                 |      |   |       |       |    |    |       |      
|                                           | Memory products |                              |               | 2,947           |      |   |      | 2,665 |    |    |      | 3,808 |    
|                                           |                 | % of net sales               |                |                 | 98   | % |       |       | 94 | %  |       |       | 100 | %
|                                           | License revenue |                              |               | 61              |      |   |      | 160   |    |    |      | 7     |    
|                                           |                 |                              |                |                 |      |   |       |       |   
|                                           |                 | % of net sales               |                |                 | 2    | % |       |       | 6  | %  |       |       | 0   | %
|                                           |                 |                              |                | Total net sales |      |  | 3,008 |       |    |   | 2,825 |       |     |  | 3,815 | 
|                                           |                 |                              |                |                 |      |   |       |       |   
|Effect of foreign exchange over prior year |                 |                              |               |                 |      |  | (132  | )     |    |   | 117   |      
|                                           |                 |                              | % of net sales |                 |      |  |       |       |    | (5 | )%    |       |     | 3 | %    

  




| |   |                                                               
| | - | --------------------------------------------------------------
| |  | higher bit shipments, which increased 79%; and                
|
| |  | a 3% increase in the average exchange rate of dollar for euro.





| |   |                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------
| |  | DRAM price declines of 20%; and                                                                    
|
| |  | the positive effect in the prior year period of license income
    from ProMOS of
    118 million.



  




| |   |                                                                      
| | - | ---------------------------------------------------------------------
| |  | DRAM price declines of 27%;                                          
|
| |  | a 4% decline in the average exchange rate of dollar for
    euro; and
|
| |  | the transfer to Infineon of the Dresden 200mm facility.              





| |   |                                                                   
| | - | ------------------------------------------------------------------
| |  | higher sales volumes, or bit shipments, of 31%; and               
|
| |  | the recognition of license income from ProMOS of
    118 million.

Increase in bit shipments.




| |   |                                                                                         
| | - | ----------------------------------------------------------------------------------------
| |  | our progress in increasing the yield of our 110nm technology,                           
|
| |  | the conversion of an increasing share of our capacities to our
    90nm technology,     
|
| |  | our access to additional capacities of our joint venture
    partners and our foundries,

46



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##### Table of Contents





| |   |                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the overall demand growth in the DRAM market and our successful
    diversification in new market segments, particularly with our
    graphic DRAM products, and
|
| |  | the ramp-up of
    production volumes at our Richmond 300mm facility.                                                                                           





| |   |                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our progress in converting our capacities towards the 110nm
    technology node and increasing the yield of those facilities
    that are using that technology;                                                                                                                         
|
| |  | the ramp-up of our
    manufacturing joint venture Inotera and the access to additional
    capacity through our cooperation with Winbond and SMIC; and                                                                                                                                  
|
| |  | the overall increased sales volume during the 2005 financial
    year. This resulted from increased market demand, particularly
    for PCs, increased bits per box and increasing
    demand for non-PC products including infrastructure and
    graphics, mobile and consumer DRAMs.





Exchange rate effects. 





Price declines and increases.




47



---



##### Table of Contents








(Source: WSTS)


Dresden 200mm transfer. 


Fluctuation in license revenue.    


48



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##### Table of Contents



Net Sales by Region




|              |  |                                            |       |  |      |  |     |      |  |   |       |  |  |  |     |   |  |   |       |  |  |  |     |  
|------------- |  | ------------------------------------------ | ----- |  | ---- |  | --- | ---- |  | - | ----- |  |  |  | --- | - |  | - | ----- |  |  |  | --- | -
|              |  | For the financial year ended September 30, |      
|              |  |                                            |      
|              |  | 2004                                       |       |  | 2005 |  |     | 2006 | 
|              |  |                                            |       |  |      |  |     |      | 
|              |  | (in millions, except percentages)          |      
|Germany       |  |                                           | 398   |  |      |  | 13  | %    |  |  | 232   |  |  |  | 8   | % |  |  | 316   |  |  |  | 8   | %
|Other Europe  |  |                                            | 342   |  |      |  | 12  |      |  |   | 332   |  |  |  | 12  |   |  |   | 428   |  |  |  | 11  |  
|North America |  |                                            | 1,135 |  |      |  | 38  |      |  |   | 1,067 |  |  |  | 38  |   |  |   | 1,591 |  |  |  | 42  |  
|Asia/ Pacific |  |                                            | 1,001 |  |      |  | 33  |      |  |   | 1,091 |  |  |  | 38  |   |  |   | 1,174 |  |  |  | 31  |  
|Japan         |  |                                            | 131   |  |      |  | 4   |      |  |   | 102   |  |  |  | 4   |   |  |   | 252   |  |  |  | 7   |  
|Other         |  |                                            | 1     |  |      |  | 0   |      |  |   | 1     |  |  |  | 0   |   |  |   | 54    |  |  |  | 1   |  
|              |  |                                            |       |  |      |  |     |      |  |   |       |  |  |  |     |   |  |  
|Total         |  |                                           | 3,008 |  |      |  | 100 | %    |  |  | 2,825 |  |  |  | 100 | % |  |  | 3,815 |  |  |  | 100 | %
|              |  |                                            |       |  |      |  |     |      |  |   |       |  |  |  |     |   |  |  






Cost of Goods Sold and Gross
Margin






| |   |                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------
| |  | direct materials, principally raw wafers;                                                                                
|
| |  | employee costs;                                                                                                          
|
| |  | overhead, including maintenance of production equipment,
    indirect materials (such as photomasks) and royalties;      
|
| |  | depreciation and amortization;                                                                                           
|
| |  | subcontracted assembly and testing services;                                                                             
|
| |  | production support, including facilities, utilities, quality
    control, automated systems and management functions; and
|
| |  | foundry production (including chips we purchase from our Inotera
    joint venture).                                     





| |   |                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------
| |  | foreign currency conversion gains (or losses) on transactions in
    non-euro currencies and translations into euro;
|
| |  | amortization of purchased intangible assets;                                                                        
|
| |  | product warranty costs;                                                                                             
|
| |  | provisions for excess or obsolete inventories; and                                                                  
|
| |  | government grants, which we recognize over the remaining useful
    life of the related manufacturing assets.       

49



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     




|                   |                |                              |       |    |      |   |       |      |   |   |       |    |  
|------------------ | -------------- | ---------------------------- | ----- | -- | ---- | - | ----- | ---- | - | - | ----- | -- | -
|                   |                | For the financial year ended |      
|                   |                | September 30,                |      
|                   |                |                              |      
|                   |                | 2004                         |       |    | 2005 |   |       | 2006 |  
|                   |                |                              |       |    |      |   |       |      |  
|                   |                | (in millions, except         |      
|                   |                | percentages)                 |      
|Cost of goods sold |                |                             | 2,063 |    |      |  | 2,164 |      |   |  | 3,048 |   
|                   | % of net sales |                              |       | 69 | %    |   |       | 77   | % |   |       | 80 | %
|Gross margin       |                |                              | 31    | %  |      |   | 23    | %    |   |   | 20    | % 

  




| |   |                                                                                              
| | - | ---------------------------------------------------------------------------------------------
| |  | higher bit shipments;                                                                        
|
| |  | higher absolute costs from production ramp-up and increased
    purchases from foundries; and
|
| |  | exchange rate effects.                                                                       



  




| |   |                          
| | - | -------------------------
| |  | higher bit shipments; and





| |   |                               
| | - | ------------------------------
| |  | the Dresden 200mm transfer;   
|
| |  | exchange rate effects; and    
|
| |  | increases in our productivity.

Higher bit shipments.




Higher absolute costs from production ramp-up and increased
purchases from foundries. 


Increased average costs per wafer and personnel.


50



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##### Table of Contents





Exchange rate effects.  


 


Dresden 200mm transfer. 


Productivity increase.






Research and Development
(R&D) Expenses




51



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##### Table of Contents







|                                  |                |                        |     |    |      |   |     |      |   |   |     |    |  
|--------------------------------- | -------------- | ---------------------- | --- | -- | ---- | - | --- | ---- | - | - | --- | -- | -
|                                  |                | For the financial year |    
|                                  |                | ended September 30,    |    
|                                  |                |                        |    
|                                  |                | 2004                   |     |    | 2005 |   |     | 2006 |  
|                                  |                |                        |     |    |      |   |     |      |  
|                                  |                | (in millions, except   |    
|                                  |                | percentages)           |    
|Research and development expenses |                |                       | 347 |    |      |  | 390 |      |   |  | 433 |   
|                                  | % of net sales |                        |     | 12 | %    |   |     | 14   | % |   |     | 11 | %
|Government subsidies              |                |                       | 25  |    |      |  | 16  |      |   |  | 17  |   
|                                  | % of net sales |                        |     | 1  | %    |   |     | 1    | % |   |     | *  |  






|  |             
|- | ------------
|* | less than 1%

  


   




Selling, General and
Administrative (SG&A) Expenses








|                                             |                |                        |     |   |      |   |     |      |   |   |     |   |  
|-------------------------------------------- | -------------- | ---------------------- | --- | - | ---- | - | --- | ---- | - | - | --- | - | -
|                                             |                | For the financial year |    
|                                             |                | ended September 30,    |    
|                                             |                |                        |    
|                                             |                | 2004                   |     |   | 2005 |   |     | 2006 |  
|                                             |                |                        |     |   |      |   |     |      |  
|                                             |                | (in millions, except   |    
|                                             |                | percentages)           |    
|Selling, general and administrative expenses |                |                       | 232 |   |      |  | 206 |      |   |  | 215 |  
|                                             | % of net sales |                        |     | 8 | %    |   |     | 7    | % |   |     | 6 | %

  


52



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##### Table of Contents



 


 


Restructuring Charges


 


Other Operating Expense,
Net




|                             |                |                        |     |   |      |   |    |      |   |   |    |   |  
|---------------------------- | -------------- | ---------------------- | --- | - | ---- | - | -- | ---- | - | - | -- | - | -
|                             |                | For the financial year |    
|                             |                | ended September 30,    |    
|                             |                |                        |    
|                             |                | 2004                   |     |   | 2005 |   |    | 2006 |  
|                             |                |                        |     |   |      |   |    |      |  
|                             |                | (in millions, except   |    
|                             |                | percentages)           |    
|Other operating expense, net |                |                       | 194 |   |      |  | 13 |      |   |  | 60 |  
|                             | % of net sales |                        |     | 6 | %    |   |    | 0    | % |   |    | 1 | %

  ® 


Equity in (Losses) Earnings
of Associated Companies




|                                                    |                |                        |     |    |      |   |    |      |   |   |    |   |  
|--------------------------------------------------- | -------------- | ---------------------- | --- | -- | ---- | - | -- | ---- | - | - | -- | - | -
|                                                    |                | For the financial year |    
|                                                    |                | ended September 30,    |    
|                                                    |                |                        |    
|                                                    |                | 2004                   |     |    | 2005 |   |    | 2006 |  
|                                                    |                |                        |     |    |      |   |    |      |  
|                                                    |                | (in millions, except   |    
|                                                    |                | percentages)           |    
|Equity in (losses) earnings of associated companies |                |                       | (16 | )  |      |  | 45 |      |   |  | 80 |  
|                                                    | % of net sales |                        |     | (1 | )%   |   |    | 2    | % |   |    | 2 | %



53



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Gain on Associated Company
Share Issuance




|                                          |                |                        |   |   |      |   |   |      |   |   |    |   |  
|----------------------------------------- | -------------- | ---------------------- | - | - | ---- | - | - | ---- | - | - | -- | - | -
|                                          |                | For the financial year |  
|                                          |                | ended September 30,    |  
|                                          |                |                        |  
|                                          |                | 2004                   |   |   | 2005 |   |   | 2006 |  
|                                          |                |                        |   |   |      |   |   |      |  
|                                          |                | (in millions, except   |  
|                                          |                | percentages)           |  
|Gain on associated company share issuance |                |                       | 2 |   |      |  | 0 |      |   |  | 72 |  
|                                          | % of net sales |                        |   | 0 | %    |   |   | 0    | % |   |    | 2 | %




Other Non-Operating
(Expense) Income, Net




|                                          |                |                        |      |   |      |  |     |      |   |  |    |   |  
|----------------------------------------- | -------------- | ---------------------- | ---- | - | ---- |  | --- | ---- | - |  | -- | - | -
|                                          |                | For the financial year |     
|                                          |                | ended September 30,    |     
|                                          |                |                        |     
|                                          |                | 2004                   |      |   | 2005 |  |     | 2006 |  
|                                          |                |                        |      |   |      |  |     |      |  
|                                          |                | (in millions, except   |     
|                                          |                | percentages)           |     
|Other non-operating (expense) income, net |                |                        | (11 | ) |      |  | 13 |      |   |  | 8 |  
|                                          | % of net sales |                        |      | 0 | %    |  |     | 0    | % |  |    | 0 | %



 


  


Earnings Before Interest and
Taxes (EBIT)




54



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##### Table of Contents







|                           |  |                        |     |   |      |   |     |      |  |   |     | 
|-------------------------- |  | ---------------------- | --- | - | ---- | - | --- | ---- |  | - | --- | 
|                           |  | For the financial year |    
|                           |  | ended September 30,    |    
|                           |  |                        |    
|                           |  | 2004                   |     |   | 2005 |   |     | 2006 | 
|                           |  |                        |     |   |      |   |     |      | 
|                           |  | (in millions, except   |    
|                           |  | percentages)           |    
|Net income (loss)          |  |                       | (79 | ) |      |  | 18  |      |  |  | 74  | 
|Add: Income tax expense    |  |                        | 211 |   |      |   | 86  |      |  |   | 114 | 
|Add: Interest expense, net |  |                        | 30  |   |      |   | 7   |      |  |   | 25  | 
|                           |  |                        |     |   |      |   |     |      | 
|EBIT                       |  |                       | 162 |   |      |  | 111 |      |  |  | 213 | 
|                           |  |                        |     |   |      |   |     |      | 

Interest Income (Expense),
Net






|                      |                |                        |     |    |      |   |    |      |   |   |     |    |   
|--------------------- | -------------- | ---------------------- | --- | -- | ---- | - | -- | ---- | - | - | --- | -- | --
|                      |                | For the financial year |    
|                      |                | ended September 30,    |    
|                      |                |                        |    
|                      |                | 2004                   |     |    | 2005 |   |    | 2006 |  
|                      |                |                        |     |    |      |   |    |      |  
|                      |                | (in millions, except   |    
|                      |                | percentages)           |    
|Interest expense, net |                |                       | (30 | )  |      |  | (7 | )    |   |  | (25 | ) 
|                      | % of net sales |                        |     | (1 | )%   |   |    | 0    | % |   |     | (1 | )%
|Capitalized interest  |                |                       | 9   |    |      |  | 7  |      |   |  | 0   |   






Income Taxes




|                   |                |                        |      |    |      |   |     |      |    |   |      |    |   
|------------------ | -------------- | ---------------------- | ---- | -- | ---- | - | --- | ---- | -- | - | ---- | -- | --
|                   |                | For the financial year |     
|                   |                | ended September 30,    |     
|                   |                |                        |     
|                   |                | 2004                   |      |    | 2005 |   |     | 2006 |   
|                   |                |                        |      |    |      |   |     |      |   
|                   |                | (in millions, except   |     
|                   |                | percentages)           |     
|Income tax expense |                |                       | (211 | )  |      |  | (86 | )    |    |  | (114 | ) 
|                   | % of net sales |                        |      | (7 | )%   |   |     | (3   | )% |   |      | (3 | )%
|Effective tax rate |                |                        | 160  | %  |      |   | 83  | %    |    |   | 61   | % 

55



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##### Table of Contents



carve-out carve-out.


Net Income (Loss)


   





Financial Condition




|                              |  |                      |        |  |      |  |        |          |  |  |    |  
|----------------------------- |  | -------------------- | ------ |  | ---- |  | ------ | -------- |  |  | -- | -
|                              |  | As of September 30,  |       
|                              |  |                      |       
|                              |  | 2005                 |        |  | 2006 |  |        | % Change | 
|                              |  |                      |        |  |      |  |        |          | 
|                              |  | (in millions, except |       
|                              |  | percentages)         |       
|Current assets                |  |                      | 1,802 |  |      |  | 2,807 |          |  |  | 56 | %
|Non-current assets            |  |                      | 3,059  |  |      |  | 3,054  |          |  |  | 0  |  
|                              |  |                      |        |  |      |  |        |          | 
|Total assets                  |  |                      | 4,861  |  |      |  | 5,861  |          |  |  | 21 |  
|                              |  |                      |        |  |      |  |        |          | 
|Current liabilities           |  |                      | 1,365  |  |      |  | 1,479  |          |  |  | 8  |  
|Non-current liabilities       |  |                      | 529    |  |      |  | 511    |          |  |  | (3 | )
|                              |  |                      |        |  |      |  |        |          | 
|Total liabilities             |  |                      | 1,894  |  |      |  | 1,990  |          |  |  | 5  |  
|                              |  |                      |        |  |      |  |        |          | 
|Business/Shareholders equity |  |                      | 2,967 |  |      |  | 3,871 |          |  |  | 30 | %
|                              |  |                      |        |  |      |  |        |          | 













Liquidity


Cash Flows




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|                                                                         |  |                        |        |   |      |  |      |      |  |  |      |  
|------------------------------------------------------------------------ |  | ---------------------- | ------ | - | ---- |  | ---- | ---- |  |  | ---- | -
|                                                                         |  | For the financial year |       
|                                                                         |  | ended September 30,    |       
|                                                                         |  |                        |       
|                                                                         |  | 2004                   |        |   | 2005 |  |      | 2006 | 
|                                                                         |  |                        |        |   |      |  |      |      | 
|                                                                         |  | (in millions, except   |       
|                                                                         |  | percentages)           |       
|Net cash provided by operating activities                                |  |                        | 693   |   |      |  | 483 |      |  |  | 297 |  
|Net cash used in investing activities                                    |  |                        | (1,048 | ) |      |  | (971 | )    |  |  | (772 | )
|Net cash provided by financing activities                                |  |                        | 388    |   |      |  | 538  |      |  |  | 773  |  
|Effect of foreign exchange rate changes on cash and cash
    equivalents |  |                        |       |   |      |  | 5    |      |  |  | 2    |  
|Cash and cash equivalents at end of year                                 |  |                        | 577   |   |      |  | 632 |      |  |  | 932 |  



| |                                                                                                
| | -----------------------------------------------------------------------------------------------
| | Financial Year Ended September 30, 2006 Compared to
    Financial Year Ended September 30, 2005

  




   


Financial Year Ended
September 30, 2005 Compared to Financial Year Ended
September 30, 2004


     




 


57



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##### Table of Contents






Free Cash Flow




|                                                  |  |                              |        |   |      |   |      |      |  |   |      |  
|------------------------------------------------- |  | ---------------------------- | ------ | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                                  |  | For the financial year ended |       
|                                                  |  | September 30,                |       
|                                                  |  |                              |       
|                                                  |  | 2004                         |        |   | 2005 |   |      | 2006 | 
|                                                  |  |                              |        |   |      |   |      |      | 
|                                                  |  | (in millions, except         |       
|                                                  |  | percentages)                 |       
|Net cash provided by operating activities         |  |                             | 693    |   |      |  | 483  |      |  |  | 297  |  
|Net cash used in investing activities             |  |                              | (1,048 | ) |      |   | (971 | )    |  |   | (772 | )
|Net (proceeds) purchases of marketable securities |  |                              | (17    | ) |      |   | (1   | )    |  |   | 138  |  
|                                                  |  |                              |        |   |      |   |      |      | 
|Free cash flow                                    |  |                             | (372   | ) |      |  | (489 | )    |  |  | (337 | )
|                                                  |  |                              |        |   |      |   |      |      | 



Net Cash Position




|                          |                                        |                        |       |           |        |  |       |           |       |   |           |    |  |           |     |    |           |   |     |         |  |   |     |    |  |   |     |    | 
|------------------------- | -------------------------------------- | ---------------------- | ----- | --------- | ------ |  | ----- | --------- | ----- | - | --------- | -- |  | --------- | --- | -- | --------- | - | --- | ------- |  | - | --- | -- |  | - | --- | -- | 
|                          |                                        | Payments due by period |      
|                          |                                        |                        |      
|                          |                                        |                        |       | Less than |        |  |       |           | After |  
|As of September 30, 2006  |                                        | Total                  |       |           | 1 year |  |       | 1-2 years |       |   | 2-3 years |    |  | 3-4 years |     |    | 4-5 years |   |     | 5 years | 
|                          |                                        |                        |       |           |        |  |       |           |       |   |           |    |  |           |     |    |           |   |     |         | 
|                          |                                        | (in millions)          |      
|Cash and cash equivalents |                                        |                       | 932   |           |        |  | 932  |           |       |  |          |    |  |          |    |    |           |  |    |         |  |  |    |    |  |  |    |   
|Marketable securities     |                                        |                        | 138   |           |        |  | 138   |           |       |   |           |    |  |           |     |    |           |   |     |         |  |   |     |    |  |   |     |   
|                          |                                        |                        |       |           |        |  |       |           |       |   |           |    |  |           |     |    |           |   |     |         | 
|Gross cash position       |                                        |                        | 1,070 |           |        |  | 1,070 |           |       |   |           |    |  |           |     |    |           |   |     |         |  |   |     |    |  |   |     |   
|                          |                                        |                        |       |           |        |  |       |           |       |   |           |    |  |           |     |    |           |   |     |         | 
|Less:                     |                                        |                        |       |           |        |  |       |           |       |   |          |    |  |           |    |    |           |   |    |         |  |   |    |    |  |   |    |   
|                          | Long-term debt                         |                        |       | 151       |        |  |       |          |       |   |           | 21 |  |           |     | 21 |           |   |     | 21      |  |   |     | 21 |  |   |     | 67 | 
|                          | Short-term debt and current maturities |                        |       | 344       |        |  |       | 344       |       |   |           |   |  |           |     |   |           |   |     |        |  |   |     |   |  |   |     |   | 
|                          |                                        |                        |       |           |        |  |       |           |       |   |           |    |  |           |     |    |           |   |     |         | 
|Total financial debt      |                                        |                        | 495   |           |        |  | 344   |           |       |   | 21        |    |  |           | 21  |    |           |   | 21  |         |  |   | 21  |    |  |   | 67  |   
|                          |                                        |                        |       |           |        |  |       |           |       |   |           |    |  |           |     |    |           |   |     |         | 
|Net cash position         |                                        |                       | 575   |           |        |  | 726  |           |       |  | (21       | )  |  |          | (21 | )  |           |  | (21 | )       |  |  | (21 | )  |  |  | (67 | ) 
|                          |                                        |                        |       |           |        |  |       |           |       |   |           |    |  |           |     |    |           |   |     |         | 

 


58



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##### Table of Contents



  







Capital Requirements






| |   |                                                 
| | - | ------------------------------------------------
| |  | finance our operations;                         
|
| |  | make scheduled debt payments;                   
|
| |  | settle contingencies if and when they occur; and
|
| |  | make planned capital expenditures.              





| |   |                                                         
| | - | --------------------------------------------------------
| |  | cash flow generated from operations;                    
|
| |  | cash on hand and securities we can sell;                
|
| |  | available credit facilities;                            
|
| |  | the proceeds from the IPO; and                          
|
| |  | capital market transactions we may engage in the future.

         


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Commitments and
Contingencies




|                                                              |                                            |                                       |       |           |        |   |     |           |       |   |           |     |  |           |    |    |           |   |    |         |  |   |    |    |  |   |     |     | 
|------------------------------------------------------------- | ------------------------------------------ | ------------------------------------- | ----- | --------- | ------ | - | --- | --------- | ----- | - | --------- | --- |  | --------- | -- | -- | --------- | - | -- | ------- |  | - | -- | -- |  | - | --- | --- | 
|                                                              |                                            | Payments due/expirations by period(1) |      
|                                                              |                                            |                                       |      
|                                                              |                                            |                                       |       | Less than |        |   |     |           | After |  
|As of September 30, 2006(2)(3)                                |                                            | Total                                 |       |           | 1 year |   |     | 1-2 years |       |   | 2-3 years |     |  | 3-4 years |    |    | 4-5 years |   |    | 5 years | 
|                                                              |                                            |                                       |       |           |        |   |     |           |       |   |           |     |  |           |    |    |           |   |    |         | 
|                                                              |                                            | (in millions)                         |      
|Other contractual liabilities reflected on the balance sheet: |                                            |                                       |       |           |        |   |     |           |       |   |           |     |  |           |    |    |           |   |    |         |  |   |    |    |  |   |     |    
|Settlement for antitrust related
    matters(4)               |                                            |                                      | 88    |           |        |  | 24  |           |       |  | 22        |     |  |          | 22 |    |           |  | 20 |         |  |  |   |    |  |  |    |    
|                                                              |                                            |                                       |       |           |        |   |     |           |       |   |           |     |  |           |    |    |           |   |    |         | 
|Contractual commitments:                                      |                                            |                                       |       |           |        |   |     |           |       |   |           |     |  |           |    |    |           |   |    |         |  |   |    |    |  |   |     |    
|                                                              | Operating lease payments                   |                                       |      | 107       |        |   |    | 27        |       |   |          | 26  |  |           |   | 24 |           |   |   | 9       |  |   |   | 8  |  |   |    | 13  | 
|                                                              | Unconditional purchase commitments
    (5) |                                       |       | 954       |        |   |     | 738       |       |   |           | 50  |  |           |    | 38 |           |   |    | 38      |  |   |    | 40 |  |   |     | 50  | 
|                                                              | Other long-term commitments                |                                       |       | 132       |        |   |     | 66        |       |   |           | 66  |  |           |    |   |           |   |    |        |  |   |    |   |  |   |     |    | 
|                                                              |                                            |                                       |       |           |        |   |     |           |       |   |           |     |  |           |    |    |           |   |    |         | 
|Total commitments                                             |                                            |                                      | 1,193 |           |        |  | 831 |           |       |  | 142       |     |  |          | 62 |    |           |  | 47 |         |  |  | 48 |    |  |  | 63  |    
|                                                              |                                            |                                       |       |           |        |   |     |           |       |   |           |     |  |           |    |    |           |   |    |         | 
|Other contingencies:                                          |                                            |                                       |       |           |        |   |     |           |       |   |           |     |  |           |    |    |           |   |    |         |  |   |    |    |  |   |     |    
|                                                              | Guarantees(6)                              |                                       |      | 71        |        |   |    |          |       |   |          | 2   |  |           |   | 7  |           |   |   |        |  |   |   | 9  |  |   |    | 53  | 
|                                                              | Contingent government
    grants(7)        |                                       |       | 452       |        |   |     | 113       |       |   |           | 111 |  |           |    | 18 |           |   |    | 43      |  |   |    | 22 |  |   |     | 145 | 
|                                                              |                                            |                                       |       |           |        |   |     |           |       |   |           |     |  |           |    |    |           |   |    |         | 
|Total contingencies                                           |                                            |                                      | 523   |           |        |  | 113 |           |       |  | 113       |     |  |          | 25 |    |           |  | 43 |         |  |  | 31 |    |  |  | 198 |    
|                                                              |                                            |                                       |       |           |        |   |     |           |       |   |           |     |  |           |    |    |           |   |    |         | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The above table should be read together with note 31 to our
    combined and consolidated financial statements.                                                                                                                                                                                                                                                                                                                                 
|   
|(2) | Certain payments of obligations or expiration of commitments
    that are based on the achievement of milestones or other events
    that are not date-certain are included in this table, based on
    our estimate of the reasonably likely timing of payments or
    expirations in each particular case. Actual outcomes could
    differ from those estimates.                                                                             
|   
|(3) | Product purchase commitments associated with capacity
    reservation agreements are not included in this table, since the
    purchase prices are based in part on future market prices, and
    are accordingly not quantifiable as of September 30, 2005
    and 2006. Purchases under these agreements aggregated
    approximately
    1,185 million
    for the 2006 financial year and
    520 million
    for the 2005 financial year.
|   
|(4) | These amounts are recorded as other current or other non-current
    liabilities on our balance sheet and reflect payments to be made
    under settlement agreements relating to antitrust matters.                                                                                                                                                                                                                                            
|   
|(5) | Primarily purchase orders that have been placed with suppliers
    of fixed assets, raw materials and services. Fixed price orders
    for products from our foundry partners are also shown here.                                                                                                                                                                                                                                              
|   
|(6) | Guarantees are mainly issued by the parent company for the
    payment of import duties, rentals of buildings, contingent
    obligations related to government grants received.                                                                                                                                                                                                                                                                
|   
|(7) | Contingent government grants refers to amounts
    previously received that are related to the construction and
    financing of certain production facilities, but that are not
    guaranteed otherwise. These could be repayable if the total
    project requirements are not met.                                                                                                                                                        

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Capital Expenditures


|                                           |  |                        |     |  |      |   |     |      |  |   |     | 
|------------------------------------------ |  | ---------------------- | --- |  | ---- | - | --- | ---- |  | - | --- | 
|                                           |  | For the financial year |    
|                                           |  | ended September 30,    |    
|                                           |  |                        |    
|                                           |  | 2004                   |     |  | 2005 |   |     | 2006 | 
|                                           |  |                        |     |  |      |   |     |      | 
|                                           |  | (in millions)          |    
|Purchases of property, plant and equipment |  |                       | 770 |  |      |  | 926 |      |  |  | 686 | 

 







Credit Facilities





 









| |   |                                                                               
| | - | ------------------------------------------------------------------------------
| |  | Negative pledge;                                                              
|
| |  | Limitation on indebtedness;                                                   
|
| |  | Restriction on asset dispositions;                                            
|
| |  | Limitations on mergers and reorganizations;                                   
|
| |  | Required maintenance of minimum liquidity levels and financial
    ratios; and

61



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| |   |                                 
| | - | --------------------------------
| |  | Limitation on dividend payments.



















Pension Plan Funding


   




    




62



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##### Table of Contents





i.e. 


Research and
Development


   








Quantitative and Qualitative Disclosure About Market Risk




Commodity Price Risk




63



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##### Table of Contents







Foreign Exchange Rate
Risk


 






|                             |                   |                     |   |     |       |   |   |          |  |  |       |     |  |   |   |    |  
|---------------------------- | ----------------- | ------------------- | - | --- | ----- | - | - | -------- |  |  | ----- | --- |  | - | - | -- | -
|                             |                   | As of September 30, |  
|                             |                   |                     |  
|                             |                   | 2005                |   |     | 2006  |  
|                             |                   |                     |   |     |       |  
|                             |                   | Notional            |   |     | Fair  |   |   | Notional |  |  | Fair  |    
|                             |                   | amount              |   |     | value |   |   | amount   |  |  | value |    
|                             |                   |                     |   |     |       |   |   |          |  |  |       |    
|                             |                   | (in millions)       |  
|Forward contracts sold:      |                   |                     |   |     |       |   |   |          |  |  |       |     |  |   |   |   
|                             | U.S. dollar       |                     |  | 42  |       |   |  | 2        |  |  |      | 168 |  |   |  | (1 | )
|                             | Japanese yen      |                     |   | 34  |       |   |   |         |  |  |       | 26  |  |   |   |   |  
|Forward contracts purchased: |                   |                     |   |     |       |   |   |          |  |  |       |     |  |   |   |   
|                             | U.S. dollar       |                     |   | 122 |       |   |   | 1        |  |  |       | 17  |  |   |   |   |  
|                             | Japanese yen      |                     |   |    |       |   |   |         |  |  |       | 22  |  |   |   |   |  
|                             | Singapore dollar  |                     |   |    |       |   |   |         |  |  |       | 3   |  |   |   |   |  
|                             | Malaysian ringgit |                     |   | 11  |       |   |   |         |  |  |       | 5   |  |   |   |   |  
|                             | Other currencies  |                     |   | 16  |       |   |   |         |  |  |       |    |  |   |   |   |  
|Other                        |                   |                     |  |     |       |   |  |          |  |  | 94    |     |  |   | 5 |   
|                             |                   |                     |   |     |       |   |   |          |  |  |       |    
|Fair value, net              |                   |                     |   |     |       |  | 3 |          |  |  |       |     |  |  | 4 |   
|                             |                   |                     |   |     |       |   |   |          |  |  |       |    





64



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##### Table of Contents







     


Interest Rate Risk















Off-Balance Sheet Arrangements










Outlook




65



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##### Table of Contents







 


 


 


 









Recent Accounting Pronouncements


Inventory Costs 
an amendment of ARB No. 43, Chapter 4


Exchanges of Nonmonetary Assets  an
Amendment of APB Opinion No. 29


Accounting for Conditional Asset Retirement
Obligations


66



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##### Table of Contents



Accounting Changes and Error Corrections. Reporting Accounting Changes in Interim Financial
Statements


Accounting for Income Tax Uncertainties


Fair Value Measurements


Employers Accounting for Defined Benefit Pension
and Other Postretirement Plans  an amendment of FASB
Statements No. 87, 88, 106, and 132(R)   


67



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##### Table of Contents



Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements


68



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##### Table of Contents






THE SEMICONDUCTOR MEMORY INDUSTRY










| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Dynamic Random Access Memory, or DRAM, products, which are the
    most common volatile memories. A volatile memory IC
    retains information only while electrical power is switched on,
    while a non-volatile memory IC retains its data
    content after the power supply is switched off. DRAM products
    offer large densities at low cost with relatively fast access
    times and virtually unlimited endurance for the life of the
    product. They are dynamic because they must be
    electronically refreshed frequently in order to retain the
    stored data;
|
| |  | Flash memory products, which are non-volatile
    memories offering large densities at low cost with slower access
    times and limited endurance; and                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Static Random Access Memory, or SRAM, products, which are
    volatile memories offering low densities at relatively higher
    cost with very fast access times and virtually unlimited
    endurance for the life of the product.                                                                                                                                                                                                                                                                                                                                                        








Semiconductor Memory Product Features






Memory density




69



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|      |  |                         |       |  |      |  |       |      |  |  |       |  |  |      |       |  |      |  |       |  |  |  |       | 
|----- |  | ----------------------- | ----- |  | ---- |  | ----- | ---- |  |  | ----- |  |  | ---- | ----- |  | ---- |  | ----- |  |  |  | ----- | 
|      |  | Year ended December 31, |      
|      |  |                         |      
|      |  | 2000                    |       |  | 2001 |  |       | 2002 |  |  | 2003  |  |  | 2004 |       |  | 2005 | 
|      |  |                         |       |  |      |  |       |      |  |  |       |  |  |      |       |  |      | 
|4Mb   |  |                         | 0.3%  |  |      |  | 0.1%  |      |  |  | 0.1%  |  |  |      |      |  |      |  |      |  |  |  |      | 
|16Mb  |  |                         | 5.9%  |  |      |  | 2.4%  |      |  |  | 1.5%  |  |  |      | 0.8%  |  |      |  | 0.7%  |  |  |  | 0.4%  | 
|64Mb  |  |                         | 51.4% |  |      |  | 16.8% |      |  |  | 7.0%  |  |  |      | 3.8%  |  |      |  | 2.5%  |  |  |  | 1.3%  | 
|128Mb |  |                         | 37.3% |  |      |  | 61.8% |      |  |  | 35.7% |  |  |      | 14.2% |  |      |  | 7.7%  |  |  |  | 4.2%  | 
|256Mb |  |                         | 5.0%  |  |      |  | 18.8% |      |  |  | 55.5% |  |  |      | 78.9% |  |      |  | 74.0% |  |  |  | 48.0% | 
|512Mb |  |                         |      |  |      |  |      |      |  |  | 0.2%  |  |  |      | 2.2%  |  |      |  | 14.3% |  |  |  | 43.2% | 
|1Gb   |  |                         |      |  |      |  |      |      |  |  |      |  |  |      | 0.1%  |  |      |  | 0.9%  |  |  |  | 2.8%  | 

Data transfer rates and
interfaces






|              |  |                         |       |  |      |  |       |      |  |  |       |  |  |      |       |  |      |  |       |  |  |  |       | 
|------------- |  | ----------------------- | ----- |  | ---- |  | ----- | ---- |  |  | ----- |  |  | ---- | ----- |  | ---- |  | ----- |  |  |  | ----- | 
|              |  | Year ended December 31, |      
|              |  |                         |      
|              |  | 2000                    |       |  | 2001 |  |       | 2002 |  |  | 2003  |  |  | 2004 |       |  | 2005 | 
|              |  |                         |       |  |      |  |       |      |  |  |       |  |  |      |       |  |      | 
|FPM/ EDO DRAM |  |                         | 9.9%  |  |      |  | 3.2%  |      |  |  | 0.9%  |  |  |      | 0.4%  |  |      |  | 0.2%  |  |  |  | 0.1%  | 
|SDR SDRAM     |  |                         | 87.0% |  |      |  | 81.0% |      |  |  | 55.5% |  |  |      | 22.4% |  |      |  | 17.6% |  |  |  | 12.2% | 
|DDR SDRAM     |  |                         |      |  |      |  | 8.6%  |      |  |  | 37.9% |  |  |      | 72.5% |  |      |  | 72.6% |  |  |  | 58.0% | 
|DDR2 SDRAM    |  |                         |      |  |      |  |      |      |  |  | 0.0%  |  |  |      | 1.3%  |  |      |  | 6.6%  |  |  |  | 26.5% | 
|RDRAM         |  |                         | 2.7%  |  |      |  | 6.4%  |      |  |  | 4.2%  |  |  |      | 1.9%  |  |      |  | 0.9%  |  |  |  | 0.4%  | 
|Other         |  |                         | 0.3%  |  |      |  | 0.8%  |      |  |  | 1.5%  |  |  |      | 1.6%  |  |      |  | 2.1%  |  |  |  | 2.8%  | 

Voltage and power
consumption




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DRAM Technologies


DRAM Architecture




Feature Size




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The Semiconductor Manufacturing Process




The front-end process






| |   |                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | oxidation/deposition, which involves depositing oxide material
    on the surface of the wafer;                                                                                                         
|
| |  | photolithography, which utilizes a light-sensitive material
    called photoresist, a pre-formatted mask and a light
    source, to imprint the desired circuitry on the deposited oxide
    material;
|
| |  | etching, which involves removing the oxide material that is not
    still covered by photoresist, and                                                                                                   
|
| |  | ion implantation, during which ionic materials known as dopants
    are shot into the wafer to create charged regions within the
    silicon wafer to enable transistor functionality.                  









The back-end process




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DRAM Applications




Standard DRAMs for PC and
Workstation Applications








DRAMs for Infrastructure
Applications




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DRAMs for Other Applications
including Graphics, Mobile and Consumer Applications











Drivers of DRAM Demand and Recent Trends






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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Emergence of mobile phones as a significant consumer of
    DRAM. While mobile phones consumed nearly no DRAM five
    years ago, in calendar year 2005 this application represented 2%
    of DRAM consumption and is expected to reach 5% in calendar year
    2010, according to Gartner. The 12% CAGR of units shipped
    between calendar years 2005 and 2010, combined with 63% CAGR in
    megabytes per unit, is expected to lead to 82% CAGR of total
    DRAM consumption by mobile phones. Rapid growth in DRAM content
    in phones is driven by emergence of multimedia phones and
    adoption of sophisticated digital audio and video functions into
    handsets. Market research firm International Data Corporation
    (IDC) estimates that smart handheld devices, including
    keypad- and pen-based devices, will each contain as much as 500
    megabytes of DRAM by calendar year 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | New or increased DRAM consumption by graphics applications
    and digital consumer devices. Evolution of consumer
    electronics has created several device categories that offer
    sophisticated functionality and require substantial amount of
    DRAM to operate. These devices, including digital TVs and
    digital audio players, are often characterized by strong unit
    growth and represent a significant incremental opportunity for
    DRAM suppliers. In addition, technological advances in
    established consumer devices have led newer models to require
    more advanced DRAM and consume more DRAM per unit. Such devices
    include game consoles, where the latest products include 512 or
    256 MB of highly specialized GDDR3 DRAM. Two of the major game
    console developers are expected to introduce new consoles during
    2006, while the third major game console developer is currently
    ramping up production of its new console. Newer DVD
    technologies, including advanced optical drives that demand more
    discrete DRAM chips per DVD player or recorder, are also
    expected to contribute to this growth. These and other trends
    are expected to drive 47% CAGR of DRAM consumption in consumer
    devices between calendar years 2005 and 2010, according to
    Gartner.                                                                                                                            
|
| |  | Continuing strong growth in DRAMs for infrastructure.DRAM consumption in servers is expected to grow at 47%
    CAGR between 2005 and 2010, according to Gartner, driven by an
    estimated increase of DRAM content per unit at a CAGR of over
    35% and strong unit growth of blade servers. Evolution of
    processor architectures, combined with increasing complexity of
    systems, places significant demands on DRAM components used in
    these systems, including power efficiency, speed and density.
    However, demand for such DRAMs tends to be contract-based and
    therefore relatively steady, resulting in more stable and
    favorable pricing than the overall DRAM market.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Multiple drivers of growth in DRAMs for PC and
    workstations. PCs, workstations and memory modules and
    upgrades are expected to increase DRAM consumption at 52% CAGR
    between 2005 and 2010, according to Gartner. One of the drivers
    of this growth involves increasing adoption of dual-core and
    64-bit processors, which are expected to be incorporated in
    almost half of total PC shipments by the end of 2007, according
    to IDC. In addition, introduction of Microsofts first
    mainstream 64-bit operating system, Windows Vista, currently
    anticipated by Microsoft to take place in early 2007, is
    expected to stimulate DRAM demand by facilitating higher DRAM
    per unit and by triggering PC upgrades by consumers, followed by
    companies. Gartner expects mobile PCs to play an important role
    in DRAM demand as their strong unit growth is expected to
    continue at a 19% CAGR in the period between calendar years 2005
    and 2010, driven by improved power efficiency, wireless and
    multimedia functionality and other trends, including
    substitution of desktop PCs. Given the space and power
    constraints present in mobile devices, this is expected to lead
    to increase in demand for advanced DRAM components that address
    the above constraints. Significant DRAM market potential also
    exists in desktop PC penetration in emerging markets such as
    China and India.




Drivers of DRAM Supply and Recent Trends




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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Capacity additions.DRAM suppliers periodically
    build new manufacturing facilities or upgrade existing
    facilities to increase their overall capacity. Historically,
    periods of supply shortages led many market participants to
    decide to add more capacity or accelerate existing capacity
    addition plans. Given the long time required to bring new
    capacity on-stream, these capacity additions may result in
    excess supply if a significant amount of capacity comes
    on-stream simultaneously, in particular when demand had
    subsided. Recently, several market participants have experienced
    strong revenue growth and have announced (or completed)
    increased investment in new manufacturing capacities. However,
    some of these capacities have been or will be used to produce
    non-DRAM products as well, as discussed below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Wafer size, process technology and other manufacturing
    improvements. Successive generations of semiconductor
    manufacturing technology enable higher output and productivity,
    resulting in growth of supply without investments in incremental
    capacity. For example, the transition from 200mm to 300mm
    wafer-based manufacturing yields higher output given the larger
    size of wafers being processed. The production capacity on 300mm
    wafers has increased almost four fold since the beginning of
    calendar year 2004. According to iSuppli, the worldwide
    percentage of DRAM bits output on 300mm wafers was 19% in the
    first quarter of calendar year 2004. By the end of the fourth
    quarter of calendar year 2005, the percentage of bit output
    produced on 300mm wafers was 49%, according to iSuppli. In
    addition, transition to smaller process technology, for example
    from 110nm to 90nm and then to 75nm nodes, reduces the die size
    and increases the density per unit of die surface. As a result,
    more chips are produced from the same wafer and higher bit
    shipments are achieved without adding incremental capacity. When
    these major transitions occur in DRAM manufacturing, lithography
    methods or materials used, initial manufacturing yields tend to
    be low, resulting in output below full potential. Over time, as
    DRAM suppliers solve the manufacturing problems and increase
    their yield, a higher proportion of usable components are
    produced per wafer and bit supply increases.





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Consolidation among DRAM suppliers.Market
    dynamics have driven significant consolidation in the DRAM
    industry, as a number of major manufacturers have withdrawn from
    the industry. NEC and Hitachi combined their DRAM operations
    into Elpida Corporation in December 1999, later consolidating
    some of Mitsubishis DRAM development activities. Texas
    Instruments sold its DRAM operations to Micron Corporation in
    calendar year 1998 and Toshiba sold its U.S. DRAM fab to Micron
    in calendar year 2002. In January 2006, Micron combined its
    flash activities with Intel. Hyundai merged its DRAM operations
    with those of LG in calendar year 1999 (later renaming its DRAM
    operations as Hynix). According to Gartner, market share
    (measured by revenues in U.S. dollars) commanded by the four
    largest vendors has increased during the last decade from 46% in
    calendar year 1995 to 77% in calendar year 2005. We believe the
    market to be moderately concentrated as, according to Gartner,
    only eight DRAM suppliers had revenue market share of over 1% in
    2005.
|
| |  | Increasing cost of technology development and
    manufacturing facilities. The level of complexity
    increases with each successive generation of semiconductor
    manufacturing technology, as the leading edge processes are
    nearing limits caused by the physical properties of materials
    employed in the process. To solve such problems and to
    successfully introduce technologically advanced manufacturing                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | capacity, DRAM suppliers need to consistently make significant
    investments in research and development and in expensive
    manufacturing equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Increasing use of foundries, joint ventures and licensing
    agreements. In recent years, the high costs of
    constructing fabs has led to the expansion of the use of
    semiconductor foundries, which are contract manufacturers that
    produce chips to the specifications of others. Historically,
    foundries have produced chips for what are known as
    fabless semiconductor companies, which are firms
    that design chips but that do not have their own manufacturing
    facilities. Increasingly, however, even large semiconductor
    companies that do have their own facilities are supplementing
    their capacity by making use of foundries. Using foundries
    involves less capital investment and may provide greater
    flexibility to increase or decrease output in a volatile market.





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Expansion of DRAM suppliers into flash memory
    products. Driven by the historical and projected strong
    growth in the NAND flash market, and taking advantage of
    similarities between DRAM and NAND flash manufacturing, some
    DRAM suppliers have entered or expanded their presence in
    particular in the NAND flash market by adding new NAND flash
    manufacturing capacity or converting existing DRAM capacity to
    the manufacture of NAND flash memory. DRAM manufacturing
    capacity can generally be transferred to NAND flash and back
    without major cost or investment and in relatively short time.
    We believe that this gives suppliers flexibility to allocate
    capacity away from a product in periods of excess supply of that
    product. As suppliers convert capacity from DRAM to NAND flash,
    the impact may be beneficial to DRAM producers because the
    resulting reduced rate of growth in the supply of DRAM could
    operate to moderate price declines for DRAM products that would
    likely have occurred had the new capacity been dedicated to DRAM
    production.



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OUR BUSINESS





Overview








| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Standard DRAM products used in personal computers, or PCs, and
    workstations. Sales of these standard DRAM products accounted
    for approximately 51% of our net sales in our 2005 financial
    year and for approximately 47% of our net sales in our 2006
    financial year;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Technologically more advanced DRAM products used in
    infrastructure, graphics, mobile and consumer applications. Our
    infrastructure DRAMs address the high reliability requirements
    of servers, networking and storage equipment. Our graphics,
    mobile and consumer DRAMs principally include specialty
    DRAMs that are designed for high performance or
    incorporate logic circuitry to enable low power consumption. Our
    graphics DRAMs deliver advanced performance to graphics cards
    and game consoles, and our mobile and consumer DRAMs provide low
    power consumption benefits to mobile phones, digital audio
    players, televisions, set-top boxes, DVD recorders and other
    consumer electronic devices. Sales of infrastructure, graphics,
    mobile and consumer DRAM products accounted for approximately
    38% of our net sales in our 2005 financial year and for
    approximately 50% of our net sales in our 2006 financial year;
    and
|
| |  | Other products, including embedded DRAM and NAND-compatible
    flash memory products, and technology licensing. Our flash
    memory products are primarily used in digital still cameras,
    mobile phones, USB drives and digital audio players. Sales of
    embedded DRAM and flash memory products and revenues from
    technology licensing and royalties accounted for approximately
    11% of our net sales in our 2005 financial year and for
    approximately 3% of our net sales in our 2006 financial year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         





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Our Strengths






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We are a leading supplier of DRAM products. We
    have grown our operations significantly over the last decade
    and, as the suppliers in our industry have continued to
    consolidate, we have increased our market share from 3% to 13%
    (based on revenues) between calendar years 1995 and 2005,
    according to Gartner. Although our market share fluctuates from
    quarter-to-quarter and year-to-year, by the end of calendar year
    2005, we were among the four largest DRAM suppliers, which
    together accounted for 77% of the global DRAM market in calendar
    year 2005. According to Gartner, we were the second largest
    supplier of DRAM products by revenues, and we were third largest
    supplier by bits shipped, in the first half of the 2006 calendar
    year. We believe that our size and scale will enable us to
    continue to improve our position as a prominent developer of
    leading semiconductor memory technologies, as a manufacturer
    with facilities among the most modern in our industry and as a
    supplier of an increasingly broad portfolio of competitive
    products to customers worldwide.                                                                                                                                                              
|
| |  | We are among the leaders in the transition to
    manufacturing on 300mm wafers. We were among the first
    DRAM suppliers to transition a substantial portion of our
    manufacturing to 300mm technology and began volume production on
    this basis in 2001. Today, we own and operate two 300mm
    facilities and have access through our Inotera Memories, Inc.
    joint venture to the largest 300mm facility in the world
    according to Gartner. In the second quarter of the calendar year
    2006, about 74% of the DRAM bits we produced were manufactured
    using 300mm wafers. This compares favorably to the industry
    average of 59%, as reported by iSuppli for the same quarter. We
    believe this places us ahead of our major competitors, many of
    which still manufacture mostly on 200mm technology. We believe
    the primary benefit of this early transition to 300mm will be a
    reduction in our costs per bit, as our fixed costs of production
    are spread over a higher number of chips per wafer. Because
    implementation of 300mm technology is complex, requires time and
    substantial capital investments, we expect our 300mm leadership
    to give us an advantage relative to competitors who have not yet
    transitioned the majority of their capacity to 300mm.
|
| |  | Our proprietary trench architecture possesses
    advantageous physical characteristics we can exploit
    now. Our proprietary trench architecture is one of the
    two principal approaches to arranging storage capacitors on a
    chip. While the various alternative stack
    architectures involve stacking capacitors on the surface of a
    silicon die, our proprietary trench architecture places
    capacitors in trenches carved into the surface of the die. We
    believe that our proprietary trench architecture
    possesses physical characteristics that we can exploit during
    the current and next several technology nodes to yield
    advantages over the various alternative stack
    architectures. In particular, the larger capacitors featured by
    the trench architecture can be used to design DRAM products with
    high performance or low power consumption characteristics. We
    believe these characteristics are increasingly important in                                                                                                                                                                                                                                                                                                                                 

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | specialty DRAM applications such as graphics, mobile and
    consumer devices, and that they will continue to drive our
    strong growth in these end markets in the near term.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | We are a leading developer of semiconductor process
    technologies and an active innovator. We have
    successfully developed and implemented several generations of
    process technologies. We are currently converting our volume
    production to 90nm process technology and have started
    commercial production based on the next generation 75nm process
    technology at our lead facility in Dresden. We are also
    developing subsequent generations of process technology, or
    nodes, including 58nm. We are working on designs
    beyond the next several technology nodes with a range of
    technologies and architectures under construction. We expect
    that our accumulated experience, including that which we have
    acquired through our strategic alliances, should enable us to
    accelerate our feature size shrinkage from the 90nm node to the
    75nm node. We achieved the qualification of our 75nm node in
    approximately 30% less time than we did when shrinking from the
    110nm to the 90nm node. If we are successfully able to ramp up
    our manufacturing yield on this node, we will be able to produce
    more bits per wafer and therefore reduce our costs per bit, as
    our fixed costs are applied to a larger volume of bits produced.
    Reduced feature sizes also enable us to develop and produce
    innovative products such as DDR3 DRAM products for our customers.
|
| |  | Our business model leverages strong strategic
    alliances. We have entered into strategic alliances that
    leverage our research and development capabilities and augment
    our front- and back-end manufacturing capacity in a
    capital-efficient manner. We believe that we use strategic
    alliances to a greater extent than our competitors and that the
    continued success of our fab cluster concept is a
    key element of our business model. We believe our strategic
    alliances, including our Inotera and Qimonda Suzhou joint
    ventures, as well as our foundry partnerships with SMIC and
    Winbond, enable us to benefit from significant economies of
    scale at a reduced level of capital expenditures. We also
    believe that these arrangements increase our operating
    flexibility by reducing our fixed costs, which, in turn, can
    help us reduce volatility in our operating margins throughout
    our industrys business cycle.                                                                                                                                                                                                                                                                                                                                                                                                                                                              




Our Strategy






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Improve our average selling price by increasing our focus
    on DRAM products for advanced infrastructure, graphics, mobile
    and consumer applications. We believe significant growth
    opportunities exist for DRAMs used in servers, graphics cards,
    game consoles, mobile phones, digital audio players,
    televisions, set-top boxes, DVD recorders and other consumer
    electronic devices. We plan to continue to leverage our
    proprietary trench technology over the next several technology
    nodes to increase our sales of products used in these
    applications. We have substantially enhanced our product
    development capabilities related to these products and have
    hired a significant number of product development engineers,
    many of whom work directly with customers on application- and
    customer-specific product designs. This has enabled us to
    substantially expand our product offerings and market share in
    these areas. We plan to continue to introduce advanced
    infrastructure, graphics, mobile and consumer DRAMs with what we
    believe are compelling characteristics in an effort to expand
    our share of revenues from these products. Because in our
    experience these products generally command higher and more
    stable prices, we believe that these efforts will result in a
    higher blended average selling price for our DRAMs and reduced
    volatility of our operating results.
|
| |  | Leverage our technology leadership and increase our
    presence in low cost regions to continue to reduce unit
    costs. We believe that our leadership in the transition
    to 300mm manufacturing technology will enable us to realize the
    potential benefits of reduced unit costs offered by this
    transition earlier than our major competitors. We intend to
    remain ahead of our major competitors in this process and plan
    to substantially complete our transition to manufacturing on
    300mm wafers within the next few years. We are also seeking to
    complete the introduction of our 75nm technology node on the
    accelerated timetable we have met so far and to successfully
    ramp up manufacturing yield on this node, which                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | would enable us to derive unit cost improvements. We further
    intend to successfully develop and implement future process
    technology nodes by leveraging our accumulated expertise,
    R&D capabilities and strategic alliances. In addition, we
    are actively increasing the proportion of our manufacturing
    located in low cost Asian regions. We expect our focus on Asia
    to remain a key part of our strategy as we seek further
    opportunities to reduce our fixed and variable production costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Improve profitability and return on capital throughout our
    industrys business cycle. We believe that we will
    achieve significantly improved profitability throughout our
    industrys business cycle through the average selling price
    improvement and unit cost reduction strategies outlined above.
    We also believe that we will reduce the volatility of our
    operating results by increasing the flexibility of our
    operations through our foundry partnerships and by continuing to
    expand the share of our revenues that are from advanced
    infrastructure, graphics, mobile and consumer DRAM products.
    While we intend to maintain at least half of our front-end
    production in-house, we plan to continue to focus on our
    strategic alliances and our fab cluster-based business model to
    optimize capital efficiency of our operations. We believe this
    capital efficiency, combined with our targeted profitability,
    will enable us to significantly improve our return on capital
    employed.







Our History







Expected Benefits of our Carve-out






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Increased market responsiveness through an exclusive focus
    on the memory products business: DRAMs are subject to
    different market dynamics compared to Infineons other
    products. By operating as a separate business we expect to react
    more effectively to the dynamics of the memory market through
    simplified decision-making processes independent from the
    requirements of Infineons

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | remaining businesses. We believe that this independence permits
    us to focus exclusively and quickly on our customers, and
    anticipate their specific needs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Direct access to a distinct investor base:We
    believe that as a stand-alone U.S.-listed semiconductor memory
    company, with distinct opportunities and risk characteristics,
    we appeal more readily to those investors interested in a
    focused semiconductor memory company. Furthermore, as a
    stand-alone company, we will enjoy direct access to the capital
    markets.                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Incentives for our employees directly tied to our own
    performance: We believe that our share price will
    reflect our performance more accurately than Infineons
    share price does and therefore can be used as a more effective
    compensation tool for our employees. Our shareholders have
    authorized the Supervisory Board to grant to the members of the
    Management Board, and the Management Board to grant to certain
    key executives in our group, through September 30, 2009, a
    total of 6,000,000 non-transferable option rights to receive our
    ordinary shares in the form of ADSs. No options were outstanding
    on September 30, 2006. We are also considering whether to
    adopt an employee share purchase program.
|
| |  | Increased flexibility to pursue strategic
    cooperations: We believe that by becoming an independent
    business, we will substantially increase our flexibility to
    engage in strategic cooperations such as alliances or joint
    ventures of particular benefit to the semiconductor memory
    business. In addition, we will be in a position to issue our own
    securities, which may enable us to participate more readily in
    the further consolidation of the memory business should
    opportunities, which are attractive from a strategic, operating
    and financial perspective, arise.                                                                                                                                                  




Products and Applications






|                                                   |                                                                          |                                            |        |     |             |  |     |           |   |  |             |       |  |           |     |    |             |  |        |       |  |  |     |    |  
|-------------------------------------------------- | ------------------------------------------------------------------------ | ------------------------------------------ | ------ | --- | ----------- |  | --- | --------- | - |  | ----------- | ----- |  | --------- | --- | -- | ----------- |  | ------ | ----- |  |  | --- | -- | -
|                                                   |                                                                          | For the financial year ended September 30, |       
|                                                   |                                                                          |                                            |       
|                                                   |                                                                          | 2004(2)                                    |        |     | 2005(2)     |  |     | 2006      |  
|                                                   |                                                                          |                                            |        |     |             |  |     |           |  
|                                                   |                                                                          | (in                                        |        |     | (in percent |  |     | (in       |   |  | (in percent |       |  | (in       |     |    | (in percent | 
|                                                   |                                                                          | millions)                                  |        |     | of total)   |  |     | millions) |   |  | of total)   |       |  | millions) |     |    | of total)   | 
|                                                   |                                                                          |                                            |        |     |             |  |     |           |   |  |             |       |  |           |     |    |             | 
|DRAMs:                                             |                                                                          |                                            |        |     |             |  |     |           |   |  |             |       |  |           |     |    |             |  |        |       |  |  |     |   
|Standard DRAMs for PCs, Notebooks and workstations |                                                                          |                                            | 1,905 |     |             |  | 63  | %         |   |  | 1,435      |       |  |           | 51  | %  |             |  | 1,784 |       |  |  | 47  | % 
|                                                   | DRAMs for infrastructure, graphics, mobile and consumer
    applications |                                            |        | 877 |             |  |     | 29        | % |  |             | 1,089 |  |           |     | 38 | %           |  |        | 1,928 |  |  |     | 50 | %
|                                                   |                                                                          |                                            |        |     |             |  |     |           |   |  |             |       |  |           |     |    |             | 
|Total DRAMs                                        |                                                                          |                                            | 2,782  |     |             |  | 92  | %         |   |  | 2,524       |       |  |           | 89  | %  |             |  | 3,712  |       |  |  | 97  | % 
|Other products and
    services(1)                 |                                                                          |                                            | 226    |     |             |  | 8   | %         |   |  | 301         |       |  |           | 11  | %  |             |  | 103    |       |  |  | 3   | % 
|                                                   |                                                                          |                                            |        |     |             |  |     |           |   |  |             |       |  |           |     |    |             | 
|Total                                              |                                                                          |                                            | 3,008 |     |             |  | 100 | %         |   |  | 2,825      |       |  |           | 100 | %  |             |  | 3,815 |       |  |  | 100 | % 
|                                                   |                                                                          |                                            |        |     |             |  |     |           |   |  |             |       |  |           |     |    |             | 






|    |                                                                                                                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Primarily includes embedded DRAM products, flash memory products
    and technology licensing revenues. Technology licensing revenues
    consists of revenues from licensing our technology to third
    parties in connection with manufacturing agreements that provide
    us with access to manufacturing capacity. See
     Strategic Alliances and Agreements.
|   
|(2) | At the end of our 2006 financial year, we have recategorized
    some of our products for legacy graphics and peripherals
    applications from the standard DRAMs category to the
    infrastructure, graphics, mobile and                                                                                                                                             

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| |                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | consumer applications category, for consistency with
    developments in the markets that we target. The information for
    the product categories for prior periods has been reclassified
    to be consistent with the revised categories.

Brands


tm tm tm ®


Standard DRAMs for PC,
Notebook and Workstation Applications






DRAMs for Infrastructure,
Graphics, Mobile and Consumer Applications






| |                            
| | ---------------------------
| | Infrastructure Applications



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| |                      
| | ---------------------
| | Graphics Applications





| |                                 
| | --------------------------------
| | Mobile and Consumer Applications

®




| |   |                                                                                           
| | - | ------------------------------------------------------------------------------------------
| |  | mobile phones;                                                                            
|
| |  | mobile consumer products, such as digital still cameras and
    digital audio players; and
|
| |  | stationary consumer products, such as digital televisions and
    DVD recorders.          



® ®


® ®




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Other Products and
Technology Licensing


®










|                           |  |                                                                                                                                                        |  |                                                                                                                                 |  |                                       
|-------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------
|                           |  | Products                                                                                                                                               |  | Principal features                                                                                                              |  | Principal applications                
|                           |  |                                                                                                                                                        |  |                                                                                                                                 |  |                                       
|Standard DRAM
    Products |  |                                                                                                                                                        |  |                                                                                                                                 |  |                                       
|                          
|Components                 |  | Memory components in different package configurations, with
    different interfaces (SDRAM, DDR, DDR2) and densities (128Mb
    256Mb, 512Mb and 1Gb) |  |  Mainstream bandwidth
     Organization: x4, x8, x16
     Manufactured in 140nm, 110nm, 90nm and 75nm process
    technology |  |  Memory modules
     Routers        
|                          
|Modules                    |  | Unbuffered Dual Inline Memory Modules (DIMMS) based on DDR and
    DDR2 components, with densities ranging from 128MB to 2GB                           |  |  Mainstream bandwidths from DDR-333 to DDR2-800                                                                                |  |  Desktop computers
     Workstations
|                           |  | SO (Small Outline) DIMMS based on DDR or DDR2 components, with
    densities ranging from 128MB to 2GB                                                 |  |  Mainstream bandwidths from DDR-333 to
    DDR2-800                                                                            |  |  Notebook computers                  
|                           |  | Micro-DIMMS based on DDR2 components, with densities ranging
    from 256MB to 1GB                                                                     |  |  Bandwidths DDR2-400; DDR2-533 30% smaller than
    standard SO-DIMMS                                                          |  |  Sub-notebooks                       

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|                                                                |  |                                                                                                                      |  |                                                                                                                                                                                                                                                    |  |                                                                                                                               
|--------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------
|                                                                |  | Products                                                                                                             |  | Principal features                                                                                                                                                                                                                                 |  | Principal applications                                                                                                        
|                                                                |  |                                                                                                                      |  |                                                                                                                                                                                                                                                    |  |                                                                                                                               
|Infrastructure, Graphics, Mobile and Consumer DRAM
    Products |  |                                                                                                                      |  |                                                                                                                                                                                                                                                    |  |                                                                                                                               
|                                                               
|Infrastructure(1)                                               |  | Registered DIMMS and customized DIMMS based on DDR and DDR2
    components, with densities ranging from 256MB to 4GB |  |  Mainstream bandwidths from DDR-266 to DDR2-533                                                                                                                                                                                                   |  |  Servers
     Workstations                                                                                                  
|                                                                |  | FB (Fully Buffered) DIMMS based on DDR2 components, with
    densities ranging from 512Mb to 4Gb                     |  |  Bandwidths from DDR2-533 to DDR2-667
     New interconnect technology                                                                                                                                                                           |  |  Next generation servers                                                                                                   
|                                                                |  | Very-low-profile-Registered DIMMS based on DDR2 components, with
    densities ranging from 512MB to 2GB             |  |  Bandwidths from DDR2-533 to DDR2-667
     Reduced Height                                                                                                                                                                                        |  |  Blade-servers                                                                                                               
|                                                               
|Graphics                                                        |  | Graphics RAM (256Mb, 512Mb) based on DDR, DDR2 and GDDR3
    interfaces                                              |  |  Bandwidth up to 6.4GB per second
     Organization: x16, x32
     Manufactured in 90nm and 110nm process technology                                                                                                                            |  |  Graphics cards in desktop and note-book computers
     Game consoles                                                       
|                                                               
|Mobile and
    Consumer(1)                                      |  | Mobile-RAM (128Mb, 256Mb, 512Mb) based on SDR and DDR
    interfaces; also available as known good dies            |  |  Ultra low power
     FGBA-package
     Voltages: 1.8V-3.3V
     Low operating current
     Low standby current                                                                                                                               |  |  Top range mobile phones (2.5G/3G)
     PDAs
     Digital still cameras
     Digital audio players                        
|                                                                |  | CellularRAM®
    (64Mb, 128Mb); also available as known good dies                                                  |  |  Refresh-free operation
     Low power consumption
     Manufactured in 110nm process technology                                                                                                                                                |  |  Mid-range mobile phones (2.5G/3G)                                                                                           
|Other
    Products(2)                                           |  |                                                                                                                      |  |                                                                                                                                                                                                                                                    |  |                                                                                                                               
|                                                               
|Flash Cards and USB Drives                                      |  | TwinFlash®
    Cards and USB Drives                                                                                  |  |  Standard-compatible cards in 64MB, 128MB, 256MB
    configurations using 170nm and 110nm process technology
     MMC (MultiMediaCards)
     SD (secure digital) Cards
     Micro-SD and mini-SD Card formats
     128MB and 256MB USB drives |  |  Mobile phones
     PDAs
     Smart handheld devices
     Digital still cameras
     Portable data storage               
|                                                               
|Flash Components                                                |  | TwinFlash®
    Components                                                                                            |  |  NAND-compatible stand-alone components in 512Mb and
    1Gb configurations using 170nm and 110nm process technology                                                                                                                              |  |  Mobile phones
     Digital still cameras
     Digital music players
     Handheld computers
     Digital voice recorders






|    |                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | We also sell our range of standard DRAM components to customers
    who manufacture infrastructure equipment and consumer electronic
    devices including digital televisions, set-top boxes and DVD
    recorders.
|   
|(2) | We have decided to ramp down this production during the 2007
    financial year.                                                                                                                                    

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| |                                       
| | --------------------------------------
| | DRAM Density and Interface Development



|                |  |                                            |    |  |      |  |    |      |  |  |    | 
|--------------- |  | ------------------------------------------ | -- |  | ---- |  | -- | ---- |  |  | -- | 
|                |  | For the financial year ended September 30, |   
|                |  |                                            |   
|DRAM:           |  | 2004                                       |    |  | 2005 |  |    | 2006 | 
|                |  |                                            |    |  |      |  |    |      | 
|                |  | (in percent)                               |   
|By density:     |  |                                            |    |  |      |  |    |      |  |  |    | 
|128Mb           |  |                                            | 4  |  |      |  | 1  |      |  |  | 0  | 
|256Mb           |  |                                            | 90 |  |      |  | 51 |      |  |  | 24 | 
|512Mb           |  |                                            | 6  |  |      |  | 47 |      |  |  | 74 | 
|1Gb             |  |                                            | 0  |  |      |  | 1  |      |  |  | 2  | 
|By interface:   |  |                                            |    |  |      |  |    |      |  |  |    | 
|SDRAM           |  |                                            | 11 |  |      |  | 5  |      |  |  | 3  | 
|DDR             |  |                                            | 83 |  |      |  | 60 |      |  |  | 30 | 
|DDR2            |  |                                            | 1  |  |      |  | 27 |      |  |  | 51 | 
|Specialty DRAMs |  |                                            | 5  |  |      |  | 8  |      |  |  | 16 | 




Customers, Sales and Marketing










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® ® ®




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Sales by Region


|              |  |                        |     |   |      |  |     |      |  |  |     |  
|------------- |  | ---------------------- | --- | - | ---- |  | --- | ---- |  |  | --- | -
|              |  | For the financial year |    
|              |  | ended September 30,    |    
|              |  |                        |    
|              |  | 2004                   |     |   | 2005 |  |     | 2006 | 
|              |  |                        |     |   |      |  |     |      | 
|              |  | (in percent)           |    
|Germany       |  |                        | 13  |   |      |  | 8   |      |  |  | 8   |  
|Other Europe  |  |                        | 12  |   |      |  | 12  |      |  |  | 11  |  
|North America |  |                        | 38  |   |      |  | 38  |      |  |  | 42  |  
|Asia/ Pacific |  |                        | 33  |   |      |  | 38  |      |  |  | 31  |  
|Japan         |  |                        | 4   |   |      |  | 4   |      |  |  | 7   |  
|Other         |  |                        |    |   |      |  |    |      |  |  | 1   |  
|              |  |                        |     |   |      |  |     |      | 
|              |  |                        | 100 | % |      |  | 100 | %    |  |  | 100 | %
|              |  |                        |     |   |      |  |     |      | 










Competition






| |   |                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Standard DRAMs for PC and workstation
    applications. We compete in this market on the basis of
    price, delivery reliability and logistical support. We believe
    we maintain a strong reputation for delivery reliability based
    on feedback from our customers.

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | DRAMs for infrastructure, graphics, mobile and consumer
    applications. We compete in these markets on the basis
    of product quality, performance, reliability and engineering
    support. Logistical support is particularly important for
    infrastructure applications. Our engineering teams are able to
    design customer-specific products, while we believe that our
    trench architecture possesses physical characteristics that we
    are exploiting to design DRAM products with high performance for
    uses such as in graphics applications, and with relatively lower
    power consumption, which enables longer battery life and lower
    heat generation in mobile and consumer electronics devices, key
    areas of concern for our customers. We believe the Sun
    Microsystems (Best In Class Memory Supplier) award we
    earned in 2006 for the second consecutive year is an indicator
    of the high quality and reliability of our products geared
    toward infrastructure applications.





|                                    |  |                                                               |  |              |    |  
|----------------------------------- |  | ------------------------------------------------------------- |  | ------------ | -- | -
|Principal Competitor                |  | Areas of competition                                          |  | Market share |   
|                                    |  |                                                               |  |              |   
|Samsung Electronics                 |  | Standard, infrastructure, graphics, mobile and consumer DRAMs |  |              | 28 | %
|Hynix Semiconductor, Inc.           |  | Standard, infrastructure, graphics, mobile and consumer DRAMs |  |              | 16 | %
|Micron Technology, Inc.             |  | Standard, infrastructure, mobile and consumer DRAMs           |  |              | 12 | %
|Elpida Memory, Inc.                 |  | Standard, infrastructure, mobile and consumer DRAMs           |  |              | 10 | %
|Nanya Technology
    Corporation(1) |  | Standard DRAMs                                                |  |              | 7  | %






|    |                                                                                        
|--- | ---------------------------------------------------------------------------------------
|(1) | Nanya Technology Corporation is our joint venture partner in
    Inotera Memories, Inc.









Research and Development






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Product Development










| |   |                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Reusable IP blocks, which are the core elements of each of our
    products. These are various pieces of circuitry that can be
    reused for new chip designs, reducing the amount of time and
    effort that it takes to develop a new chip on a given technology
    platform.                                     
|
| |  | CAD systems are crucial tools for semiconductor designers. We
    make use of extensive CAD systems, some of which we have
    licensed from vendors such as Cadence, Mentor Graphics and
    Synopsis, and some of which we have developed internally.                                                                
|
| |  | Design libraries, or databases that contain templates and
    standard design elements that are common to multiple products,
    allow our development teams to more efficiently design new
    products, reduce development cycle times and optimize designs
    for higher performance and reduced power consumption.





Process Technologies




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Packaging Technology




Cooperation with
Infineon




Locations




Principal Research and Development Locations


|                        |  |                                                                                                
|----------------------- |  | -----------------------------------------------------------------------------------------------
|Location                |  | Areas of competence                                                                            
|                        |  |                                                                                                
|Burlington, Vermont     |  | Low power and mobile and consumer DRAMs                                                        
|Dresden,
    Germany(1) |  | DRAM technology, flash technology, package technology and
    photomask technology development 
|Munich,
    Germany(2)  |  | Computing and graphic DRAMs, as well as emerging memory
    research; flash product development
|Padua, Italy            |  | Flash product development and design                                                           
|Raleigh, North Carolina |  | Product development for standard and specialty DRAM                                            
|Xian, China            |  | Computing and consumer DRAMs                                                                   






|    |                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes our own research and research conducted in conjunction
    with our development partner, Nanya as well as our photomask
    related research and development conducted in conjunction with
    AMD and Toppan.
|   
|(2) | Includes our own research and research conducted in conjunction
    with our development partner, Nanya.                                                                                                               

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Strategic Alliances and Agreements






| |   |                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | worldwide access to the expertise of other industry
    participants, including manufacturing competence in new
    locations and additional experienced R&D employees;
|
| |  | sharing the risks inherent in the development and manufacture of
    new products;                                                                                     
|
| |  | sharing costs, including the costs of R&D and production
    ramp-up; and                                                                                              
|
| |  | efficiency gains, including reduced time-to-market of new
    generations of semiconductor devices and greater economies of
    scale.                                 



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Principal Strategic Alliances


|        |  |                                                                                                   |  |                                                                                                 |  |                              
|------- |  | ------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------- |  | -----------------------------
|Partner |  | Relationship                                                                                      |  | Principal Activity                                                                              |  | Location                     
|        |  |                                                                                                   |  |                                                                                                 |  |                              
|Nanya   |  | Joint venture participant in Inotera, in which we hold a 36.0%
    interest(1)                    |  | DRAM manufacturing at Inoteras new 300mm facility                                              |  | Taoyuan, Taiwan              
|       
|Nanya   |  | Joint R&D activities                                                                              |  | R&D in both product and technology development for 90nm,
    75nm and 58nm process technologies |  | Dresden and Munich, Germany  
|       
|CSVC    |  | Joint venture participant in Qimonda Suzhou in which we hold a
    72.5% economic
    interest(2) |  | Back-end assembly and test at the joint ventures new
    facility                              |  | Suzhou, China                
|SMIC    |  | Foundry manufacturing                                                                             |  | Manufacturing capacity at SMICs facilities                                                     |  | Shanghai and Beijing, China  
|       
|Winbond |  | Foundry manufacturing                                                                             |  | Manufacturing capacity at Winbonds facilities                                                  |  | Hsinchu, and Taichung, Taiwan






|    |                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Nanya holds slightly more Inotera shares than we do, and the
    public and employees of Inotera own the remainder.                                                    
|   
|(2) | We are obligated to inject additional equity of
    $167 million into the joint venture by the year 2008.
    This would increase our ownership percentage accordingly.





Research and Development
Alliances




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Manufacturing
Alliances




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| |        
| | -------
| | Inotera









| |   |                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------
| |  | an amount representing the front-end cost per wafer Inotera
    incurs, plus                              
|
| |  | a fixed percentage of the notional total profit (or loss) the
    buyers realize when they sell the wafer.





| |   |                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the front-end cost per wafer Inotera incurred (including its
    cost of goods sold and research and development expenses,                                           
|
| |  | the back-end cost per wafer the buyers incurred (including the
    costs of back-end assembly and testing processes); and                                            
|
| |  | a fixed percentage of the average selling price per wafer we
    realize to cover overhead costs we incur, which is in line with
    other companies in the industry.





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| |     
| | ----
| | CSVC





| |     
| | ----
| | SMIC







| |        
| | -------
| | Winbond





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Facilities and Manufacturing


Manufacturing
Facilities




Current and Planned Manufacturing Facilities


|                                                              |  |                       |      |  |               |  |                 |                 |      |  |                   | 
|------------------------------------------------------------- |  | --------------------- | ---- |  | ------------- |  | --------------- | --------------- | ---- |  | ----------------- | 
|                                                              |  | Year production       |      |  |               |  |                
|                                                              |  | line came or is       |      |  |               |  |                
|                                                              |  | expected to come      |      |  |               |  | Output to which |                
|                                                              |  | on-stream             |      |  | Clean room m2 |  |                 | we are entitled |     
|                                                              |  |                       |      |  |               |  |                 |                 |     
|Front-end facilities (wafer fabrication):                     |  |                       |      |  |               |  |                 |                 |      |  |                   | 
|Our Own Facilities                                            |  |                       |      |  |               |  |                 |                 |      |  |                   | 
|300mm facility, Dresden, Germany                              |  |                       | 2001 |  |               |  | 10,177          |                 |      |  | All               | 
|200mm facility, Richmond, Virginia                            |  |                       | 1998 |  |               |  | 16,771          |                 |      |  | All               | 
|300mm facility, Richmond, Virginia                            |  |                       | 2005 |  |               |  | 12,218          |                 |      |  | All               | 
|Joint Venture Facilities                                      |  |                       |      |  |               |  |                 |                 |      |  |                   | 
|300mm Inotera Memories facility, first module,
    Taiwan(1)  |  |                       | 2004 |  |               |  | N/A             |                 |      |  | Half              | 
|300mm Inotera Memories facility, second module,
    Taiwan(1) |  | ExpectedDecember 2006 |      |  | N/A           |  |                 |                 | Half | 
|Foundry Capacity                                              |  |                       |      |  |               |  |                 |                 |      |  |                   | 
|200mm Infineon facility, Dresden, Germany
    (2)             |  |                       | 1996 |  |               |  |                |                 |      |  | Variable corridor | 
|200mm Winbond facility,
    Taiwan(3)                         |  |                       | 1999 |  |               |  |                |                 |      |  | up to 19,000 wspm | 
|300mm Winbond facility,
    Taiwan(3)                         |  |                       | 2006 |  |               |  |                |                 |      |  | up to 15,000 wspm | 
|200mm SMIC facility, Shanghai,
    China(3)                   |  |                       | 2003 |  |               |  |                |                 |      |  | up to 20,000 wspm | 
|300mm SMIC facility, Beijing,
    China(3)                    |  |                       | 2004 |  |               |  |                |                 |      |  | up to 15,000 wspm | 
|Back-end facilities                                           |  |                       |      |  |               |  |                 |                 |      |  |                   | 
|(packaging, assembly and
    testing):(4)                     |  |                       |      |  |               |  |                 |                 |      |  |                   | 
|Dresden, Germany                                              |  |                       | 1996 |  |               |  | 3,211           |                 |      |  | All               | 
|Malacca,
    Malaysia(5)                                      |  |                       | 1973 |  |               |  | 12,163          |                 |      |  | All               | 
|Porto, Portugal                                               |  |                       | 1997 |  |               |  | 17,697          |                 |      |  | All               | 
|Suzhou,
    China(6)                                          |  |                       | 2004 |  |               |  | 14,124          |                 |      |  | All               | 






|    |                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Owned by Inotera Memories, Inc., our joint venture with Nanya in
    which we and Nanya each own minority shares. We hold 36.0% of
    the shares as of September 30, 2006. Our share in the
    production of the joint venture is 50%.

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | During our 2006 financial year, approximately 63% of this
    facilitys capacity was used for the production of our
    products. As described under Related Party Transactions
    and Relationships  With Infineon, we are
    currently in negotiations with Infineon regarding our use or
    acquisition, after September 30, 2007, of capacity at
    Infineons 200mm manufacturing facility in Dresden. We have
    already agreed in principle with Infineon that we will share
    equally any potential restructuring costs arising in connection
    with one module.
|   
|(3) | We own no equity interest in this facility but have licensed
    technology to the third-party owner. We are contractually
    entitled to a stated amount of the facilitys DRAM output,
    which is manufactured using our technology. See 
    Strategic Alliances and Agreements for more detail on
    these arrangements.                                                                                                                                                                                                                                                  
|   
|(4) | In addition, we have agreements with EEMS Italia SpA and UTAC,
    which provide additional back-end subcontracting services at
    their facilities in Italy and China and Singapore.                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(5) | Includes about
    2,000m2
    cleanroom and
    10,000m2
    not cleanroom classified production area.                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(6) | We constructed this facility pursuant to our joint venture
    agreement with CSVC. See   Strategic Alliances
    and Agreements for more detail on these arrangements.                                                                                                                                                                                                                                                                                                                                                                                                           



Trench Technology








Front-End
Manufacturing




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Wafer Size Roadmap






Feature Size Roadmap






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Back-End
Manufacturing










| |                     
| | --------------------
| | Fab Cluster System





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | implement identical technology roadmaps at all sites where the
    equipment permits this;                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | synchronize manufacturing processes and quality control at all
    sites; and                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | quickly move best practices developed at one
    facility to all operations, which helps us to maximize quality
    and accelerate ramp-up
    times. For example, we continuously monitor yield at each of the
    sites in our fab cluster. Differences in yield lead to a
    comparison of practices and to an identification of each
    sites comparative strengths. This results in our ability
    to set best practices for the entire fab cluster.

ramp-up






| |                   
| | ------------------
| | Mask Manufacturing



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| |                  
| | -----------------
| | ISO Qualification



state-of





Intellectual Property






| |                               
| | ------------------------------
| | Allocation of Existing Patents







| |                                   
| | ----------------------------------
| | Cross-License Under Future Patents







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| |                  
| | -----------------
| | Sublicense Rights





| |   |                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the patents are used outside the stand-alone memory field;                                                                                                
|
| |  | we receive a respective grant-back license from the spin-off or
    joint venture and its majority shareholder in the field of
    stand-alone memory; and
|
| |  | such majority shareholder has no pending patent law suit with us.                                                                                         





| |                                                              
| | -------------------------------------------------------------
| | As long as we are a Majority-Owned Subsidiary of
    Infineon







| |                                                 
| | ------------------------------------------------
| | Patent Licensing Negotiations with Third Parties





| |                                            
| | -------------------------------------------
| | Cross-License Agreements with Third Parties





103



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| |                                     
| | ------------------------------------
| | Protecting Our Intellectual Property









| |                                                                           
| | --------------------------------------------------------------------------
| | Amendment and Partial Termination of Our License Agreement
    with Saifun

®  ®   ®


104



---



##### Table of Contents









Equipment









Raw Materials






105



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Employees




|                              |  |                     |        |  |   |  |     |      |  |  |       |  |  |      |     |   |   |  |        |  |  |  |     |  
|----------------------------- |  | ------------------- | ------ |  | - |  | --- | ---- |  |  | ----- |  |  | ---- | --- | - | - |  | ------ |  |  |  | --- | -
|                              |  | As of September 30, |       
|                              |  |                     |       
|                              |  | 2004                |        |  | % |  |     | 2005 |  |  | %     |  |  | 2006 |     |   | % | 
|                              |  |                     |        |  |   |  |     |      |  |  |       |  |  |      |     |   |   | 
|Function:                     |  |                     |        |  |   |  |     |      |  |  |       |  |  |      |     |   |   |  |        |  |  |  |     |  
|Production                    |  |                     | 9,259  |  |   |  | 84  | %    |  |  | 7,686 |  |  |      | 80  | % |   |  | 9,113  |  |  |  | 77  | %
|Research & development        |  |                     | 1,420  |  |   |  | 13  | %    |  |  | 1,440 |  |  |      | 15  | % |   |  | 1,756  |  |  |  | 15  | %
|Sales & marketing             |  |                     | 166    |  |   |  | 1   | %    |  |  | 264   |  |  |      | 3   | % |   |  | 320    |  |  |  | 3   | %
|Administrative                |  |                     | 213    |  |   |  | 2   | %    |  |  | 216   |  |  |      | 2   | % |   |  | 613    |  |  |  | 5   | %
|                              |  |                     |        |  |   |  |     |      |  |  |       |  |  |      |     |   |   | 
|Total                         |  |                     | 11,058 |  |   |  | 100 | %    |  |  | 9,606 |  |  |      | 100 | % |   |  | 11,802 |  |  |  | 100 | %
|                              |  |                     |        |  |   |  |     |      |  |  |       |  |  |      |     |   |   | 
|Region:                       |  |                     |        |  |   |  |     |      |  |  |       |  |  |      |     |   |   |  |        |  |  |  |     |  
|Germany                       |  |                     | 6,284  |  |   |  | 57  | %    |  |  | 4,058 |  |  |      | 42  | % |   |  | 4,684  |  |  |  | 40  | %
|Other Europe                  |  |                     | 1,335  |  |   |  | 12  | %    |  |  | 1,405 |  |  |      | 15  | % |   |  | 1,666  |  |  |  | 14  | %
|North America                 |  |                     | 2,167  |  |   |  | 20  | %    |  |  | 2,494 |  |  |      | 26  | % |   |  | 2,763  |  |  |  | 23  | %
|Asia/ Pacific (excl. Japan)** |  |                     | 1,233  |  |   |  | 11  | %    |  |  | 1,622 |  |  |      | 17  | % |   |  | 2,651  |  |  |  | 23  | %
|Japan**                       |  |                     | 10     |  |   |  | *   |      |  |  | 27    |  |  |      | *   |   |   |  | 38     |  |  |  | *   |  
|                              |  |                     |        |  |   |  |     |      |  |  |       |  |  |      |     |   |   | 
|Other                         |  |                     | 29     |  |   |  | *   |      |  |  |      |  |  |      | *   |   |   |  |       |  |  |  |    | %
|                              |  |                     |        |  |   |  |     |      |  |  |       |  |  |      |     |   |   | 
|Total                         |  |                     | 11,058 |  |   |  | 100 | %    |  |  | 9,606 |  |  |      | 100 | % |   |  | 11,802 |  |  |  | 100 | %
|                              |  |                     |        |  |   |  |     |      |  |  |       |  |  |      |     |   |   | 






| |   |                               
| | - | ------------------------------
| | * | Less than 1% of total numbers.



| |    |                                                                                           
| | -- | ------------------------------------------------------------------------------------------
| | ** | On the date indicated, our operations in Japan and Korea legally
    belonged to Infineon.



lokale Betriebsräte Konzernbetriebsrat Betriebsverfassungsgesetz Sprecherausschuss


Arbeitgeberverband Gehaltstarifvertrag


106



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Backlog










Legal Matters












| |   |                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | liabilities arising in connection with intellectual property
    infringement claims relating to memory products were fully
    allocated to us; and
|
| |  | liabilities arising in connection with actual or alleged
    antitrust violations with respect to DRAM products were fully
    allocated to us.     





107



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| |                  
| | -----------------
| | Antitrust Matters



| |                                         
| | ----------------------------------------
| | U.S. Department of Justice Investigation





| |                      
| | ---------------------
| | U.S. Civil Litigation











108



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109



---



##### Table of Contents







| |                     
| | --------------------
| | State Investigations





| |                                  
| | ---------------------------------
| | European Commission Investigation





| |                                          
| | -----------------------------------------
| | Canadian Competition Bureau Investigation





| |                          
| | -------------------------
| | Canadian Civil Litigation



110



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| |        
| | -------
| | Tessera





| |                         
| | ------------------------
| | Securities Class Actions





111



---



##### Table of Contents





| |                  
| | -----------------
| | Patent Litigation



| |       
| | ------
| | MOSAID





| |        
| | -------
| | Tessera

paid-up






| |       
| | ------
| | Rambus



112



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| |                                                                        
| | -----------------------------------------------------------------------
| | Accruals and the Potential Effect of these Lawsuits on Our
    Business










| |              
| | -------------
| | Other Matters






Environmental Protection, Safety and Health






113



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2








| |                                            
| | -------------------------------------------
| | Relevant Environmental Laws and Regulations









114



---



##### Table of Contents













115



---



##### Table of Contents









Real Property




|                          |  |                    |         |  |          |  |                 |                                 |  |                                                       |  |          |  |                        
|------------------------- |  | ------------------ | ------- |  | -------- |  | --------------- | ------------------------------- |  | ----------------------------------------------------- |  | -------- |  | -----------------------
|                          |  | Approximate size   |         |  |          |  | Owned or leased
|                          |  |                    |         |  |          |  |                
|Location                  |  | Land               |         |  | Building |  |                 | Primary uses (in square meters) |  | Land                                                  |  | Building
|                          |  |                    |         |  |          |  |                 |                                 |  |                                                       |  |         
|                          |  | (in square meters) |         |  |          |  |                 |                                 | 
|Burlington, Vermont       |  |                    | *       |  |          |  | 2,862           |                                 |  | Research                                              |  | *        |  | Leased                 
|Dresden,
    Germany(1)   |  |                    | 131,840 |  |          |  | 159,109         |                                 |  | Research, Wafer fabrication,
    Assembly and Testing |  | Owned    |  | Partly owned and leased
|Malacca,
    Malaysia(2)  |  |                    | 13,467  |  |          |  | 16,400          |                                 |  | Assembly and Testing                                  |  | Leased   |  | Partly owned and leased
|Munich,
    Germany(3)    |  |                    | *       |  |          |  | 44,341          |                                 |  | Headquarters and Research                             |  | *        |  | Leased                 
|Padua, Italy              |  |                    | *       |  |          |  | 750             |                                 |  | Research                                              |  | *        |  | Leased                 
|Porto,
    Portugal(4)    |  |                    | 217,265 |  |          |  | 29,868          |                                 |  | Assembly and Testing                                  |  | Owned    |  | Owned                  
|Raleigh, North Carolina   |  |                    | *       |  |          |  | 9,265           |                                 |  | Research                                              |  | *        |  | Leased                 
|Richmond,
    Virginia(5) |  |                    | 853,351 |  |          |  | 126,006         |                                 |  | Wafer Fabrication                                     |  | Owned    |  | Owned                  
|Suzhou,
    China(6)      |  |                    | 200,102 |  |          |  | 33,280          |                                 |  | Assembly and Testing                                  |  | Leased   |  | Owned                  
|Xian, China              |  |                    | *       |  |          |  | 2,456           |                                 |  | Research                                              |  | *        |  | Leased                 






| |   |                                      
| | - | -------------------------------------
| | * | Not applicable for leased properties.



|    |                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Refers to our 300mm wafer fabrication, back-end manufacturing
    and research facility, including research conducted in
    conjunction with our development partner, Nanya. The building
    space is at two locations,
    134,313m2
    owned and
    24,796m2
    leased.
|   
|(2) | Includes a
    13,300m2
    building owned by our company and
    3,100m2
    of space leased from Infineon.                                                                                                                                                                  
|   
|(3) | Includes research and office space at our five locations in and
    around Munich.                                                                                                                                                                                            
|   
|(4) | Subject to limited exceptions, under the terms of the financing
    arrangements relating to the site, we must receive the consent
    of Portuguese authorities to sell, lease or assign this property.                                                                      
|   
|(5) | We currently have five buildings on this property.                                                                                                                                                                                                                            
|   
|(6) | In 2003, Infineon Technologies Suzhou Co., Ltd. secured the use
    of this land pursuant to a
    50-year contract.                                                                                                                                                          

2




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MANAGEMENT





Overview of Corporate Governance Structure


Aktiengesetz






Beherrschungsvertrag









117



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##### Table of Contents









Supervisory Board


Gesetz über die Drittelbeteiligung
der Arbeitnehmer im Aufsichtsrat




leitende Angestellte








| |   |                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------
| |  | to appoint our Management Board;                                                                                  
|
| |  | to monitor our management;                                                                                        
|
| |  | to approve matters in areas that the Supervisory Board has made
    generally subject to its approval; and        
|
| |  | to approve matters that the Supervisory Board decides on a case
    by case basis to make subject to its approval.

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| |                          
| | -------------------------
| | Supervisory Board Members



|                      |  |     |    |  |          |                 |                      |                                                                       
|--------------------- |  | --- | -- |  | -------- | --------------- | -------------------- | ----------------------------------------------------------------------
|Name                  |  | Age |    |  | Function |                 | Principal occupation
|                      |  |     |    |  |          |                 |                     
|Peter J. Fischl       |  |     | 60 |  |          | Chairman        |                      | Member and CFO of the Management Board of Infineon Technologies
    AG
|Michael von Eickstedt |  |     | 53 |  |          | Member          |                      | General Counsel, Infineon Technologies AG                             
|Richard Previte       |  |     | 71 |  |          | Deputy Chairman |                      | Former President, Advanced Micro Devices, Inc.                        
|Yoshio Nishi          |  |     | 66 |  |          | Member          |                      | Professor, Stanford University                                        
|Johann Grundbacher    |  |     | 42 |  |          | Member          |                      | Electrical Engineer, Qimonda AG                                       
|Dr. Lothar Armbrecht  |  |     | 53 |  |          | Member          |                      | Responsible for Global Group Internet Presence at Qimonda AG          

Entlastung








| |                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------
| | Significant Differences between our Corporate Governance
    Practices and those of U.S. Companies Listed on the New
    York Stock Exchange






| |                                    
| | -----------------------------------
| | Committees of the Supervisory Board





| |                                        
| | ---------------------------------------
| | Investment, Finance and Audit Committee



119



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | preparing the decisions of the Supervisory Board concerning
    approval of our companys annual financial statements,
    including review of the financial statements, our annual
    reports, the proposed application of earnings and the reports of
    our registered public accounting firm;                                                                                                                                                                                                                                           
|
| |  | reviewing the interim financial statements of our company that
    are made public or otherwise filed with any securities
    regulatory authority;                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | handling auditor independence issues, mandating our auditor to
    audit our consolidated and unconsolidated annual financial
    statements (including the determination of the focus of the
    audit), approving any consulting services by the auditor and
    supervising the auditor;                                                                                                                                                                                                                                                   
|
| |  | approving decisions of our Management Board or one of its
    committees regarding increases of our companys capital
    through the issuance of new shares from our authorized or
    conditional capital, to the extent that we are not either
    issuing the shares to employees or using them for a share option
    plan;                                                                                                                                                                                                              
|
| |  | approving decisions of our Management Board in relation to any
    investment or disposition if its value exceeds 10% of our total
    investment budget, in relation to securities, guarantees and
    loans to third parties outside our group of companies, which
    exceed 5% of our share capital plus capital reserves on the
    consolidated balance sheet of our group of companies, and in
    relation to the Management Boards finance and investment
    plans (including the budget) as well as the level of
    indebtedness;
|
| |  | handling risk management issues and supervising the risk
    management system;                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | establishing procedures pursuant to which our employees can
    report to the Investment, Finance and Audit Committee, on an
    anonymous and confidential basis, complaints regarding our
    accounting and auditing practices, and enacting rules pursuant
    to which such complaints received by us from third parties will
    be reported to the Investment, Finance and Audit Committee;                                                                                                                                            
|
| |  | discussing any flaws relating to our internal control systems,
    as reported by the Management Board to the Investment, Finance
    and Audit Committee;                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | examination of our bookkeeping, documents and assets;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | approval of Management Board resolutions on the utilization of
    the authorization granted by our shareholders to issue
    convertible bonds, including, in particular, the maximum amount
    of the issuance and the exclusion of shareholders
    preemptive rights.                                                                                                                                                                                                                                                                   







| |                     
| | --------------------
| | Technology Committee





| |                       
| | ----------------------
| | Presidential Committee



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Management Board




Geschäftsverteilungsplan








| |   |                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------
| |  | preparation of the annual financial statements;                                                                                    
|
| |  | calling shareholders meetings;                                                                                                     
|
| |  | matters for which the consent of the shareholders or of the
    Supervisory Board must be obtained; and                            
|
| |  | matters involving basic organizational policy, business policy
    and investment and financial planning questions for our company.

®






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Management Board Members




|                    |  |     |    |      |         |  |          |                    |                    |                                  |  |                                                                                        
|------------------- |  | --- | -- | ---- | ------- |  | -------- | ------------------ | ------------------ | -------------------------------- |  | ---------------------------------------------------------------------------------------
|                    |  |     |    |      |         |  |          | Principal business
|                    |  |     |    |      |         |  |          | activities outside
|                    |  |     |    | Term |         |  | Position |                    | company (including
|Name                |  | Age |    |      | expires |  |          | within company     |                    | principal directorships)        
|                    |  |     |    |      |         |  |          |                    |                    |                                 
|Kin Wah Loh         |  |     | 52 |      |         |  | 2011     |                    |                    | Chairman of the Management Board |  |                                                                                       
|Dr. Michael Majerus |  |     | 45 |      |         |  | 2010     |                    |                    | Member of the Management Board   |  | Director, Inotera Memories, Inc.;
    Director, Qimonda Technologies (Suzhou) Co., Ltd.
|Thomas Seifert      |  |     | 43 |      |         |  | 2009     |                    |                    | Member of the Management Board   |  | Director, Inotera Memories, Inc.                                                       

Kin Wah Loh


Dr. Michael Majerus


Thomas Seifert









Compensation




122



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|                     |  |                    |        | 
|-------------------- |  | ------------------ | ------ | 
|                     |  | Fixed remuneration |       
|                     |  |                    |       
|Peter J. Fischl      |  | $                  | 0      | 
|Richard Previte      |  |                    | 20,833 | 
|Yoshio Nishi         |  |                    | 20,833 | 
|Michael v. Eickstedt |  |                    | 0      | 
|Dr. Lothar Armbrecht |  |                    | 10,416 | 
|Johann Grundbacher   |  |                    | 10,416 | 
|                     |  |                    |       
|Total                |  | $                  | 62,498 | 
|                     |  |                    |       

    




123



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|                    |  |             |           |       |              |   |                        |                        |  |             |           |  |       |              |           |  |  |   |           | 
|------------------- |  | ----------- | --------- | ----- | ------------ | - | ---------------------- | ---------------------- |  | ----------- | --------- |  | ----- | ------------ | --------- |  |  | - | --------- | 
|                    |  |             |           |       |              |   |                        | Additional             |  |             |          
|                    |  |             |           | Other |              |   | Yearly bonus dependent |                        |  | performance |           |  | Total |             
|                    |  | Base salary |           |       | compensation |   |                        | on company performance |  |             | targets   |  |       | compensation |          
|                    |  |             |           |       |              |   |                        |                        |  |             |           |  |       |              |          
|Loh Kin Wah         |  |            | 481,250   |       |              |  | 8,845                  |                        |  |            | 425,333   |  |       |             | 500,000   |  |  |  | 1,415,428 | 
|Dr. Michael Majerus |  |             | 275,000   |       |              |   | 5,714                  |                        |  |             | 370,333   |  |       |              | 300,000   |  |  |   | 951,047   | 
|Thomas Seifert      |  |             | 275,000   |       |              |   | 4,389                  |                        |  |             | 370,333   |  |       |              | 300,000   |  |  |   | 949,722   | 
|                    |  |             |           |       |              |   |                        |                        |  |             |           |  |       |              |          
|Total               |  |            | 1,031,250 |       |              |  | 18,948                 |                        |  |            | 1,165,999 |  |       |             | 1,100,000 |  |  |  | 3,316,197 | 
|                    |  |             |           |       |              |   |                        |                        |  |             |           |  |       |              |          







Employee Stock Option Program












124



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Employee Share Purchase Programs




125



---



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PRINCIPAL SHAREHOLDERS




|                                                                                       |  |                      |      |  |        |  |             | 
|-------------------------------------------------------------------------------------- |  | -------------------- | ---- |  | ------ |  | ----------- | 
|                                                                                       |  | Shares or ADSs owned |     
|                                                                                       |  |                      |     
|                                                                                       |  | Percent              |      |  | Number | 
|                                                                                       |  |                      |      |  |        | 
|Infineon Technologies Investment
    B.V.(1)                                           |  |                      | 49.0 |  |        |  | 167,686,025 | 
|Infineon Technologies AG                                                               |  |                      | 36.9 |  |        |  | 126,013,975 | 
|Public Shareholders                                                                    |  |                      | 14.1 |  |        |  | 48,300,000  | 
|All the members of our Supervisory and Management Boards as a
    group (nine persons) |  |                      | 0    |  |        |  | 0           | 
|                                                                                       |  |                      |      |  |        | 
|                                                                                       |  |                      | 100% |  |        |  | 684,000,000 | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | On July 17, 2006, Infineon Technologies Holding B.V., a
    wholly-owned subsidiary of Infineon Technologies AG, transferred
    its Qimonda shares, representing approximately 55.9% of our
    total share capital, to its wholly-owned subsidiary Infineon
    Technologies Investment B.V., a private limited liability
    company under Dutch law. In return, Infineon Technologies
    Investment B.V. issued 50 of its shares with a nominal value of
    1,000 each to
    Infineon Technologies Holding B.V. Infineon Technologies
    Investment B.V. has its principal executive offices at
    Westblaak 32, NL-3012 KM Rotterdam, The
    Netherlands.







| |   |                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------
| |  | a resolution not to give effect to existing shareholders
    preemptive rights in a capital increase;                      
|
| |  | any capital decrease, merger, consolidation, spin-off, sale or
    other transfer of all or substantially all of our assets;
|
| |  | a change in the corporate form or business purpose of the
    company; or                                                   
|
| |  | the dissolution of our company.                                                                                             

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RELATED PARTY TRANSACTIONS AND RELATIONSHIPS





With Infineon


 




| |                      
| | ---------------------
| | Carve-out and Control



Handelsregister Amtsgericht






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| |                        
| | -----------------------
| | Contribution Agreements



| |                                                          
| | ---------------------------------------------------------
| | Contribution Agreement between Infineon AG and Qimonda AG





| |   |                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | define the assets, liabilities and employees that were
    transferred to us;                                                                       
|
| |  | govern the intercompany licensing of intellectual
    property; and                                                                                 
|
| |  | delineate the indemnification claims that Infineon will have
    against us in respect of legal matters and other liabilities and
    contingencies.

Namensaktien  




| |                                   
| | ----------------------------------
| | Contributed assets and liabilities





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | fixed assets and current assets attributable to the Memory
    Products segment (not including trade accounts receivable for
    products and services provided to third parties and certain
    related parties, which are netted against trade accounts
    payable);                                                                                                                                                                                                                                                                                                           
|
| |  | intellectual property, including patents (as described in more
    detail in Our Business  Intellectual
    Property), trade marks, know-how, software and other
    intellectual property;                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | contracts and offers relating exclusively to products and
    services provided by the Memory Products segment;                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | rights and obligations arising under permits and other legal
    relationships with governmental entities (including those
    arising under subsidies), so long as they do not relate to
    individual persons;                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | liabilities attributable exclusively to the Memory Products
    segment, including those contained in the carve-out balance
    sheet, those arising under contracts with third parties and
    employment relationships (including pension liabilities),
    contingencies (including those arising in the future on the
    basis of events that occurred prior to the carve-out date) and
    other liabilities attributable exclusively to the Memory
    Products segment and which have arisen by the carve-out date
    (not including trade accounts payable  see above);

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | risks and liabilities arising out of financings, credit lines,
    leases and guarantees, which Infineon entered into for the
    benefit of the Memory Products segment; and                                                                                                                                                                                                                             
|
| |  | ownership in certain equity investments, including in Inotera
    Memories, Inc. (legal transfer is still pending as described
    below), Infineon Technologies SC 300 GmbH & Co. OHG,
    Maskhouse Building Administration GmbH & Co. KG,
    Advanced Mask Technology Center GmbH & Co. KG (legal
    transfer is still pending) and Hwa-Keng Investment Inc (in the
    process of being liquidated).





| |                                                                                                    
| | ---------------------------------------------------------------------------------------------------
| | Arrangements relating to Inotera, Memory Products
    Japanese and Korean Operations, AMTC and BAC











| |                   
| | ------------------
| | Employment Matters



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| |                                                                  
| | -----------------------------------------------------------------
| | Arrangement concerning the Licensing of Intellectual
    Property





| |                
| | ---------------
| | Indemnification





| |                                        
| | ---------------------------------------
| | Costs and taxes; future tax liabilities





| |                                                                                     
| | ------------------------------------------------------------------------------------
| | Contribution Agreement between Infineon Technologies
    Holding B.V. and Qimonda AG

  Handelsregister Amtsgericht





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| |                  
| | -----------------
| | Dresden 200mm Fab







| |                               
| | ------------------------------
| | Ongoing Services Relationships






| |                         
| | ------------------------
| | General Support Services



| |                                                 
| | ------------------------------------------------
| | Framework Agreement on Standard Support Services





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| |                         
| | ------------------------
| | General Support Services





| |   |                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | sales support in various countries, most significantly France,
    Hong Kong, Ireland, Japan, Korea, Switzerland, United Kingdom
    and the United States;                      
|
| |  | logistics services, including call center services in Europe,
    logistics support services in the Asia-Pacific region and
    freight forwarding services in the United States;
|
| |  | purchasing services at locations and/or with respect to areas of
    expertise where we do not have sufficient purchasing resources;                                             
|
| |  | human resources services, including recruiting, compensation and
    benefits, payroll, site health care and training;                                                           
|
| |  | facility management, including office and manufacturing space
    leasing, security, storage and transportation management;                                                      
|
| |  | patent support, including patent administration, external
    support and reverse engineering;                                                                                   
|
| |  | finance, accounting and treasury support, including risk
    management and back-office support, for as long as we have not
    reached full staffing levels in this area;       
|
| |  | legal services;                                                                                                                                                                  
|
| |  | strategy services, including support relating to market
    research; and                                                                                                        
|
| |  | certain other services in which our staff still needs to develop
    expertise.                                                                                                  





| |               
| | --------------
| | Other Services



| |                                                        
| | -------------------------------------------------------
| | Framework Agreements on Information Technology Services







132



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| |                                                         
| | --------------------------------------------------------
| | Framework Agreement on Research and Development Services







| |                 
| | ----------------
| | Special Services








With Management




133



---



##### Table of Contents










With Siemens







134



---



##### Table of Contents









ARTICLES OF ASSOCIATION







Share Capital













Authorized Capital


Handelsregister









| |                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | in an aggregate amount of up to
    239.4 million
    in which case existing shareholders have pre-emptive rights,
    which may be excluded in the following circumstances:



| |       |                                                                                                                                                                                                                                                                                                    
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | to the extent that new shares must be granted to holders of
    subscription warrants or convertible bonds that we have issued,
    in accordance with the terms of issuance of such warrants or
    convertible bonds;                                                                            
|
| | (ii)  | if (1) the new shares represent 10% or less of the existing
    share capital when the authorized capital or issuance of the new
    shares is registered and (2) the issue price of the new
    shares is not considerably less than the stock exchange price of
    the shares in our company; or
|
| | (iii) | to the extent necessary to avoid balancing out fractional
    residual amounts;                                                                                                                                                                                                                    





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Conditional Capital















Preemptive Rights







Shareholders Meetings and Voting Rights




(elektronischer Bundesanzeiger)









136



---



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| |   |                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------
| |  | the exclusion of preemptive rights in a capital increase;                                            
|
| |  | capital decreases;                                                                                   
|
| |  | the creation of authorized capital or conditional capital;                                           
|
| |  | dissolution;                                                                                         
|
| |  | a merger (Verschmelzung) with another company or another
    corporate transformation;               
|
| |  | a transfer of all or virtually all of the assets of our
    company; and                             
|
| |  | the conclusion of any direct control, profit and loss pooling or
    similar intercompany agreements.




Dividend Rights













Liquidation Rights




137



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Repurchase of Our Own Shares







Corporate Purpose of Our Company







Registration of the Company with Commercial Register




138



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ADDITIONAL INFORMATION








Group Structure







Significant Subsidiaries


|                                       |  |                 |  |                                                               |  |               |     |  
|-------------------------------------- |  | --------------- |  | ------------------------------------------------------------- |  | ------------- | --- | -
|                                       |  |                 |  |                                                               |  | Proportion of |    
|                                       |  |                 |  |                                                               |  | our           |    
|                                       |  | Country of      |  |                                                               |  | ownership     |    
|Corporate Name                         |  | Residence       |  | Field of activity                                             |  | interest      |    
|                                       |  |                 |  |                                                               |  |               |    
|Qimonda Flash GmbH                     |  | Germany         |  | Research and Development                                      |  |               | 100 | %
|Qimonda Dresden GmbH & Co. oHG         |  | Germany         |  | Production                                                    |  |               | 100 | %
|Qimonda Holding B.V                    |  | The Netherlands |  | Holding                                                       |  |               | 100 | %
|Qimonda Investment B.V                 |  | The Netherlands |  | Holding                                                       |  |               | 100 | %
|Qimonda Portugal S.A.                  |  | Portugal        |  | Production                                                    |  |               | 100 | %
|Infineon Technologies Flash Ltd.       |  | Israel          |  | Research and Development                                      |  |               | 100 | %
|Qimonda Richmond, LLC                  |  | United States   |  | Production                                                    |  |               | 100 | %
|Qimonda North America Corp.            |  | United States   |  | Distribution, Sales & Marketing,
    Research and Development |  |               | 100 | %
|Qimonda Asia Pacific Pte. Ltd.         |  | Singapore       |  | Distribution                                                  |  |               | 100 | %
|Qimonda (Melaka) Sdn. Bhd              |  | Malaysia        |  | Production                                                    |  |               | 100 | %
|Qimonda Module (Suzhou) Co. Ltd.       |  | China           |  | Production                                                    |  |               | 100 | %
|Qimonda Technologies (Suzhou) Co., Ltd |  | China           |  | Production                                                    |  |               | 45  | %







Dividend Policy




Aktiengesetz Bilanzgewinn Bilanzverlust












Significant Changes


20-F, 20-F.


139



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Market Information




| |        
| | -------
| | General








| |                                       
| | --------------------------------------
| | Trading on the New York Stock Exchange



|                                    |  |                  |       |  |     |  |       | 
|----------------------------------- |  | ---------------- | ----- |  | --- |  | ----- | 
|                                    |  | Price per ADS in |      
|                                    |  | U.S. dollars     |      
|                                    |  |                  |      
|                                    |  | High             |       |  | Low | 
|                                    |  |                  |       |  |     | 
|August 2006 (beginning August 9)    |  |                  | 16.28 |  |     |  | 13.54 | 
|September 2006                      |  |                  | 17.91 |  |     |  | 15.90 | 
|October 2006                        |  |                  | 17.50 |  |     |  | 13.82 | 
|November 2006 (through November 17) |  |                  | 17.58 |  |     |  | 14.00 | 









Exchange Rates




Average exchange rates of the U.S. dollar per euro


|                                   |  |         |        | 
|---------------------------------- |  | ------- | ------ | 
|Financial year ended September 30, |  | Average |       
|                                   |  |         |       
|2002                               |  |         | 0.9192 | 
|2003                               |  |         | 1.0839 | 
|2004                               |  |         | 1.2174 | 
|2005                               |  |         | 1.2714 | 
|2006                               |  |         | 1.2316 | 

140



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Recent high and low exchange rates of the U.S. dollar
per euro


|                                    |  |      |        |  |     |  |        | 
|----------------------------------- |  | ---- | ------ |  | --- |  | ------ | 
|                                    |  | High |        |  | Low | 
|                                    |  |      |        |  |     | 
|May 2006                            |  |      | 1.2888 |  |     |  | 1.2607 | 
|June 2006                           |  |      | 1.2953 |  |     |  | 1.2522 | 
|July 2006                           |  |      | 1.2822 |  |     |  | 1.2500 | 
|August 2006                         |  |      | 1.2914 |  |     |  | 1.2735 | 
|September 2006                      |  |      | 1.2833 |  |     |  | 1.2648 | 
|October 2006                        |  |      | 1.2773 |  |     |  | 1.2502 | 
|November 2006 (through November 17) |  |      | 1.2835 |  |     |  | 1.2705 | 

 








Taxation


German Taxation




Taxation of the
Company






 


Taxation of Dividends




141



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Bundeszentralamt für Steuern, D-53225


Withholding Tax Refund
for U.S. Shareholders






Bundeszentralamt für Steuern, 19114-0447.


Taxation of Capital
Gains




142



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Inheritance and Gift
Tax






| |                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) the donor or transferor or the heir, donee or other
    beneficiary is resident in Germany at the time of the transfer,
    or, if a German citizen, was not continuously outside of Germany
    and without German residence for more than five years; or
|
| | (b) at the time of the transfer, the ADSs are held by the
    decedent or donor as assets of a business for which a permanent
    establishment is maintained or a permanent representative is
    appointed in Germany; or                                   
|
| | (c) the decedent or donor has held, alone or together with
    related persons, directly or indirectly, 10% or more of a
    companys registered share capital at the time of the
    transfer.                                                              



Other Taxes




United States
Taxation






| |        
| | -------
| | (i) is:



| |       |                                                                                                                                                                                                                                                                  
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      | an individual U.S. citizen or resident;                                                                                                                                                                                                                          
|
| |      | a U.S. corporation; or                                                                                                                                                                                                                                           
|
| |      | a partnership, estate, or trust to the extent the
    shareholders income is subject to taxation in the United
    States as the income of a resident, either in the
    shareholders hands or in the hands of the
    shareholders partners or beneficiaries;
|
| | (ii)  | is not also a resident of Germany for German tax purposes;                                                                                                                                                                                                       
|
| | (iii) | is the beneficial owner of the ADSs (and the dividends paid with
    respect thereto);                                                                                                                                                                           
|
| | (iv)  | holds the ADSs as a capital asset for tax purposes;                                                                                                                                                                                                              
|
| | (v)   | does not hold the ADSs in connection with the conduct of
    business through a permanent establishment, or the performance
    of personal services through a fixed base, in Germany; and                                                                       
|
| | (vi)  | is not subject to an anti-treaty shopping provision in the
    Treaty that applies in limited circumstances.                                                                                                                                                     

143



---



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Taxation of Dividends








Taxation of Sales or
Other Taxable Dispositions




Information Reporting
and Backup Withholding




144



---



##### Table of Contents



W-8BEN).








Exchange Controls and Limitations Affecting Shareholders




 










Documents on Display


1-800-SEC-0330.








Controls and Procedures


13a-15(e) 15d-15(e)


13a-15(f) 15d-15(f)




145



---



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Use of Proceeds


333-135913)


 








Audit Committee Financial Expert


20-F. 10A-3








Principal Accountant Fees and Services


Audit Fees. 


Audit-Related Fees.


Tax Fees.


All Other Fees.




146



---



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Code of Ethics


20-F.








Exemptions from the Listing Standards for Audit Committee


10A-3(b)(1)(iv)(B) 10A-3(b)(1)(iv)(C)








Material Contracts




147



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GLOSSARY




|                                 |  |                                                                                                                                                                                                                                                                                                                      
|-------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ADSs                             |  | American Depositary Shares. ADSs are securities issued by a
    depositary that represent ownership interests in underlying
    ordinary shares held by the depositarys custodian. ADSs
    may be evidenced by American Depositary Receipts (ADRs). Each
    Qimonda AG ADS represents one ordinary share.         
|                                
|Advanced Memory Buffer (AMB)     |  | A logic chip that enables high speed communication between the
    memory controller and a fully buffered DIMM in a server system.                                                                                                                                                                                   
|                                
|back-end                         |  | The packaging, assembly and testing stages of the semiconductor
    manufacturing process, which take place after electronic
    circuits are imprinted on silicon wafers in the front-end
    process.                                                                                                              
|                                
|bit                              |  | A unit of information; a computational quantity (binary pulse)
    that can take one of two values, such as true and false or 0 and
    1; also the smallest unit of storage sufficient to hold one bit.                                                                                                             
|                                
|byte                             |  | A unit of measurement equal to eight bits.                                                                                                                                                                                                                                                                           
|                                
|Computer Aided Design (CAD)      |  | A designation of software tools used in the design of integrated
    circuits.                                                                                                                                                                                                                                       
|                                
|capacitor                        |  | An electronic device that stores electrical charges. Capacitors
    are used to store information in a DRAM chip.                                                                                                                                                                                                    
|                                
|cell                             |  | A primary unit that normally repeats many times in an integrated
    circuit. Cells represent individual functional design units or
    circuits that may be reused as blocks in designs. For example, a
    memory cell represents a storage unit in a memory array.                                                
|                                
|chip                             |  | Popular term describing a section of a wafer that contains a
    discrete component or an integrated circuit. Also called a
    die.                                                                                                                                                                               
|                                
|circuit                          |  | A combination of electrical or electronic components,
    interconnected to perform one or more functions.                                                                                                                                                                                                           
|                                
|clean room                       |  | An area within a fab in which the wafer fabrication takes place.
    The classification of a clean room relates to the maximum number
    of particles of contaminants per cubic foot within that room.
    For example, a class 100 clean room contains fewer than 100
    particles of contaminants per cubic foot.
|                                
|DDR SDRAM                        |  | Double Data Rate SDRAM. A form of DRAM chip that activates
    output on both the rising and falling edge of the system clock
    rather than on just the rising edge, potentially doubling output.                                                                                                                  
|                                
|DDR2 SDRAM                       |  | Double Data Rate 2 SDRAM is an enhanced form of DDR SDRAM that
    offers higher data transfer rates compared to its predecessor.                                                                                                                                                                                    
|                                
|DDR3 SDRAM                       |  | Double Data Rate 3 SDRAM. Successor to DDR2 SDRAM currently in
    advanced stages of development.                                                                                                                                                                                                                   
|                                
|Die                              |  | A chip.                                                                                                                                                                                                                                                                                                              
|                                
|Dual Inline Memory Module (DIMM) |  | A type of printed circuit board composed of DRAM chips mounted
    on a circuit board in a particular configuration.                                                                                                                                                                                                 

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|                                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|----------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Dynamic Random Access Memory (DRAM) |  | The most common type of random access memory. Each bit of
    information is stored as an amount of electrical charge in a
    storage cell consisting of a capacitor and a transistor. The
    capacitor discharges gradually due to leakage and the memory
    cell loses the information stored. To preserve the information,
    the memory has to be refreshed periodically and is therefore
    referred to as dynamic. DRAM is the most widespread
    memory technology because of its high memory density and
    relatively low price.
|                                   
|fab                                 |  | A semiconductor fabrication facility, in which the front-end
    manufacturing process takes place.                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                   
|feature size                        |  | A measurement (generally in micron or nm) of the width of the
    smallest patterned feature or circuit on a semiconductor chip.                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                   
|flash memory                        |  | A type of non-volatile memory that can be erased and
    reprogrammed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                   
|front-end                           |  | The wafer processing stage of the semiconductor manufacturing
    process, in which electronic circuits are imprinted onto raw
    silicon wafers. This is followed by the packaging, assembly and
    testing stages, which comprise the back-end process.                                                                                                                                                                                                                                                                                       
|                                   
|foundry                             |  | A semiconductor manufacturer that makes chips for third parties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                   
|gigabit (Gb)                        |  | Approximately one billion bits (1,073,741,824 bits). Generally
    used to indicate the storage capacity (or density) of memory
    chips.                                                                                                                                                                                                                                                                                                                                                                                                        
|                                   
|gigabyte (GB)                       |  | Approximately one billion bytes (1,073,741,824 bytes). Generally
    used to indicate the storage capacity (or density) of memory
    modules.                                                                                                                                                                                                                                                                                                                                                                                                    
|                                   
|Integrated Circuit (IC)             |  | An electronic circuit in which all elements of the circuit are
    integrated on a single semiconductor device.                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                   
|ISO                                 |  | International Standards Organization. The international
    organization responsible for developing and maintaining
    worldwide standards for manufacturing, environmental protection,
    computers, data communications and many other fields.                                                                                                                                                                                                                                                                                                
|                                   
|library                             |  | The collection of representations required by various design
    tools. The representations, such as symbol, simulation model,
    layout abstract, and transistor schematic, are used by different
    tools in the design system to create or analyze some portion of
    an IC or otherwise aid in the design process. Creating a design
    library requires inserting the fabrication technologies in the
    design system in a form that allows designers to create circuits
    in the most efficient manner.                             
|                                   
|logic                               |  | One of the three major classes of integrated circuits (along
    with processors and memory). Logic ICs are used for data
    manipulation and control functions.                                                                                                                                                                                                                                                                                                                                                                                 
|                                   
|mask                                |  | A transparent glass or quartz plate covered with an array of
    patterns used in the IC manufacturing process to create
    circuitry patterns on a wafer. Each pattern consists of opaque
    and transparent areas that define the size and shape of all
    circuit and device elements. The mask is used to expose selected
    areas, and defines                                                                                                                                                                                           

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|                           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                           |  | the areas to be processed. Masks may use emulsion, chrome, iron
    oxide, silicon or other material to produce the opaque areas.                                                                                                                                                                                                                                                                                                           
|                          
|megabit (Mb)               |  | Approximately one million bits (1,048,576 bits). Generally used
    to indicate the storage capacity (or density) of memory chips.                                                                                                                                                                                                                                                                                                          
|                          
|megabyte (MB)              |  | Approximately one billion bytes (1,048,576 bytes). Generally
    used to indicate the storage capacity (or density) of memory
    modules.                                                                                                                                                                                                                                                                                                  
|                          
|memory semiconductors      |  | Semiconductors that store data in digital form.                                                                                                                                                                                                                                                                                                                                                                                             
|                          
|NAND flash                 |  | A type of flash memory commonly used for mass storage
    applications such as digital audio players and digital cameras.                                                                                                                                                                                                                                                                                                                   
|                          
|nanometer (nm)             |  | A metric unit of linear measure that equals one billionth of a
    meter (or 1/1,000th of a micron). This unit of measurement
    is commonly used to indicate the width of the smallest patterned
    feature or circuit on a semiconductor chip (the so-called
    feature size).                                                                                                                                                         
|                          
|non-volatile memory        |  | A type of semiconductor memory that retains data even when
    electrical power is shut off.                                                                                                                                                                                                                                                                                                                                                
|                          
|NOR flash                  |  | A type of flash memory commonly used for the storage of code
    data, such as the software instructions in a mobile phone.                                                                                                                                                                                                                                                                                                                 
|                          
|NROM®
    Flash            |  | Nitrided Read Only Memory. A flash technology that can store two
    bits per cell. Charges are locally separated on both ends of the
    memory transistor cell. This compares with other non-volatile
    technologies like floating gate technology, which store one or
    two bits by different charge amounts spread over the whole
    transistor cell.                                                                              
|                          
|OEM                        |  | Original Equipment Manufacturer. A company that acquires a
    product or component and reuses or incorporates it into a new
    product with its own brand name.                                                                                                                                                                                                                                                                           
|                          
|package                    |  | The protective container of an electronic component or die, with
    external terminals to provide electrical access to the
    components inside.                                                                                                                                                                                                                                                                                          
|                          
|photolithography           |  | A step in the front-end process of semiconductor manufacturing
    in which a form of ultraviolet light is used to draw a pattern
    of an IC on a silicon wafer. The sophistication of this process
    and the related equipment determines the achievable feature
    sizes on memory chips, and therefore is a key determinant in the
    ability of manufacturers continuously to improve the capacity
    (or density) of memory ICs.
|                          
|process technology         |  | The procedures used in the front-end process to convert raw
    silicon wafers into finished wafers containing hundreds or
    thousands of chips.                                                                                                                                                                                                                                                                                          
|                          
|Random Access Memory (RAM) |  | A type of digital memory that functions as the main workspace of
    a computer. The order of access to bits at different locations
    does not affect the speed of access (and is therefore
    random). This is in contrast to, for example, a
    magnetic or optical disk or magnetic tape, which are used for
    long-term storage of data on a computer, but which are too slow
    to be used for primary workspace.             

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|                                   |  |                                                                                                                                                                                                                                                                                                                                                               
|---------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|photoresist                        |  | A photoactive chemical that is used in the photolithography
    process, in which the design of an integrated circuit is drawn
    on a silicon wafer.                                                                                                                                                                                                        
|                                  
|semiconductor                      |  | Generic name for devices, such as transistors and integrated
    circuits, that control the flow of electrical signals. More
    generally, a material, typically crystalline, that can be
    altered to allow electrical current to flow or not flow in a
    pattern. The most common semiconductor material for use in
    integrated circuits is silicon.
|                                  
|server                             |  | A computer that provides a service for other computers connected
    to it via a network. The most common example is a file server,
    which has a local disk and services requests from remote clients
    to read and write files on that disk.                                                                                                            
|                                  
|silicon                            |  | A type of semiconducting material used to make a wafer. Silicon
    is widely used in the semiconductor industry as a base material.                                                                                                                                                                                                                          
|                                  
|Static Random Access Memory (SRAM) |  | A type of volatile memory product that is used in electronic
    systems to store data and program instructions. Unlike the more
    common DRAM, it does not need to be electronically refreshed
    (and is therefore static).                                                                                                                            
|                                  
|Synchronous DRAM (SDRAM)           |  | A generic name for various kinds of DRAM that are synchronized
    with the clock speed for which the microprocessor is optimized.
    This tends to increase the number of instructions that the
    processor can perform in a given time.                                                                                                                  
|                                  
|transistor                         |  | An individual circuit that can amplify or switch electric
    current. This is the building block of all integrated circuits.                                                                                                                                                                                                                                 
|                                  
|volatile memory                    |  | A type of semiconductor memory that loses stored information if
    the power source is removed.                                                                                                                                                                                                                                                              
|                                  
|wafer                              |  | A disk made of a semiconducting material such as silicon,
    currently usually either 200mm or 300mm in diameter, used to
    form the substrate of a chip. A finished wafer may contain
    several thousand chips.                                                                                                                                         
|                                  
|yield                              |  | The percentage of usable dies produced on a silicon wafer in the
    front-end process.                                                                                                                                                                                                                                                                       
|                                  
|USB                                |  | Universal Serial Bus. A protocol for transferring data to and
    from digital devices.                                                                                                                                                                                                                                                                       
|                                  
|USB drive                          |  | A portable data storage device based on flash memory that uses
    USB interface protocol.                                                                                                                                                                                                                                                                    

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QIMONDA AG AND SUBSIDIARIES





INDEX TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS





|                                                                                                                                     |  |      |      | 
|------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ---- | 
|                                                                                                                                     |  | Page |     
|                                                                                                                                     |  |      |     
|Qimonda AG and Subsidiaries                                                                                                          |  |      |      | 
|Report of Independent Registered Public
    Accounting Firm                                                                          |  |      | F-2  | 
|Combined and Consolidated Statements of
    Operations
    for the years ended September 30, 2004, 2005 and 2006                     |  |      | F-3  | 
|Combined and Consolidated Balance Sheets as
    of September 30, 2005 and 2006                                                       |  |      | F-4  | 
|Combined and Consolidated Statements of
    Business/ Shareholders Equity
    for the years ended September 30, 2004, 2005 and 2006 |  |      | F-5  | 
|Combined and Consolidated Statements of
    Cash Flows
    for the years ended September 30, 2004, 2005 and 2006                     |  |      | F-6  | 
|Notes to the Combined and Consolidated
    Financial Statements                                                                      |  |      | F-7  | 
|                                                                                                                                    
|Inotera Memories, Inc.                                                                                                               |  |      |      | 
|Report of Independent Registered Public
    Accounting Firm                                                                          |  |      | F-61 | 
|Balance Sheets as of December 31, 2004
    and 2005                                                                                  |  |      | F-62 | 
|Statements of Income for the years ended
    December 31, 2004 and 2005                                                              |  |      | F-64 | 
|Statements of Changes in Stockholders
    Equity for the years ended December 31, 2004 and 2005                                     |  |      | F-65 | 
|Statements of Cash Flows for the years
    ended December 31, 2004 and 2005                                                          |  |      | F-66 | 
|Notes to Financial Statements                                                                                                        |  |      | F-67 | 

F-1



---



##### Table of Contents






Report of Independent Registered Public Accounting Firm






















F-2



---



##### Table of Contents



Qimonda AG and Subsidiaries





Combined and Consolidated Statements of Operations


for the years ended September 30, 2004, 2005 and 2006


(in millions, except for share data)


|                                                    |                 |       |    |              |      |  |              |       |  |              |       |       |              |      |       |       |  |  |       |       | 
|--------------------------------------------------- | --------------- | ----- | -- | ------------ | ---- |  | ------------ | ----- |  | ------------ | ----- | ----- | ------------ | ---- | ----- | ----- |  |  | ----- | ----- | 
|                                                    |                 | Notes |    |              | 2004 |  |              | 2005  |  |              | 2006  |       |              | 2006 |      
|                                                    |                 |       |    |              |      |  |              |       |  |              |       |       |              |      |      
|                                                    |                 |       |    | ( millions) |      |  | ( millions) |       |  | ( millions) |       |       | ($ millions) |     
|                                                    |                 |       |    |              |      |  |              |       |  | (unaudited)  |      
|Net sales:                                          |                 |       |    |              |      |  |              |       |  |              |       |       |              |      |       |       |  |  |       |      
|                                                    | Third parties   |       |    | 5            |      |  |              | 2,912 |  |              |       | 2,821 |              |      |       | 3,798 |  |  |       | 4,818 | 
|                                                    | Related parties |       |    | 27           |      |  |              | 96    |  |              |       | 4     |              |      |       | 17    |  |  |       | 22    | 
|                                                    |                 |       |    |              |      |  |              |       |  |              |       |       |              |      |      
|Total net sales                                     |                 |       |    |              |      |  | 3,008        |       |  |              | 2,825 |       |              |      | 3,815 |       |  |  | 4,840 |      
|                                                    |                 |       |    |              |      |  |              |       |  |              |       |       |              |      |      
|Cost of goods sold                                  |                 |       |    |              |      |  | 2,063        |       |  |              | 2,164 |       |              |      | 3,048 |       |  |  | 3,867 |      
|                                                    |                 |       |    |              |      |  |              |       |  |              |       |       |              |      |      
|Gross profit                                        |                 |       |    |              |      |  | 945          |       |  |              | 661   |       |              |      | 767   |       |  |  | 973   |      
|                                                    |                 |       |    |              |      |  |              |       |  |              |       |       |              |      |      
|Research and development expenses                   |                 |       |    |              |      |  | 347          |       |  |              | 390   |       |              |      | 433   |       |  |  | 549   |      
|Selling, general and administrative expenses        |                 |       |    |              |      |  | 232          |       |  |              | 206   |       |              |      | 215   |       |  |  | 273   |      
|Restructuring charges                               |                 |       | 8  |              |      |  | 2            |       |  |              | 1     |       |              |      |      |       |  |  |      |      
|Other operating expenses, net                       |                 |       | 7  |              |      |  | 194          |       |  |              | 13    |       |              |      | 60    |       |  |  | 76    |      
|                                                    |                 |       |    |              |      |  |              |       |  |              |       |       |              |      |      
|Operating income                                    |                 |       |    |              |      |  | 170          |       |  |              | 51    |       |              |      | 59    |       |  |  | 75    |      
|                                                    |                 |       |    |              |      |  |              |       |  |              |       |       |              |      |      
|Interest expense, net                               |                 |       |    |              |      |  | (30          | )     |  |              | (7    | )     |              |      | (25   | )     |  |  | (32   | )    
|Equity in (losses) earnings of associated companies |                 |       | 16 |              |      |  | (16          | )     |  |              | 45    |       |              |      | 80    |       |  |  | 102   |      
|Gain on associated company share issuance           |                 |       | 16 |              |      |  | 2            |       |  |              |      |       |              |      | 72    |       |  |  | 92    |      
|Other non-operating (expense) income, net           |                 |       |    |              |      |  | (11          | )     |  |              | 13    |       |              |      | 8     |       |  |  | 10    |      
|Minority interests                                  |                 |       |    |              |      |  | 17           |       |  |              | 2     |       |              |      | (6    | )     |  |  | (8    | )    
|                                                    |                 |       |    |              |      |  |              |       |  |              |       |       |              |      |      
|Income before income taxes                          |                 |       |    |              |      |  | 132          |       |  |              | 104   |       |              |      | 188   |       |  |  | 239   |      
|                                                    |                 |       |    |              |      |  |              |       |  |              |       |       |              |      |      
|Income tax expense                                  |                 |       | 9  |              |      |  | (211         | )     |  |              | (86   | )     |              |      | (114  | )     |  |  | (145  | )    
|                                                    |                 |       |    |              |      |  |              |       |  |              |       |       |              |      |      
|Net (loss) income                                   |                 |       |    |              |      |  | (79          | )     |  |              | 18    |       |              |      | 74    |       |  |  | 94    |      
|                                                    |                 |       |    |              |      |  |              |       |  |              |       |       |              |      |      
|Basic and diluted (loss) earnings per share         |                 |       | 10 |              |      |  | (0.26        | )     |  |              | 0.06  |       |              |      | 0.24  |       |  |  | 0.30  |      



F-3



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##### Table of Contents



Qimonda AG and Subsidiaries





Combined and Consolidated Balance Sheets


September 30, 2005 and 2006


|                                                     |                                           |       |    |              |      |  |              |             |   |              |       |       |   |  |       |       |  
|---------------------------------------------------- | ----------------------------------------- | ----- | -- | ------------ | ---- |  | ------------ | ----------- | - | ------------ | ----- | ----- | - |  | ----- | ----- | -
|                                                     |                                           | Notes |    |              | 2005 |  |              | 2006        |   |              | 2006  |      
|                                                     |                                           |       |    |              |      |  |              |             |   |              |       |      
|                                                     |                                           |       |    | ( millions) |      |  | ( millions) |             |   | ($ millions) |      
|                                                     |                                           |       |    |              |      |  |              | (unaudited) |  
|Assets:                                              |                                           |       |    |              |      |  |              |             |   |              |       |       |   |  |       |      
|Current assets:                                      |                                           |       |    |              |      |  |              |             |   |              |       |       |   |  |       |      
|                                                     | Cash and cash equivalents                 |       |    |              |      |  |              | 632         |   |              |       | 932   |   |  |       | 1,182 |  
|                                                     | Marketable securities                     |       |    | 11           |      |  |              |            |   |              |       | 138   |   |  |       | 175   |  
|                                                     | Trade accounts receivable, net            |       |    | 12           |      |  |              | 439         |   |              |       | 803   |   |  |       | 1,019 |  
|                                                     | Inventories                               |       |    | 13           |      |  |              | 484         |   |              |       | 622   |   |  |       | 789   |  
|                                                     | Deferred income taxes                     |       |    | 9            |      |  |              | 49          |   |              |       | 47    |   |  |       | 60    |  
|                                                     | Other current assets                      |       |    | 14           |      |  |              | 198         |   |              |       | 265   |   |  |       | 336   |  
|                                                     |                                           |       |    |              |      |  |              |             |   |              |       |      
|Total current assets                                 |                                           |       |    |              |      |  | 1,802        |             |   |              | 2,807 |       |   |  | 3,561 |      
|                                                     |                                           |       |    |              |      |  |              |             |   |              |       |      
|Property, plant and equipment                        |                                           |       | 15 |              |      |  | 2,216        |             |   |              | 2,080 |       |   |  | 2,639 |      
|Long-term investments                                |                                           |       | 16 |              |      |  | 544          |             |   |              | 636   |       |   |  | 807   |      
|Deferred income taxes                                |                                           |       | 9  |              |      |  | 125          |             |   |              | 160   |       |   |  | 203   |      
|Other assets                                         |                                           |       | 17 |              |      |  | 174          |             |   |              | 178   |       |   |  | 226   |      
|                                                     |                                           |       |    |              |      |  |              |             |   |              |       |      
|Total assets                                         |                                           |       |    |              |      |  | 4,861        |             |   |              | 5,861 |       |   |  | 7,436 |      
|                                                     |                                           |       |    |              |      |  |              |             |   |              |       |      
|Liabilities and Business/ Shareholders Equity:      |                                           |       |    |              |      |  |              |             |   |              |       |       |   |  |       |      
|Current liabilities:                                 |                                           |       |    |              |      |  |              |             |   |              |       |       |   |  |       |      
|                                                     | Short-term debt  Infineon                |       |    | 21           |      |  |              | 524         |   |              |       | 344   |   |  |       | 435   |  
|                                                     | Trade accounts payable                    |       |    | 18           |      |  |              | 519         |   |              |       | 712   |   |  |       | 904   |  
|                                                     | Accrued liabilities                       |       |    | 19           |      |  |              | 122         |   |              |       | 160   |   |  |       | 203   |  
|                                                     | Deferred income taxes                     |       |    | 9            |      |  |              |            |   |              |       | 18    |   |  |       | 23    |  
|                                                     | Other current liabilities                 |       |    | 20           |      |  |              | 200         |   |              |       | 245   |   |  |       | 311   |  
|                                                     |                                           |       |    |              |      |  |              |             |   |              |       |      
|Total current liabilities                            |                                           |       |    |              |      |  | 1,365        |             |   |              | 1,479 |       |   |  | 1,876 |      
|                                                     |                                           |       |    |              |      |  |              |             |   |              |       |      
|Long-term debt                                       |                                           |       | 21 |              |      |  | 108          |             |   |              | 151   |       |   |  | 192   |      
|Deferred income taxes                                |                                           |       | 9  |              |      |  | 9            |             |   |              | 36    |       |   |  | 46    |      
|Other liabilities                                    |                                           |       | 22 |              |      |  | 412          |             |   |              | 324   |       |   |  | 411   |      
|                                                     |                                           |       |    |              |      |  |              |             |   |              |       |      
|Total liabilities                                    |                                           |       |    |              |      |  | 1,894        |             |   |              | 1,990 |       |   |  | 2,525 |      
|                                                     |                                           |       |    |              |      |  |              |             |   |              |       |      
|Business/ Shareholders Equity:                      |                                           |       |    |              |      |  |              |             |   |              |       |       |   |  |       |      
|                                                     | Investments by and advances from Infineon |       |    | 2            |      |  |              | 3,034       |   |              |       |      |   |  |       |      |  
|                                                     | Ordinary share capital                    |       |    | 23           |      |  |              |            |   |              |       | 684   |   |  |       | 868   |  
|                                                     | Additional paid-in capital                |       |    |              |      |  |              |            |   |              |       | 3,097 |   |  |       | 3,929 |  
|                                                     | Retained earnings                         |       |    |              |      |  |              |            |   |              |       | 224   |   |  |       | 284   |  
|                                                     | Accumulated other comprehensive loss      |       |    | 25           |      |  |              | (67         | ) |              |       | (134  | ) |  |       | (170  | )
|                                                     |                                           |       |    |              |      |  |              |             |   |              |       |      
|Total Business/ Shareholders Equity                 |                                           |       |    |              |      |  | 2,967        |             |   |              | 3,871 |       |   |  | 4,911 |      
|                                                     |                                           |       |    |              |      |  |              |             |   |              |       |      
|Total Liabilities and Business/ Shareholders Equity |                                           |       |    |              |      |  | 4,861        |             |   |              | 5,861 |       |   |  | 7,436 |      
|                                                     |                                           |       |    |              |      |  |              |             |   |              |       |      



F-4



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##### Table of Contents








Qimonda AG and Subsidiaries


Combined and Consolidated Statements of
Business/Shareholders Equity


for the years ended September 30, 2004, 2005 and 2006


(in millions except for share data)


|                                                                                                   |  |       |    |                        |        |  |              |        |  |              |         |                |              |          |            |              |               |         |              |            |            |              |           |   |              |               |      |              |       |  |    |   |  |  |    |   |  |  |       |  
|-------------------------------------------------------------------------------------------------- |  | ----- | -- | ---------------------- | ------ |  | ------------ | ------ |  | ------------ | ------- | -------------- | ------------ | -------- | ---------- | ------------ | ------------- | ------- | ------------ | ---------- | ---------- | ------------ | --------- | - | ------------ | ------------- | ---- | ------------ | ----- |  | -- | - |  |  | -- | - |  |  | ----- | -
|                                                                                                   |  |       |    |                        |        |  |              |        |  |              |         | Foreign        |              |          | Additional |              |               |         |              |           
|                                                                                                   |  |       |    | Issued Ordinary shares |        |  | Additional   |        |  |              |         | Investments by |              |          | currency   |              |               | minimum |              |            | Unrealized |              |           |  
|                                                                                                   |  |       |    |                        |        |  | Paid-In      |        |  | Retained     |         |                | and advances |          |            | translation  |               |         | pension      |            |            | gain/(loss)  |           |   |             
|                                                                                                   |  | Notes |    |                        | Shares |  |              | Amount |  |              | Capital |                |              | earnings |            |              | from Infineon |         |              | adjustment |            |              | liability |   |              | on securities |      |              | Total | 
|                                                                                                   |  |       |    |                        |        |  |              |        |  |              |         |                |              |          |            |              |               |         |              |            |            |              |           |   |              |               |      |              |       | 
|                                                                                                   |  |       |    | (millions)             |        |  | ( millions) |        |  | ( millions) |         |                | ( millions) |          |            | ( millions) |               |         | ( millions) |            |            | ( millions) |           |   | ( millions) |               |      | ( millions) |      
|Balance as of October 1, 2003                                                                      |  |       |    |                        |        |  |             |        |  |              |        |                |              |          |           |              |               |         |             |            |            |              | 2,804     |   |              |               | (76  | )            |       |  |   |   |  |  | 8  |   |  |  | 2,736 |  
|Net investments by and advances from Infineon                                                      |  |       |    |                        |        |  |             |        |  |              |        |                |              |          |           |              |               |         |             |            |            |              | 165       |   |              |               |     |              |       |  |   |   |  |  |   |   |  |  | 165   |  
|Net loss                                                                                           |  |       |    |                        |        |  |             |        |  |              |        |                |              |          |           |              |               |         |             |            |            |              | (79       | ) |              |               |     |              |       |  |   |   |  |  |   |   |  |  | (79   | )
|Other comprehensive loss                                                                           |  |       | 25 |                        |        |  |             |        |  |              |        |                |              |          |           |              |               |         |             |            |            |              |          |   |              |               | (35  | )            |       |  |   |   |  |  | (8 | ) |  |  | (43   | )
|                                                                                                   |  |       |    |                        |        |  |              |        |  |              |         |                |              |          |            |              |               |         |              |            |            |              |           |   |              |               |      |              |       | 
|Balance as of September 30, 2004                                                                   |  |       |    |                        |        |  |             |        |  |              |        |                |              |          |           |              |               |         |             |            |            |              | 2,890     |   |              |               | (111 | )            |       |  |   |   |  |  |   |   |  |  | 2,779 |  
|                                                                                                   |  |       |    |                        |        |  |              |        |  |              |         |                |              |          |            |              |               |         |              |            |            |              |           |   |              |               |      |              |       | 
|Transfer of DD200 facility to Infineon                                                             |  |       | 4  |                        |        |  |             |        |  |              |        |                |              |          |           |              |               |         |             |            |            |              | (374      | ) |              |               |     |              |       |  |   |   |  |  |   |   |  |  | (374  | )
|Net investments by and advances from Infineon                                                      |  |       |    |                        |        |  |             |        |  |              |        |                |              |          |           |              |               |         |             |            |            |              | 500       |   |              |               |     |              |       |  |   |   |  |  |   |   |  |  | 500   |  
|Net income                                                                                         |  |       |    |                        |        |  |             |        |  |              |        |                |              |          |           |              |               |         |             |            |            |              | 18        |   |              |               |     |              |       |  |   |   |  |  |   |   |  |  | 18    |  
|Other comprehensive income (loss)                                                                  |  |       | 25 |                        |        |  |             |        |  |              |        |                |              |          |           |              |               |         |             |            |            |              |          |   |              |               | 45   |              |       |  | (1 | ) |  |  |   |   |  |  | 44    |  
|                                                                                                   |  |       |    |                        |        |  |              |        |  |              |         |                |              |          |            |              |               |         |              |            |            |              |           |   |              |               |      |              |       | 
|Balance as of September 30, 2005                                                                   |  |       |    |                        |        |  |             |        |  |              |        |                |              |          |           |              |               |         |             |            |            |              | 3,034     |   |              |               | (66  | )            |       |  | (1 | ) |  |  |   |   |  |  | 2,967 |  
|                                                                                                   |  |       |    |                        |        |  |              |        |  |              |         |                |              |          |            |              |               |         |              |            |            |              |           |   |              |               |      |              |       | 
|Transfer of development center to Infineon                                                         |  |       | 26 |                        |        |  |             |        |  |              |        |                |              |          |           |              |               |         |             |            |            |              | (10       | ) |              |               |     |              |       |  |   |   |  |  |   |   |  |  | (10   | )
|Net investments by and advances from Infineon prior to
    May 1, 2006                             |  |       |    |                        |        |  |             |        |  |              |        |                |              |          |           |              |               |         |             |            |            |              | 493       |   |              |               |     |              |       |  |   |   |  |  |   |   |  |  | 493   |  
|Net loss prior to May 1, 2006                                                                      |  |       |    |                        |        |  |             |        |  |              |        |                |              |          |           |              |               |         |             |            |            |              | (150      | ) |              |               |     |              |       |  |   |   |  |  |   |   |  |  | (150  | )
|Contribution to capital and issuance of shares on initial
    formation as of May 1, 2006          |  |       | 1  |                        |        |  | 300          |        |  |              | 600     |                |              |          | 2,772      |              |               |         |              |            |            |              | (3,372    | ) |              |               |     |              |       |  |   |   |  |  |   |   |  |  |      |  
|Transfer of net pension liability from Infineon                                                    |  |       | 28 |                        |        |  |             |        |  |              |        |                |              |          | (9         | )            |               |         |             |            |            |              |          |   |              |               |     |              |       |  |   |   |  |  |   |   |  |  | (9    | )
|Issuance of shares upon initial public offering, net of offering
    costs and tax benefit thereon |  |       | 1  |                        |        |  | 42           |        |  |              | 84      |                |              |          | 331        |              |               |         |             |            |            |              |          |   |              |               |     |              |       |  |   |   |  |  |   |   |  |  | 415   |  
|Stock-based compensation                                                                           |  |       | 24 |                        |        |  |             |        |  |              |        |                |              |          | 3          |              |               |         |             |            |            |              | 5         |   |              |               |      |              |       |  |    |   |  |  |    |   |  |  | 8     |  
|Net income after May 1, 2006                                                                       |  |       |    |                        |        |  |             |        |  |              |        |                |              |          |           |              |               |         | 224          |            |            |              |          |   |              |               |     |              |       |  |   |   |  |  |   |   |  |  | 224   |  
|Other comprehensive loss                                                                           |  |       | 25 |                        |        |  |             |        |  |              |        |                |              |          |           |              |               |         |             |            |            |              |          |   |              |               | (66  | )            |       |  | (1 | ) |  |  |   |   |  |  | (67   | )
|                                                                                                   |  |       |    |                        |        |  |              |        |  |              |         |                |              |          |            |              |               |         |              |            |            |              |           |   |              |               |      |              |       | 
|Balance as of September 30, 2006                                                                   |  |       |    |                        |        |  | 342          |        |  |              | 684     |                |              |          | 3,097      |              |               |         | 224          |            |            |              |          |   |              |               | (132 | )            |       |  | (2 | ) |  |  |   |   |  |  | 3,871 |  
|                                                                                                   |  |       |    |                        |        |  |              |        |  |              |         |                |              |          |            |              |               |         |              |            |            |              |           |   |              |               |      |              |       | 



F-5



---



##### Table of Contents



Qimonda AG and Subsidiaries





Combined and Consolidated Statements of Cash Flows


for the years ended September 30, 2004, 2005 and 2006


|                                                                                         |                                                                           |       |  |              |      |  |              |      |   |              |      |      |              |      |      |      |   |  |       |      |  
|---------------------------------------------------------------------------------------- | ------------------------------------------------------------------------- | ----- |  | ------------ | ---- |  | ------------ | ---- | - | ------------ | ---- | ---- | ------------ | ---- | ---- | ---- | - |  | ----- | ---- | -
|                                                                                         |                                                                           | Notes |  |              | 2004 |  |              | 2005 |   |              | 2006 |      |              | 2006 |     
|                                                                                         |                                                                           |       |  |              |      |  |              |      |   |              |      |      |              |      |     
|                                                                                         |                                                                           |       |  | ( millions) |      |  | ( millions) |      |   | ( millions) |      |      | ($ millions) |     
|                                                                                         |                                                                           |       |  |              |      |  |              |      |   | (unaudited)  |     
|Net (loss) income                                                                        |                                                                           |       |  |              |      |  | (79          | )    |   |              | 18   |      |              |      | 74   |      |   |  | 94    |     
|Adjustments to reconcile net (loss) income to cash provided by
    operating activities: |                                                                           |       |  |              |      |  |              |      |   |              |      |      |              |      |      |      |   |  |       |     
|                                                                                         | Depreciation and amortization                                             |       |  | 15/17        |      |  |              | 752  |   |              |      | 528  |              |      |      | 703  |   |  |       | 892  |  
|                                                                                         | Provision for doubtful accounts                                           |       |  | 12           |      |  |              | 1    |   |              |      | 4    |              |      |      | 3    |   |  |       | 4    |  
|                                                                                         | Gain on sale of marketable securities                                     |       |  | 11           |      |  |              | (3   | ) |              |      |     |              |      |      |     |   |  |       |     |  
|                                                                                         | Loss (gain) on sales of long-term assets                                  |       |  | 15           |      |  |              | 3    |   |              |      |     |              |      |      | (1   | ) |  |       | (1   | )
|                                                                                         | Equity in losses (earnings) of associated companies                       |       |  | 16           |      |  |              | 16   |   |              |      | (45  | )            |      |      | (80  | ) |  |       | (101 | )
|                                                                                         | Gain on associate company share issuance                                  |       |  | 16           |      |  |              | (2   | ) |              |      |     |              |      |      | (72  | ) |  |       | (92  | )
|                                                                                         | Stock-based compensation                                                  |       |  | 24           |      |  |              |     |   |              |      |     |              |      |      | 8    |   |  |       | 10   |  
|                                                                                         | Minority interests                                                        |       |  |              |      |  |              | (17  | ) |              |      | (2   | )            |      |      | 6    |   |  |       | 8    |  
|                                                                                         | Impairment charges                                                        |       |  | 16           |      |  |              | 7    |   |              |      | 6    |              |      |      | 9    |   |  |       | 11   |  
|                                                                                         | Deferred income taxes                                                     |       |  | 9            |      |  |              | 36   |   |              |      | 52   |              |      |      | 23   |   |  |       | 29   |  
|Due to changes in operating assets and liabilities:                                      |                                                                           |       |  |              |      |  |              |      |   |              |      |      |              |      |      |      |   |  |       |     
|                                                                                         | Trade accounts receivable                                                 |       |  | 12           |      |  |              | (135 | ) |              |      | 45   |              |      |      | (378 | ) |  |       | (480 | )
|                                                                                         | Inventories                                                               |       |  | 13           |      |  |              | 73   |   |              |      | (172 | )            |      |      | (147 | ) |  |       | (186 | )
|                                                                                         | Other current assets                                                      |       |  | 14           |      |  |              | 19   |   |              |      | 7    |              |      |      | (75  | ) |  |       | (95  | )
|                                                                                         | Trade accounts payable                                                    |       |  | 18           |      |  |              | 106  |   |              |      | 47   |              |      |      | 162  |   |  |       | 206  |  
|                                                                                         | Accrued liabilities                                                       |       |  | 19           |      |  |              | 66   |   |              |      | (58  | )            |      |      | 68   |   |  |       | 86   |  
|                                                                                         | Other current liabilities                                                 |       |  | 20           |      |  |              | 68   |   |              |      | (35  | )            |      |      | 63   |   |  |       | 80   |  
|                                                                                         | Other assets and liabilities                                              |       |  |              |      |  |              | (218 | ) |              |      | 88   |              |      |      | (69  | ) |  |       | (88  | )
|                                                                                         |                                                                           |       |  |              |      |  |              |      |   |              |      |      |              |      |     
|Net cash provided by operating activities                                                |                                                                           |       |  |              |      |  | 693          |      |   |              | 483  |      |              |      | 297  |      |   |  | 377   |     
|                                                                                         |                                                                           |       |  |              |      |  |              |      |   |              |      |      |              |      |     
|Cash flows from investing activities:                                                    |                                                                           |       |  |              |      |  |              |      |   |              |      |      |              |      |      |      |   |  |       |     
|                                                                                         | Purchases of marketable securities available for sale                     |       |  |              |      |  |              |     |   |              |      |     |              |      |      | (175 | ) |  |       | (222 | )
|                                                                                         | Proceeds from sales of marketable securities available for sale           |       |  |              |      |  |              | 17   |   |              |      | 1    |              |      |      | 37   |   |  |       | 46   |  
|                                                                                         | Purchases of business interests                                           |       |  | 16           |      |  |              | (350 | ) |              |      | (83  | )            |      |      | (3   | ) |  |       | (4   | )
|                                                                                         | Proceeds from disposal of business interests and dividends                |       |  | 16           |      |  |              |     |   |              |      | 15   |              |      |      | 29   |   |  |       | 37   |  
|                                                                                         | Purchases of intangible assets                                            |       |  | 17           |      |  |              | (5   | ) |              |      | (4   | )            |      |      | (42  | ) |  |       | (53  | )
|                                                                                         | Purchases of property, plant and equipment                                |       |  | 15           |      |  |              | (770 | ) |              |      | (926 | )            |      |      | (686 | ) |  |       | (871 | )
|                                                                                         | Proceeds from sales of long-term assets                                   |       |  | 15           |      |  |              | 60   |   |              |      | 26   |              |      |      | 68   |   |  |       | 86   |  
|                                                                                         |                                                                           |       |  |              |      |  |              |      |   |              |      |      |              |      |     
|Net cash used in investing activities                                                    |                                                                           |       |  |              |      |  | (1,048       | )    |   |              | (971 | )    |              |      | (772 | )    |   |  | (981  | )   
|                                                                                         |                                                                           |       |  |              |      |  |              |      |   |              |      |      |              |      |     
|Cash flows from financing activities:                                                    |                                                                           |       |  |              |      |  |              |      |   |              |      |      |              |      |      |      |   |  |       |     
|                                                                                         | Increase (decrease) in short-term debt due Infineon                       |       |  | 21           |      |  |              |     |   |              |      | 481  |              |      |      | (163 | ) |  |       | (207 | )
|                                                                                         | Increase in short-term debt due third parties                             |       |  | 21           |      |  |              | 13   |   |              |      |     |              |      |      |     |   |  |       |     |  
|                                                                                         | Repayments of short-term debt due third parties                           |       |  | 21           |      |  |              |     |   |              |      | (18  | )            |      |      |     |   |  |       |     |  
|                                                                                         | Decrease (increase) in financial payables due related parties             |       |  | 27           |      |  |              | 57   |   |              |      | (7   | )            |      |      | (2   | ) |  |       | (3   | )
|                                                                                         | Decrease in financial receivables from associated and related
    parties |       |  | 27           |      |  |              |     |   |              |      | 3    |              |      |      |     |   |  |       |     |  
|                                                                                         | Proceeds from issuance of long-term debt                                  |       |  | 21           |      |  |              | 170  |   |              |      | 80   |              |      |      | 44   |   |  |       | 56   |  
|                                                                                         | Principal repayments of long-term debt                                    |       |  | 21           |      |  |              | (133 | ) |              |      | (522 | )            |      |      |     |   |  |       |     |  
|                                                                                         | Change in restricted cash                                                 |       |  |              |      |  |              | 64   |   |              |      |     |              |      |      |     |   |  |       |     |  
|                                                                                         | Net proceeds from issuance of common stock                                |       |  | 1            |      |  |              |     |   |              |      |     |              |      |      | 415  |   |  |       | 527  |  
|                                                                                         | Dividend payments to minority interest                                    |       |  |              |      |  |              |     |   |              |      |     |              |      |      | (5   | ) |  |       | (6   | )
|                                                                                         | Proceeds from issuance of shares to minority interest                     |       |  |              |      |  |              | 52   |   |              |      | 21   |              |      |      |     |   |  |       |     |  
|                                                                                         | Investments by and advances from Infineon                                 |       |  | 26           |      |  |              | 165  |   |              |      | 500  |              |      |      | 484  |   |  |       | 614  |  
|                                                                                         |                                                                           |       |  |              |      |  |              |      |   |              |      |      |              |      |     
|Net cash provided by financing activities                                                |                                                                           |       |  |              |      |  | 388          |      |   |              | 538  |      |              |      | 773  |      |   |  | 981   |     
|                                                                                         |                                                                           |       |  |              |      |  |              |      |   |              |      |      |              |      |     
|Effect of foreign exchange rate changes on cash and cash
    equivalents                 |                                                                           |       |  |              |      |  |             |      |   |              | 5    |      |              |      | 2    |      |   |  | 3     |     
|                                                                                         |                                                                           |       |  |              |      |  |              |      |   |              |      |      |              |      |     
|Net increase in cash and cash equivalents                                                |                                                                           |       |  |              |      |  | 33           |      |   |              | 55   |      |              |      | 300  |      |   |  | 380   |     
|Cash and cash equivalents at beginning of year                                           |                                                                           |       |  |              |      |  | 544          |      |   |              | 577  |      |              |      | 632  |      |   |  | 802   |     
|                                                                                         |                                                                           |       |  |              |      |  |              |      |   |              |      |      |              |      |     
|Cash and cash equivalents at end of year                                                 |                                                                           |       |  |              |      |  | 577          |      |   |              | 632  |      |              |      | 932  |      |   |  | 1,182 |     
|                                                                                         |                                                                           |       |  |              |      |  |              |      |   |              |      |      |              |      |     



F-6



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES





Notes to the Combined and Consolidated Financial
Statements






|   |                                                                 
|-- | ----------------------------------------------------------------
|1. | Description of Business, Formation and Basis of
    Presentation



| |                        
| | -----------------------
| | Description of Business





| |          
| | ---------
| | Formation



  


lock-up




| |                      
| | ---------------------
| | Basis of Presentation







F-7



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)






(Handelsgesetzbuch


 






| |                         
| | ------------------------
| | Statements of Operations









| |                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  The Infineon Central R&D cluster costs include
    research and development activities related to semiconductor
    electronic technologies, circuits, and related systems. The
    allocation is based on total sales.
|
| |  The Infineon Logistic cluster costs include all
    logistics expenses related to distribution centers including
    handling, traffic and customs, packaging and freight. It also
    includes expenses for corporate 

F-8



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)






| |                                                                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | logistics in Europe, Asia and North America. The allocation to
    the Memory Products business is based partly on unit volume and
    partly on sales.                                                                                                                                                                                                                                              
|
| |  The Infineon Sales cluster covers all central
    selling expenses related to the activities of pricing office,
    account management, distribution management, receivables
    management, export control and commissions. The allocation to
    the Memory Products business is based, depending on the relevant
    function, on the dedicated headcount of the business and also on
    sales.
|
| |  The Infineon IT-Services cluster costs include all
    expenses incurred relating to the design, implementation and
    operation of IT systems and related administration. The
    allocation is based, depending on the relevant function, on
    either the total direct cost, the total research and development
    cost or the total cost of sales of the Memory Products business.          
|
| |  The Infineon Finance and Treasury cluster costs
    include all financial income and expense, as well as foreign
    exchange gains and losses, related to treasury market activities
    (foreign exchange management, money market transactions and
    interest rate management). The allocation is based on the total
    direct costs.                                                        
|
| |  The Infineon Central cluster costs include strategic
    and general central functions within the Infineon headquarters
    or its regional organizations. The allocation is based on the
    total direct costs.                                                                                                                                                                                  





|                                             |  |      |     |  |      |              |     |                |  |  |     | 
|-------------------------------------------- |  | ---- | --- |  | ---- | ------------ | --- | -------------- |  |  | --- | 
|                                             |  |      |     |  |      | Seven Months |    
|                                             |  |      |     |  |      | Ended        |    
|                                             |  | 2004 |     |  | 2005 |              |     | April 30, 2006 | 
|                                             |  |      |     |  |      |              |     |                | 
|Cost of goods sold                           |  |      | 180 |  |      |              | 168 |                |  |  | 111 | 
|Research and development expenses            |  |      | 43  |  |      |              | 27  |                |  |  | 17  | 
|Selling, general and administrative expenses |  |      | 160 |  |      |              | 109 |                |  |  | 75  | 
|Other operating expenses, net                |  |      | 2   |  |      |              |    |                |  |  |    | 
|Restructuring charges                        |  |      | 2   |  |      |              | 1   |                |  |  |    | 
|                                             |  |      |     |  |      |              |     |                | 
|                                             |  |      | 387 |  |      |              | 305 |                |  |  | 203 | 
|                                             |  |      |     |  |      |              |     |                | 







| |               
| | --------------
| | Balance Sheets



F-9



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)










| |                       
| | ----------------------
| | Trade Accounts Payable





| |                                      
| | -------------------------------------
| | Other Current and Accrued Liabilities





| |                    
| | -------------------
| | Pension Liabilities





| |                                          
| | -----------------------------------------
| | Investments by and Advances from Infineon





| |                  
| | -----------------
| | Capital Structure





| |                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------
| |  instruments that were directly identified with the
    Memory Products business;                                               
|
| |  cash and intercompany financial receivables reduce
    total short and long-term debt, so that the Company has no net
    debt;

F-10



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)






| |                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------
| |  a proportional share of total assets constitutes
    total cash, cash equivalents, marketable securities and
    intercompany financial receivables;
|
| |  a proportional share of aggregate total debt and
    total business equity constitutes total short and long-term debt.                              





| |                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  through the Formation, contribution of
    582 in cash
    through business equity;                                                                                  
|
| |  as of September 30, 2005 and the Formation, the
    reduction of inter-company financial receivables of
    227 and
    66,
    respectively, by inter-company debt.

  








| |          
| | ---------
| | Estimates



F-11



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)








|   |                                           
|-- | ------------------------------------------
|2. | Summary of Significant Accounting Policies





| |                       
| | ----------------------
| | Basis of Consolidation

Consolidation of Variable Interest
Entities




|                   |                                        |              |    |    |            |  |   |       |   |  |    |    |  
|------------------ | -------------------------------------- | ------------ | -- | -- | ---------- |  | - | ----- | - |  | -- | -- | -
|                   |                                        | Consolidated |    |    | Associated |  |   |      
|                   |                                        | Subsidiaries |    |    | Companies  |  |   | Total |  
|                   |                                        |              |    |    |            |  |   |       |  
|September 30, 2005 |                                        |              | 14 |    |            |  | 6 |       |   |  | 20 |   
|                   | Additions in connection with Formation |              |    | 10 |            |  |   |      |   |  |    | 10 |  
|                   | Disposals                              |              |    | (1 | )          |  |   | (1    | ) |  |    | (2 | )
|                   |                                        |              |    |    |            |  |   |       |  
|September 30, 2006 |                                        |              | 23 |    |            |  | 5 |       |   |  | 28 |   
|                   |                                        |              |    |    |            |  |   |       |  



| |                               
| | ------------------------------
| | Reporting and Foreign Currency





F-12



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)






|                      |  |  |        |  |  |               |   |  |                |  |         |      |  |  |        |  |  |  |        |  |  |  |         | 
|--------------------- |  |  | ------ |  |  | ------------- | - |  | -------------- |  | ------- | ---- |  |  | ------ |  |  |  | ------ |  |  |  | ------- | 
|                      |  |  |        |  |  | Exchange Rate |   |  | Annual Average | 
|                      |  |  |        |  |  | September 30, |   |  | Exchange Rate  | 
|                      |  |  |        |  |  |               |   |  |                | 
|Currency              |  |  |        |  |  | 2005          |   |  | 2006           |  |         | 2005 |  |  | 2006   | 
|                      |  |  |        |  |  |               |   |  |                |  |         |      |  |  |        | 
|                      |  |  |        |  |  | euro          |   |  | euro           |  |         | euro |  |  | euro   | 
|U.S. dollar           |  |  | 1$     |  |  |               | = |  |                |  | 0.8290  |      |  |  | 0.7899 |  |  |  | 0.7869 |  |  |  | 0.8117  | 
|New Taiwan dollar     |  |  | 100NTD |  |  |               | = |  |                |  | 2.4957  |      |  |  | 2.3866 |  |  |  | 2.4583 |  |  |  | 2.4823  | 
|Chinese Yuan Renminbi |  |  | 100CNY |  |  |               | = |  |                |  | 10.2432 |      |  |  | 9.9934 |  |  |  | 9.5601 |  |  |  | 10.1172 | 



| |                    
| | -------------------
| | Revenue Recognition



| |      
| | -----
| | Sales

Revenue Recognition




| |               
| | --------------
| | License Income

00-21, Revenue Arrangements with Multiple
Deliverables




| |       
| | ------
| | Grants

Investitionszulage Investitionszuschüsse


F-13



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)






| |                         
| | ------------------------
| | Product-related Expenses





| |             
| | ------------
| | Income Taxes



Accounting
for Income Taxes.




| |                         
| | ------------------------
| | Stock-based Compensation

Accounting for Stock
Issued to Employees Accounting for
Stock-Based Compensation Accounting for Stock-Based
Compensation  Transition and Disclosure, an Amendment
of FASB Statement No. 123.






| |                                                               
| | --------------------------------------------------------------
| | Issuance of shares by Subsidiaries or Associated
    Companies

Accounting for Sales of Stock
by a Subsidiary


F-14



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)






| |                          
| | -------------------------
| | Cash and Cash Equivalents

 




| |                      
| | ---------------------
| | Marketable Securities





| |            
| | -----------
| | Inventories





| |                              
| | -----------------------------
| | Property, Plant and Equipment

 


|                                  |  |       |       | 
|--------------------------------- |  | ----- | ----- | 
|                                  |  | Years |      
|                                  |  |       |      
|Buildings                         |  |       | 10-25 | 
|Technical equipment and machinery |  |       | 3-10  | 
|Other plant and office equipment  |  |       | 1-10  | 



| |       
| | ------
| | Leases

Accounting for Leases




| |                  
| | -----------------
| | Intangible Assets

Business Combinations.


F-15



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)




Goodwill and Other Intangible Assets




| |                                
| | -------------------------------
| | Impairment of Long-lived Assets





| |                      
| | ---------------------
| | Long-term Investments





| |                      
| | ---------------------
| | Financial Instruments

Accounting for
Derivative Instruments and Hedging Activities




| |              
| | -------------
| | Pension Plans

Employers
Accounting for Pensions.


F-16



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)








| |                                 
| | --------------------------------
| | Recent Accounting Pronouncements

Inventory Costs  an amendment of ARB
No. 43, Chapter 4


Exchanges of Nonmonetary Assets  an
Amendment of APB Opinion No. 29


Accounting for Conditional Asset Retirement
Obligations


Accounting Changes and Error Corrections. Reporting Accounting Changes in Interim Financial
Statements


Accounting for Income Tax Uncertainties


F-17



---



##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)






Fair Value Measurements


Employers Accounting for Defined Benefit Pension
and Other Postretirement Plans  an amendment of FASB
Statements No. 87, 88, 106, and 132(R),   


Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements.


F-18



---



##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)






|   |             
|-- | ------------
|3. | Acquisitions

®   ®   




|                                         |  |      |               |  
|---------------------------------------- |  | ---- | ------------- | -
|                                         |  | 2005
|                                         |  |     
|Acquisition Date                         |  |      | January  2005 |  
|Cash                                     |  |      | 1             |  
|Other current assets                     |  |      | 16            |  
|Property, plant and equipment            |  |      | 4             |  
|Intangible assets  core technology      |  |      | 58            |  
|Goodwill                                 |  |      | 7             |  
|Other non-current assets                 |  |      | 3             |  
|                                         |  |      |               |  
|Total assets acquired                    |  |      | 89            |  
|                                         |  |      |               |  
|Current liabilities                      |  |      | (45           | )
|Non-current liabilities (including debt) |  |      | (2            | )
|                                         |  |      |               |  
|Total liabilities assumed                |  |      | (47           | )
|                                         |  |      |               |  
|Net assets acquired                      |  |      | 42            |  
|                                         |  |      |               |  
|Cash paid (Purchase consideration)       |  |      |              |  



F-19



---



##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)






|   |             
|-- | ------------
|4. | Divestitures









|                   |                 |      |    |    | 
|------------------ | --------------- | ---- | -- | -- | 
|                   |                 | 2004 |   
|                   |                 |      |   
|Sales              |                 |      |    |   
|                   | Third parties   |      |    | 1  | 
|                   | Related parties |      |    | 83 | 
|                   |                 |      |   
|Net sales          |                 |      | 84 |   
|                   |                 |      |   
|Loss before tax    |                 |      | (5 | ) 
|Income tax benefit |                 |      |   |   
|                   |                 |      |   
|Net loss           |                 |      | (5 | ) 
|                   |                 |      |   






|   |               
|-- | --------------
|5. | License Income

     


F-20



---



##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)















|   |       
|-- | ------
|6. | Grants



|                                                                         |                          |      |     |    |      |  |     |      |  |  |     |    | 
|------------------------------------------------------------------------ | ------------------------ | ---- | --- | -- | ---- |  | --- | ---- |  |  | --- | -- | 
|                                                                         |                          | 2004 |     |    | 2005 |  |     | 2006 | 
|                                                                         |                          |      |     |    |      |  |     |      | 
|Included in the combined and consolidated statements of
    operations:  |                          |      |     |    |      |  |     |      |  |  |     |   
|                                                                         | Research and development |      |     | 25 |      |  |     | 16   |  |  |     | 17 | 
|                                                                         | Cost of sales            |      |     | 86 |      |  |     | 94   |  |  |     | 95 | 
|                                                                         |                          |      |     |    |      |  |     |      | 
|                                                                         |                          |      | 111 |    |      |  | 110 |      |  |  | 112 |   
|                                                                         |                          |      |     |    |      |  |     |      | 
|Construction grants deducted from the cost of fixed assets
    (note 26) |                          |      | 49  |    |      |  |    |      |  |  | 49  |   
|Deferred government grants at September 30 (notes 20
    and 22)         |                          |      |     |    |      |  | 208 |      |  |  | 179 |   
|Grants receivable at September 30 (note 14 and 17)                       |                          |      |     |    |      |  | 78  |      |  |  | 118 |   

F-21



---



##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)






|   |                             
|-- | ----------------------------
|7. | Other Operating Expense, net



|                                        |  |      |     |  |      |  |    |      |  |  |    |  
|--------------------------------------- |  | ---- | --- |  | ---- |  | -- | ---- |  |  | -- | -
|                                        |  | 2004 |     |  | 2005 |  |    | 2006 | 
|                                        |  |      |     |  |      |  |    |      | 
|Litigation settlement charges (note 31) |  |      | 194 |  |      |  | 20 |      |  |  | 54 |  
|Impairment charges (note 3)             |  |      |    |  |      |  |   |      |  |  | 9  |  
|Other, net                              |  |      |    |  |      |  | (7 | )    |  |  | (3 | )
|                                        |  |      |     |  |      |  |    |      | 
|                                        |  |      | 194 |  |      |  | 13 |      |  |  | 60 |  
|                                        |  |      |     |  |      |  |    |      | 





|   |              
|-- | -------------
|8. | Restructuring



    




|   |             
|-- | ------------
|9. | Income Taxes



|        |  |      |     |  |      |  |     |      |  |  |     | 
|------- |  | ---- | --- |  | ---- |  | --- | ---- |  |  | --- | 
|        |  | 2004 |     |  | 2005 |  |     | 2006 | 
|        |  |      |     |  |      |  |     |      | 
|Germany |  |      | 76  |  |      |  | 41  |      |  |  | 22  | 
|Foreign |  |      | 39  |  |      |  | 61  |      |  |  | 172 | 
|        |  |      |     |  |      |  |     |      | 
|Total   |  |      | 115 |  |      |  | 102 |      |  |  | 194 | 
|        |  |      |     |  |      |  |     |      | 



|                   |         |      |     |     |      |  |    |      |  |  |     |    | 
|------------------ | ------- | ---- | --- | --- | ---- |  | -- | ---- |  |  | --- | -- | 
|                   |         | 2004 |     |     | 2005 |  |    | 2006 | 
|                   |         |      |     |     |      |  |    |      | 
|Current taxes:     |         |      |     |     |      |  |    |      |  |  |     |   
|                   | Germany |      |     | 42  |      |  |    | 27   |  |  |     | 63 | 
|                   | Foreign |      |     | 35  |      |  |    | 6    |  |  |     | 28 | 
|                   |         |      |     |     |      |  |    |      | 
|                   |         |      | 77  |     |      |  | 33 |      |  |  | 91  |   
|                   |         |      |     |     |      |  |    |      | 
|Deferred taxes:    |         |      |     |     |      |  |    |      |  |  |     |   
|                   | Germany |      |     | 171 |      |  |    | 46   |  |  |     | 21 | 
|                   | Foreign |      |     | (37 | )    |  |    | 7    |  |  |     | 2  | 
|                   |         |      |     |     |      |  |    |      | 
|                   |         |      | 134 |     |      |  | 53 |      |  |  | 23  |   
|                   |         |      |     |     |      |  |    |      | 
|Income tax expense |         |      | 211 |     |      |  | 86 |      |  |  | 114 |   
|                   |         |      |     |     |      |  |    |      | 

F-22



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)








|                                                 |  |      |     |   |      |  |     |      |  |  |     |  
|------------------------------------------------ |  | ---- | --- | - | ---- |  | --- | ---- |  |  | --- | -
|                                                 |  | 2004 |     |   | 2005 |  |     | 2006 | 
|                                                 |  |      |     |   |      |  |     |      | 
|Expected expense for income taxes                |  |      | 44  |   |      |  | 40  |      |  |  | 75  |  
|Decrease (increase) in available tax credits     |  |      | (5  | ) |      |  | 11  |      |  |  | 2   |  
|Non-taxable investment (income) loss             |  |      | 6   |   |      |  | (21 | )    |  |  | (50 | )
|Foreign tax rate differential                    |  |      | (13 | ) |      |  | (8  | )    |  |  | (38 | )
|Non deductible expenses and other provisions     |  |      | 51  |   |      |  | 3   |      |  |  | 5   |  
|Increase in valuation allowance                  |  |      | 27  |   |      |  | 14  |      |  |  | 11  |  
|Losses not available to Qimonda due to Formation |  |      | 98  |   |      |  | 43  |      |  |  | 114 |  
|Other                                            |  |      | 3   |   |      |  | 4   |      |  |  | (5  | )
|                                                 |  |      |     |   |      |  |     |      | 
|Actual expense for income taxes                  |  |      | 211 |   |      |  | 86  |      |  |  | 114 |  
|                                                 |  |      |     |   |      |  |     |      | 

  


 


F-23



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)






|                          |                                                  |      |     |     |      |  |     |     |  
|------------------------- | ------------------------------------------------ | ---- | --- | --- | ---- |  | --- | --- | -
|                          |                                                  | 2005 |     |     | 2006 | 
|                          |                                                  |      |     |     |      | 
|Deferred tax assets:      |                                                  |      |     |     |      |  |     |    
|                          | Intangible assets                                |      |     | 23  |      |  |     | 79  |  
|                          | Property, plant and equipment                    |      |     | 45  |      |  |     | 71  |  
|                          | Other                                            |      |     | 16  |      |  |     | 7   |  
|                          | Trade accounts receivable                        |      |     | 10  |      |  |     | 16  |  
|                          | Accrued liabilities                              |      |     | 16  |      |  |     | 31  |  
|                          | Liabilities                                      |      |     | 14  |      |  |     | 15  |  
|                          | Deferred income                                  |      |     | 69  |      |  |     | 65  |  
|                          | Net operating loss and tax credit carry-forwards |      |     | 87  |      |  |     | 32  |  
|                          |                                                  |      |     |     |      | 
|Gross deferred tax assets |                                                  |      | 280 |     |      |  | 316 |    
|Valuation allowance       |                                                  |      | (59 | )   |      |  | (70 | )  
|                          |                                                  |      |     |     |      | 
|Deferred tax assets       |                                                  |      | 221 |     |      |  | 246 |    
|                          |                                                  |      |     |     |      | 
|Deferred tax liabilities: |                                                  |      |     |     |      |  |     |    
|                          | Property, plant and equipment                    |      |     | (27 | )    |  |     | (44 | )
|                          | Investments                                      |      |     |    |      |  |     | (3  | )
|                          | Inventories                                      |      |     | (2  | )    |  |     | (3  | )
|                          | Trade accounts receivable                        |      |     | (6  | )    |  |     | (12 | )
|                          | Accrued liabilities                              |      |     | (12 | )    |  |     | (15 | )
|                          | Liabilities                                      |      |     | (3  | )    |  |     | (14 | )
|                          | Other items                                      |      |     | (6  | )    |  |     | (2  | )
|                          |                                                  |      |     |     |      | 
|Deferred tax liabilities  |                                                  |      | (56 | )   |      |  | (93 | )  
|                          |                                                  |      |     |     |      | 
|Deferred tax assets, net  |                                                  |      | 165 |     |      |  | 153 |    
|                          |                                                  |      |     |     |      | 



|                          |             |      |     |     |      |  |     |     |  
|------------------------- | ----------- | ---- | --- | --- | ---- |  | --- | --- | -
|                          |             | 2005 |     |     | 2006 | 
|                          |             |      |     |     |      | 
|Deferred tax assets:      |             |      |     |     |      |  |     |    
|                          | Current     |      |     | 49  |      |  |     | 47  |  
|                          | Non-current |      |     | 125 |      |  |     | 160 |  
|Deferred tax liabilities: |             |      |     |     |      |  |     |    
|                          | Current     |      |     |    |      |  |     | (18 | )
|                          | Non-current |      |     | (9  | )    |  |     | (36 | )
|                          |             |      |     |     |      | 
|Deferred tax assets, net  |             |      | 165 |     |      |  | 153 |    
|                          |             |      |     |     |      | 



F-24



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)




  


 




 




|                                    |  |      |    |  |      |  |    | 
|----------------------------------- |  | ---- | -- |  | ---- |  | -- | 
|                                    |  | 2005 |    |  | 2006 | 
|                                    |  |      |    |  |      | 
|Balance, beginning of the year      |  |      | 45 |  |      |  | 59 | 
|Applicable to continuing operations |  |      | 14 |  |      |  | 11 | 
|                                    |  |      |    |  |      | 
|Balance, end of the year            |  |      | 59 |  |      |  | 70 | 
|                                    |  |      |    |  |      | 



  




|    |                          
|--- | -------------------------
|10. | Earnings (Loss) Per Share





F-25



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)










|                                     |                   |                                                  |  |       |             |   |  |      |             |  |  |      |             | 
|------------------------------------ | ----------------- | ------------------------------------------------ |  | ----- | ----------- | - |  | ---- | ----------- |  |  | ---- | ----------- | 
|                                     |                   | 2004                                             |  |       | 2005        |   |  | 2006 |            
|                                     |                   |                                                  |  |       |             |   |  |      |            
|                                     | Numerator        |                                                  |  |       |             |   |  |      |             |  |  |      |            
|                                     |                   | Income (loss) available to ordinary shareholders |  |       | (79         | ) |  |      | 18          |  |  |      | 74          | 
|                                     | Denominator      |                                                  |  |       |             |   |  |      |             |  |  |      |            
|                                     |                   | Weighted-average shares outstanding              |  |       | 300,000,000 |   |  |      | 300,000,000 |  |  |      | 305,983,562 | 
|                                     |                   |                                                  |  |       |             |   |  |      |            
|Earnings (loss) per share (in euro): |                   |                                                  |  |       |             |   |  |      |             |  |  |     
|                                     | Basic and diluted |                                                  |  | (0.26 | )           |   |  | 0.06 |             |  |  | 0.24 |            



|    |                      
|--- | ---------------------
|11. | Marketable Securities



|                              |  |      |   |      |       |  |            |      |  |            |      |  |  |      |      |  |       |            |     |      |            |  |      |  |  |  |   |  |  |  |    |  
|----------------------------- |  | ---- | - | ---- | ----- |  | ---------- | ---- |  | ---------- | ---- |  |  | ---- | ---- |  | ----- | ---------- | --- | ---- | ---------- |  | ---- |  |  |  | - |  |  |  | -- | -
|                              |  | 2005 |   |      | 2006  | 
|                              |  |      |   |      |       | 
|                              |  |      |   | Fair |       |  | Unrealized |      |  | Unrealized |      |  |  |      | Fair |  |       | Unrealized |     |      | Unrealized | 
|                              |  | Cost |   |      | Value |  |            | Gain |  |            | Loss |  |  | Cost |      |  | Value |            |     | Gain |            |  | Loss | 
|                              |  |      |   |      |       |  |            |      |  |            |      |  |  |      |      |  |       |            |     |      |            |  |      | 
|Foreign government securities |  |      |  |      |       |  |           |      |  |            |     |  |  |      |     |  |       |            | 1   |      |            |  | 1    |  |  |  |  |  |  |  |   |  
|Debt securities               |  |      |  |      |       |  |           |      |  |            |     |  |  |      |     |  |       |            | 2   |      |            |  | 3    |  |  |  | 1 |  |  |  |    |  
|                              |  |      |   |      |       |  |            |      |  |            |      |  |  |      |      |  |       |            |     |      |            |  |      | 
|Total debt securities         |  |      |  |      |       |  |           |      |  |            |     |  |  |      |     |  |       |            | 3   |      |            |  | 4    |  |  |  | 1 |  |  |  |   |  
|Equity securities             |  |      | 1 |      |       |  | 1          |      |  |            |     |  |  |      |     |  |       |            |    |      |            |  |     |  |  |  |  |  |  |  |   |  
|Fixed Term deposits           |  |      |  |      |       |  |           |      |  |            |     |  |  |      |     |  |       |            | 139 |      |            |  | 138  |  |  |  |  |  |  |  | (1 | )
|                              |  |      |   |      |       |  |            |      |  |            |      |  |  |      |      |  |       |            |     |      |            |  |      | 
|Total marketable securities   |  |      | 1 |      |       |  | 1          |      |  |            |     |  |  |      |     |  |       |            | 142 |      |            |  | 142  |  |  |  | 1 |  |  |  | (1 | )
|                              |  |      |   |      |       |  |            |      |  |            |      |  |  |      |      |  |       |            |     |      |            |  |      | 
|Reflected as follows          |  |      |   |      |       |  |            |      |  |            |      |  |  |      |      |  |       |            |     |      |            |  |      |  |  |  |   |  |  |  |    |  
|Current assets                |  |      |  |      |       |  |           |      |  |            |     |  |  |      |     |  |       |            | 139 |      |            |  | 138  |  |  |  |  |  |  |  | (1 | )
|Non-current assets (note 17)  |  |      | 1 |      |       |  | 1          |      |  |            |     |  |  |      |     |  |       |            | 3   |      |            |  | 4    |  |  |  | 1 |  |  |  |   |  
|                              |  |      |   |      |       |  |            |      |  |            |      |  |  |      |      |  |       |            |     |      |            |  |      | 
|Total marketable securities   |  |      | 1 |      |       |  | 1          |      |  |            |     |  |  |      |     |  |       |            | 142 |      |            |  | 142  |  |  |  | 1 |  |  |  | (1 | )
|                              |  |      |   |      |       |  |            |      |  |            |      |  |  |      |      |  |       |            |     |      |            |  |      | 





|                    |  |      |    |   |      |  |   |      |  |  |   | 
|------------------- |  | ---- | -- | - | ---- |  | - | ---- |  |  | - | 
|                    |  | 2004 |    |   | 2005 |  |   | 2006 | 
|                    |  |      |    |   |      |  |   |      | 
|Realized gains      |  |      | 4  |   |      |  |  |      |  |  |  | 
|Realized losses     |  |      | (1 | ) |      |  |  |      |  |  |  | 
|                    |  |      |    |   |      |  |   |      | 
|Realized gains, net |  |      | 3  |   |      |  |  |      |  |  |  | 
|                    |  |      |    |   |      |  |   |      | 

F-26



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)




12.     Trade Accounts Receivable,
net




|                                                   |  |      |     |   |      |  |     |  
|-------------------------------------------------- |  | ---- | --- | - | ---- |  | --- | -
|                                                   |  | 2005 |     |   | 2006 | 
|                                                   |  |      |     |   |      | 
|Third party  trade                                |  |      | 445 |   |      |  | 764 |  
|Infineon group  trade (note 27)                   |  |      | 8   |   |      |  | 61  |  
|Associated and Related Companies  trade (note 27) |  |      | 4   |   |      |  |    |  
|Siemens group  trade (note 27)                    |  |      | 1   |   |      |  |    |  
|                                                   |  |      |     |   |      | 
|Trade accounts receivable, gross                   |  |      | 458 |   |      |  | 825 |  
|Allowance for doubtful accounts                    |  |      | (19 | ) |      |  | (22 | )
|                                                   |  |      |     |   |      | 
|Trade accounts receivable, net                     |  |      | 439 |   |      |  | 803 |  
|                                                   |  |      |     |   |      | 



|                                                   |  |      |    |  |      |  |    | 
|-------------------------------------------------- |  | ---- | -- |  | ---- |  | -- | 
|                                                   |  | 2005 |    |  | 2006 | 
|                                                   |  |      |    |  |      | 
|Allowance for doubtful accounts, beginning of year |  |      | 15 |  |      |  | 19 | 
|Provision for bad debt, net of recoveries          |  |      | 4  |  |      |  | 3  | 
|                                                   |  |      |    |  |      | 
|Allowance for doubtful accounts, end of year       |  |      | 19 |  |      |  | 22 | 
|                                                   |  |      |    |  |      | 



|    |            
|--- | -----------
|13. | Inventories



|                           |  |      |     |  |      |  |     | 
|-------------------------- |  | ---- | --- |  | ---- |  | --- | 
|                           |  | 2005 |     |  | 2006 | 
|                           |  |      |     |  |      | 
|Raw materials and supplies |  |      | 31  |  |      |  | 54  | 
|Work-in-process            |  |      | 261 |  |      |  | 432 | 
|Finished goods             |  |      | 192 |  |      |  | 136 | 
|                           |  |      |     |  |      | 
|Total inventories          |  |      | 484 |  |      |  | 622 | 
|                           |  |      |     |  |      | 



|    |                     
|--- | --------------------
|14. | Other Current Assets



|                                                                                 |  |      |     |  |      |  |     | 
|-------------------------------------------------------------------------------- |  | ---- | --- |  | ---- |  | --- | 
|                                                                                 |  | 2005 |     |  | 2006 | 
|                                                                                 |  |      |     |  |      | 
|Grants receivable                                                                |  |      | 78  |  |      |  | 105 | 
|VAT and other tax receivables                                                    |  |      | 34  |  |      |  | 97  | 
|Third party  financial and other receivables                                    |  |      | 35  |  |      |  | 24  | 
|License fees receivable                                                          |  |      | 19  |  |      |  | 14  | 
|Prepaid expenses                                                                 |  |      | 10  |  |      |  | 14  | 
|Financial instruments (note 29)                                                  |  |      | 7   |  |      |  | 6   | 
|Employee receivables (note 27)                                                   |  |      | 3   |  |      |  | 2   | 
|Associated and Related Companies  financial and other
    receivables (note 27) |  |      | 1   |  |      |  |    | 
|Other                                                                            |  |      | 11  |  |      |  | 3   | 
|                                                                                 |  |      |     |  |      | 
|Total other current assets                                                       |  |      | 198 |  |      |  | 265 | 
|                                                                                 |  |      |     |  |      | 

F-27



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)






|    |                                   
|--- | ----------------------------------
|15. | Property, Plant and Equipment, net



|                         |                    |                                   |      |           |               |   |             |            |      |   |              |      |     |       |   |    |      |   |        |        |      |  
|------------------------ | ------------------ | --------------------------------- | ---- | --------- | ------------- | - | ----------- | ---------- | ---- | - | ------------ | ---- | --- | ----- | - | -- | ---- | - | ------ | ------ | ---- | -
|                         |                    |                                   |      | Technical |               |   | Other Plant |            |      |   |              |     
|                         |                    | Land and                          |      |           | Equipment     |   |             | and Office |      |   | Construction |      |     |      
|                         |                    | Buildings                         |      |           | and Machinery |   |             | Equipment  |      |   | in Progress  |      |     | Total |  
|                         |                    |                                   |      |           |               |   |             |            |      |   |              |      |     |       |  
|Cost                     |                    |                                   |      |           |               |   |             |            |      |   |              |      |     |       |   |    |      |   |        |       
|                         | September 30, 2005 |                                   |      | 820       |               |   |             | 3,389      |      |   |              | 766  |     |       |   | 91 |      |   |        | 5,066  |     
|                         |                    | Additions                         |      |           | 1             |   |             |            | 217  |   |              |      | 32  |       |   |    | 352  |   |        |        | 602  |  
|                         |                    | Impairment charges (note 7)       |      |           |              |   |             |            | (2   | ) |              |      |    |       |   |    |     |   |        |        | (2   | )
|                         |                    | Disposals                         |      |           |              |   |             |            | (53  | ) |              |      | (32 | )     |   |    | (2   | ) |        |        | (87  | )
|                         |                    | Reclassifications                 |      |           | 7             |   |             |            | 338  |   |              |      | 9   |       |   |    | (354 | ) |        |        |     |  
|                         |                    | Transfers from (to) Infineon, net |      |           | 1             |   |             |            | (11  | ) |              |      | 52  |       |   |    | (3   | ) |        |        | 39   |  
|                         |                    | Foreign currency effects          |      |           | (24           | ) |             |            | (83  | ) |              |      | (6  | )     |   |    | (2   | ) |        |        | (115 | )
|                         |                    |                                   |      |           |               |   |             |            |      |   |              |      |     |       |  
|                         | September 30, 2006 |                                   |      | 805       |               |   |             | 3,795      |      |   |              | 821  |     |       |   | 82 |      |   |        | 5,503  |     
|                         |                    |                                   |      |           |               |   |             |            |      |   |              |      |     |       |  
|Accumulated depreciation |                    |                                   |      |           |               |   |             |            |      |   |              |      |     |       |   |    |      |   |        |       
|                         | September 30, 2005 |                                   |      | (209      | )             |   |             | (2,003     | )    |   |              | (638 | )   |       |   |   |      |   |        | (2,850 | )   
|                         |                    | Depreciation                      |      |           | (70           | ) |             |            | (540 | ) |              |      | (81 | )     |   |    |     |   |        |        | (691 | )
|                         |                    | Disposals                         |      |           |              |   |             |            | 53   |   |              |      | 30  |       |   |    |     |   |        |        | 83   |  
|                         |                    | Reclassifications                 |      |           |              |   |             |            | (1   | ) |              |      | 1   |       |   |    |     |   |        |        |     |  
|                         |                    | Transfers to (from) Infineon, net |      |           |              |   |             |            | 11   |   |              |      | (35 | )     |   |    |     |   |        |        | (24  | )
|                         |                    | Foreign currency effects          |      |           | 5             |   |             |            | 50   |   |              |      | 4   |       |   |    |     |   |        |        | 59   |  
|                         |                    |                                   |      |           |               |   |             |            |      |   |              |      |     |       |  
|September 30, 2006       |                    |                                   | (274 | )         |               |   | (2,430      | )          |      |   | (719         | )    |     |       |  |    |      |   | (3,423 | )     
|                         |                    |                                   |      |           |               |   |             |            |      |   |              |      |     |       |  
|Book value               |                    |                                   |      |           |               |   |             |            |      |   |              |      |     |       |   |    |      |   |        |       
|                         | September 30, 2005 |                                   |      | 611       |               |   |             | 1,386      |      |   |              | 128  |     |       |   | 91 |      |   |        | 2,216  |     
|                         |                    |                                   |      |           |               |   |             |            |      |   |              |      |     |       |  
|Book value               |                    |                                   |      |           |               |   |             |            |      |   |              |      |     |       |   |    |      |   |        |       
|                         | September 30, 2006 |                                   |      | 531       |               |   |             | 1,365      |      |   |              | 102  |     |       |   | 82 |      |   |        | 2,080  |     
|                         |                    |                                   |      |           |               |   |             |            |      |   |              |      |     |       |  

F-28



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)






|    |                      
|--- | ---------------------
|16. | Long-term Investments



|                              |                                            |               |     |     |               |  |    |       |   |  |     |     |  
|----------------------------- | ------------------------------------------ | ------------- | --- | --- | ------------- |  | -- | ----- | - |  | --- | --- | -
|                              |                                            | Investment in |     |     | Investment in |  |    |      
|                              |                                            | Associated    |     |     | Related       |  |    |      
|                              |                                            | Companies     |     |     | Companies     |  |    | Total |  
|                              |                                            |               |     |     |               |  |    |       |  
|Balance at October 1, 2004    |                                            |               | 381 |     |               |  | 16 |       |   |  | 397 |    
|                              | Additions                                  |               |     | 83  |               |  |    |      |   |  |     | 83  |  
|                              | Disposals                                  |               |     |    |               |  |    | (15   | ) |  |     | (15 | )
|                              | Dividend payments                          |               |     | (1  | )             |  |    |      |   |  |     | (1  | )
|                              | Capitalized interest amortization          |               |     | (1  | )             |  |    |      |   |  |     | (1  | )
|                              | Impairments                                |               |     | (6  | )             |  |    |      |   |  |     | (6  | )
|                              | Equity in earnings                         |               |     | 45  |               |  |    |      |   |  |     | 45  |  
|                              | Reclassification                           |               |     | 2   |               |  |    |      |   |  |     | 2   |  
|                              | Foreign currency effects                   |               |     | 40  |               |  |    |      |   |  |     | 40  |  
|                              |                                            |               |     |     |               |  |    |       |  
|Balance at September 30, 2005 |                                            |               | 543 |     |               |  | 1  |       |   |  | 544 |    
|                              | Additions                                  |               |     | 3   |               |  |    |      |   |  |     | 3   |  
|                              | Dividends received                         |               |     | (29 | )             |  |    |      |   |  |     | (29 | )
|                              | Capitalized interest amortization          |               |     | (1  | )             |  |    |      |   |  |     | (1  | )
|                              | Equity in earnings of associated companies |               |     | 80  |               |  |    |      |   |  |     | 80  |  
|                              | Gain on associated company share issuance  |               |     | 72  |               |  |    |      |   |  |     | 72  |  
|                              | Reclassification                           |               |     | 9   |               |  |    |      |   |  |     | 9   |  
|                              | Foreign currency effects                   |               |     | (42 | )             |  |    |      |   |  |     | (42 | )
|                              |                                            |               |     |     |               |  |    |       |  
|Balance at September 30, 2006 |                                            |               | 635 |     |               |  | 1  |       |   |  | 636 |    
|                              |                                            |               |     |     |               |  |    |       |  





|                                                                              |  |            |      |  
|----------------------------------------------------------------------------- |  | ---------- | ---- | -
|                                                                              |  | Direct and |     
|                                                                              |  | Indirect   |     
|Name of the Associated Company                                                |  | Ownership  |     
|                                                                              |  |            |     
|Hwa-Keng Investment Inc., Taipei, Taiwan (Hwa-Keng)                         |  |            | 50.0 | %
|Inotera Memories Inc., Taoyuan, Taiwan (Inotera)                            |  |            | 36.0 | %
|Advanced Mask Technology Center GmbH & Co. KG, Dresden,
    Germany (AMTC)  |  |            | 33.3 | %
|Maskhouse Building Administration GmbH & Co. KG,
    Dresden, Germany (BAC) |  |            | 33.3 | %
|Ramtron International Corp., Colorado, USA (Ramtron)                        |  |            | 18.0 | %



F-29



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)






















F-30



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)














  


 




|                    |  |      |     |   |      |  |     |      |  |  |     | 
|------------------- |  | ---- | --- | - | ---- |  | --- | ---- |  |  | --- | 
|                    |  | 2004 |     |   | 2005 |  |     | 2006 | 
|                    |  |      |     |   |      |  |     |      | 
|Sales               |  |      | 54  |   |      |  | 475 |      |  |  | 909 | 
|Gross (loss) profit |  |      | (6  | ) |      |  | 154 |      |  |  | 320 | 
|Net (loss) income   |  |      | (45 | ) |      |  | 90  |      |  |  | 224 | 
|                    |  |      |     |   |      |  |     |      | 

|                        |  |      |       |   |      |  |       |      |  |  |       |  
|----------------------- |  | ---- | ----- | - | ---- |  | ----- | ---- |  |  | ----- | -
|                        |  | 2004 |       |   | 2005 |  |       | 2006 | 
|                        |  |      |       |   |      |  |       |      | 
|Current assets          |  |      | 227   |   |      |  | 525   |      |  |  | 1,123 |  
|Non-current assets      |  |      | 1,012 |   |      |  | 1,923 |      |  |  | 1,823 |  
|Current liabilities     |  |      | (205  | ) |      |  | (329  | )    |  |  | (518  | )
|Non-current liabilities |  |      | (328  | ) |      |  | (898  | )    |  |  | (645  | )
|                        |  |      |       |   |      |  |       |      | 
|Shareholders equity    |  |      | 706   |   |      |  | 1,221 |      |  |  | 1,783 |  
|                        |  |      |       |   |      |  |       |      | 

F-31



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)






|    |             
|--- | ------------
|17. | Other Assets



|                                               |  |      |     |  |      |  |     | 
|---------------------------------------------- |  | ---- | --- |  | ---- |  | --- | 
|                                               |  | 2005 |     |  | 2006 | 
|                                               |  |      |     |  |      | 
|Intangible assets, net                         |  |      | 157 |  |      |  | 143 | 
|Employee deferred compensation asset (note 27) |  |      | 10  |  |      |  | 5   | 
|Prepaid expenses                               |  |      | 4   |  |      |  | 1   | 
|Marketable securities (note 11)                |  |      | 1   |  |      |  | 4   | 
|Grants receivable                              |  |      |    |  |      |  | 13  | 
|License fees receivable                        |  |      |    |  |      |  | 11  | 
|Other                                          |  |      | 2   |  |      |  | 1   | 
|                                               |  |      |     |  |      | 
|Total                                          |  |      | 174 |  |      |  | 178 | 
|                                               |  |      |     |  |      | 



|                                                |                    |                             |    |       |             |   |    |       |     |   |     |     |     |  
|----------------------------------------------- | ------------------ | --------------------------- | -- | ----- | ----------- | - | -- | ----- | --- | - | --- | --- | --- | -
|                                                |                    |                             |    | Other |             |   |   
|                                                |                    | Goodwill                    |    |       | Intangibles |   |    | Total |    
|                                                |                    |                             |    |       |             |   |    |       |    
|Cost                                            |                    |                             |    |       |             |   |    |       |     |   |     |    
|                                                | September 30, 2004 |                             |    | 93    |             |   |    | 12    |     |   |     | 105 |    
|                                                |                    | Additions                   |    |       |            |   |    |       | 41  |   |     |     | 41  |  
|                                                |                    | Disposals                   |    |       |            |   |    |       | (34 | ) |     |     | (34 | )
|                                                |                    | Acquisitions (note 3)       |    |       | 7           |   |    |       | 58  |   |     |     | 65  |  
|                                                |                    | Foreign currency effects    |    |       | 1           |   |    |       |    |   |     |     | 1   |  
|                                                |                    |                             |    |       |             |   |    |       |    
|                                                | September 30, 2005 |                             |    | 101   |             |   |    | 77    |     |   |     | 178 |    
|                                                |                    | Additions                   |    |       |            |   |    |       | 45  |   |     |     | 45  |  
|                                                |                    | Impairment charges (note 7) |    |       |            |   |    |       | (7  | ) |     |     | (7  | )
|                                                |                    | Disposals and reductions    |    |       | (11         | ) |    |       | (26 | ) |     |     | (37 | )
|                                                |                    | Foreign currency effects    |    |       | (6          | ) |    |       |    |   |     |     | (6  | )
|                                                |                    |                             |    |       |             |   |    |       |    
|                                                | September 30, 2006 |                             |    | 84    |             |   |    | 89    |     |   |     | 173 |    
|                                                |                    |                             |    |       |             |   |    |       |    
|Accumulated amortization                        |                    |                             |    |       |             |   |    |       |     |   |     |    
|                                                | September 30, 2004 |                             |    | (13   | )           |   |    | (6    | )   |   |     | (19 | )  
|                                                |                    | Amortization                |    |       |            |   |    |       | (5  | ) |     |     | (5  | )
|                                                |                    | Disposals                   |    |       |            |   |    |       | 3   |   |     |     | 3   |  
|                                                |                    |                             |    |       |             |   |    |       |    
|                                                | September 30, 2005 |                             |    | (13   | )           |   |    | (8    | )   |   |     | (21 | )  
|                                                |                    | Amortization                |    |       |            |   |    |       | (12 | ) |     |     | (12 | )
|                                                |                    | Disposals and reductions    |    |       |            |   |    |       | 5   |   |     |     | 5   |  
|                                                |                    | Foreign currency effects    |    |       | 1           |   |    |       | (3  | ) |     |     | (2  | )
|                                                |                    |                             |    |       |             |   |    |       |    
|                                                | September 30, 2006 |                             |    | (12   | )           |   |    | (18   | )   |   |     | (30 | )  
|                                                |                    |                             |    |       |             |   |    |       |    
|Intangible assets, net as of September 30, 2005 |                    |                             | 88 |       |             |   | 69 |       |     |   | 157 |    
|                                                |                    |                             |    |       |             |   |    |       |    
|Intangible assets, net as of September 30, 2006 |                    |                             | 72 |       |             |   | 71 |       |     |   | 143 |    
|                                                |                    |                             |    |       |             |   |    |       |    

F-32



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)




    


®   ®    


 







F-33



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)









|    |                       
|--- | ----------------------
|18. | Trade Accounts Payable



|                                                   |  |      |     |  |      |  |     | 
|-------------------------------------------------- |  | ---- | --- |  | ---- |  | --- | 
|                                                   |  | 2005 |     |  | 2006 | 
|                                                   |  |      |     |  |      | 
|Third party  trade                                |  |      | 422 |  |      |  | 565 | 
|Infineon group  trade (note 27)                   |  |      | 31  |  |      |  | 71  | 
|Associated and Related Companies  trade (note 27) |  |      | 64  |  |      |  | 76  | 
|Siemens group  trade (note 27)                    |  |      | 2   |  |      |  |    | 
|                                                   |  |      |     |  |      | 
|Total                                              |  |      | 519 |  |      |  | 712 | 
|                                                   |  |      |     |  |      | 



|    |                    
|--- | -------------------
|19. | Accrued Liabilities



|                                                   |  |      |     |  |      |  |     | 
|-------------------------------------------------- |  | ---- | --- |  | ---- |  | --- | 
|                                                   |  | 2005 |     |  | 2006 | 
|                                                   |  |      |     |  |      | 
|Personnel costs                                    |  |      | 69  |  |      |  | 95  | 
|Settlement for antitrust related matters (note 31) |  |      | 31  |  |      |  | 53  | 
|Warranties and licenses                            |  |      | 3   |  |      |  | 2   | 
|Other                                              |  |      | 19  |  |      |  | 10  | 
|                                                   |  |      |     |  |      | 
|Total                                              |  |      | 122 |  |      |  | 160 | 
|                                                   |  |      |     |  |      | 

  


F-34



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)






|    |                          
|--- | -------------------------
|20. | Other Current Liabilities



|                                                                                      |  |      |     |  |      |  |     | 
|------------------------------------------------------------------------------------- |  | ---- | --- |  | ---- |  | --- | 
|                                                                                      |  | 2005 |     |  | 2006 | 
|                                                                                      |  |      |     |  |      | 
|Deferred government grants (note 6)                                                   |  |      | 70  |  |      |  | 74  | 
|VAT and other taxes payable                                                           |  |      | 33  |  |      |  | 72  | 
|Payroll obligations to employees                                                      |  |      | 31  |  |      |  | 31  | 
|Settlement for anti-trust related matters  payable to
    Infineon (notes 19 and 31) |  |      | 31  |  |      |  | 24  | 
|Other deferred income                                                                 |  |      | 13  |  |      |  | 20  | 
|Licenses payable                                                                      |  |      | 9   |  |      |  | 13  | 
|Infineon group  financial and other (note 27)                                        |  |      | 6   |  |      |  | 9   | 
|Financial instruments (note 29)                                                       |  |      | 4   |  |      |  | 2   | 
|Restructuring (note 8)                                                                |  |      | 2   |  |      |  |    | 
|Other                                                                                 |  |      | 1   |  |      |  |    | 
|                                                                                      |  |      |     |  |      | 
|Total                                                                                 |  |      | 200 |  |      |  | 245 | 
|                                                                                      |  |      |     |  |      | 



|    |     
|--- | ----
|21. | Debt



|                                                           |                                                           |      |     |     |      |  |     |     | 
|---------------------------------------------------------- | --------------------------------------------------------- | ---- | --- | --- | ---- |  | --- | --- | 
|                                                           |                                                           | 2005 |     |     | 2006 | 
|                                                           |                                                           |      |     |     |      | 
|Short-term debt:                                           |                                                           |      |     |     |      |  |     |    
|                                                           | Loans from Infineon, weighted average interest rate 6.23% |      |     | 524 |      |  |     | 344 | 
|                                                           |                                                           |      |     |     |      | 
|Long-term debt:                                            |                                                           |      |     |     |      |  |     |    
|Unsecured term loan payable to bank, rate 3.75%, due 2013  |                                                           |      | 80  |     |      |  | 124 |    
|Notes payable to governmental entity, rate 4.55%, due 2027 |                                                           |      | 28  |     |      |  | 27  |    
|                                                           |                                                           |      |     |     |      | 
|Total long-term debt                                       |                                                           |      | 108 |     |      |  | 151 |    
|                                                           |                                                           |      |     |     |      | 










F-35



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)






|                          |  |        |     | 
|------------------------- |  | ------ | --- | 
|Year Ending September 30, |  | Amount |    
|                          |  |        |    
|2007                      |  |        | 344 | 
|2008                      |  |        | 21  | 
|2009                      |  |        | 21  | 
|2010                      |  |        | 21  | 
|2011                      |  |        | 21  | 
|Thereafter                |  |        | 67  | 
|                          |  |        |    
|Total debt                |  |        | 495 | 
|                          |  |        |    









F-36



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)






|    |                  
|--- | -----------------
|22. | Other Liabilities



|                                                                                     |  |      |     |  |      |  |     | 
|------------------------------------------------------------------------------------ |  | ---- | --- |  | ---- |  | --- | 
|                                                                                     |  | 2005 |     |  | 2006 | 
|                                                                                     |  |      |     |  |      | 
|Deferred government grants (note 6)                                                  |  |      | 138 |  |      |  | 105 | 
|Minority interest                                                                    |  |      | 81  |  |      |  | 79  | 
|Settlement for antitrust related matters  payable to
    Infineon (notes 19 and 31) |  |      | 88  |  |      |  | 64  | 
|Pension liabilities (note 28)                                                        |  |      | 29  |  |      |  | 26  | 
|Licenses payable                                                                     |  |      | 48  |  |      |  | 37  | 
|Deferred income                                                                      |  |      | 22  |  |      |  | 9   | 
|Other                                                                                |  |      | 6   |  |      |  | 4   | 
|                                                                                     |  |      |     |  |      | 
|Total                                                                                |  |      | 412 |  |      |  | 324 | 
|                                                                                     |  |      |     |  |      | 





|    |                       
|--- | ----------------------
|23. | Ordinary Share Capital




   





Namensaktien 




| |                                         
| | ----------------------------------------
| | Authorized and Conditional Share Capital

Aktiengesetz





F-37



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)













| |                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  First, the Companys share capital is
    conditionally increased by up to
    12 million
    through the issuance of up to 6 million ordinary registered
    shares with no par value in connection with the employee stock
    option and share purchase plans described in note 24.                                                                    
|
| |  Second, the Companys share capital is
    conditionally increased by up to
    240.1 through
    the issuance of up to 120.05 ordinary registered shares with no
    par value. This conditional capital may only be used in
    connection with an issuance of a convertible bond, which the
    shareholders authorized by resolution of July 14, 2006.



| |          
| | ---------
| | Dividends

Aktiengesetz Bilanzgewinn Bilanzverlust




|    |                         
|--- | ------------------------
|24. | Stock-based Compensation



| |                            
| | ---------------------------
| | Infineon Stock Option Plans





| |                                   
| | ----------------------------------
| | Qimonda Employee Stock Option Plan





F-38



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)






















| |                                                          
| | ---------------------------------------------------------
| | Fair value disclosures of Infineon Stock Option
    Plans





F-39



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)








|                                                             |  |      |      |   |      |  |      |      |  |  |      |  
|------------------------------------------------------------ |  | ---- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | -
|                                                             |  | 2004 |      |   | 2005 |  |      | 2006 | 
|                                                             |  |      |      |   |      |  |      |      | 
|Weighted-average assumptions:                                |  |      |      |   |      |  |      |      |  |  |      |  
|Risk-free interest rate                                      |  |      | 3.68 | % |      |  | 3.03 | %    |  |  | 3.08 | %
|Expected volatility                                          |  |      | 59   | % |      |  | 58   | %    |  |  | 43   | %
|Expected life in years                                       |  |      | 4.50 |   |      |  | 4.50 |      |  |  | 5.07 |  
|Weighted-average fair value per option at grant date in euro |  |      | 5.89 |   |      |  | 4.06 |      |  |  | 3.19 |  



| |                                 
| | --------------------------------
| | Stock-Based Compensation Expense

    


Accounting for Stock-Based
Compensation  Transition and Disclosure an amendment
of SFAS No. 123


pro forma


|                                                                                                                                                       |  |      |       |   |      |  |      |  
|------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ----- | - | ---- |  | ---- | -
|                                                                                                                                                       |  | 2004 |       |   | 2005 | 
|                                                                                                                                                       |  |      |       |   |      | 
|Net (loss) income:                                                                                                                                     |  |      |       |   |      |  |      |  
|As reported                                                                                                                                            |  |      | (79   | ) |      |  | 18   |  
|Less: Total stock-based employee compensation expense determined
    under fair      value based
    method for all awards, net of related tax effects |  |      | (14   | ) |      |  | (9   | )
|                                                                                                                                                       |  |      |       |   |      | 
|Pro forma                                                                                                                                              |  |      | (93   | ) |      |  | 9    |  
|                                                                                                                                                       |  |      |       |   |      | 
|Basic and diluted earnings (loss) per share:                                                                                                           |  |      |       |   |      |  |      |  
|As reported                                                                                                                                            |  |      | (0.26 | ) |      |  | 0.06 |  
|Pro forma                                                                                                                                              |  |      | (0.31 | ) |      |  | 0.03 |  



F-40



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)






|    |                         
|--- | ------------------------
|25. | Other Comprehensive Loss



|                                                                      |                                                                                  |        |      |     |        |  |   |      |  |  |        |    |   |        |      |   |     |     |   |        |  |  |        |   |  |     |      |   |  |  |   |   |  |  |      |   | 
|--------------------------------------------------------------------- | -------------------------------------------------------------------------------- | ------ | ---- | --- | ------ |  | - | ---- |  |  | ------ | -- | - | ------ | ---- | - | --- | --- | - | ------ |  |  | ------ | - |  | --- | ---- | - |  |  | - | - |  |  | ---- | - | 
|                                                                      |                                                                                  | 2004   |      |     | 2005   |  |   | 2006 | 
|                                                                      |                                                                                  |        |      |     |        |  |   |      | 
|                                                                      |                                                                                  |        |      | Tax |        |  |   |      |  |  | Tax    |    |   |        |      |   |     | Tax |   |        | 
|                                                                      |                                                                                  | Pretax |      |     | Effect |  |   | Net  |  |  | Pretax |    |   | Effect |      |   | Net |     |   | Pretax |  |  | Effect |   |  | Net |     
|                                                                      |                                                                                  |        |      |     |        |  |   |      |  |  |        |    |   |        |      |   |     |     |   |        |  |  |        |   |  |     |     
|Unrealized (losses) gains on securities:                              |                                                                                  |        |      |     |        |  |   |      |  |  |        |    |   |        |      |   |     |     |   |        |  |  |        |   |  |     |      |   |  |  |   |   |  |  |      |  
|                                                                      | Reclassification adjustment for losses (gains) included in
    net income (loss) |        |      | (8  | )      |  |   |     |  |  |        | (8 | ) |        |      |  |     |     |   |       |  |  |        |  |  |     |      |  |  |  |   |  |  |  |      |  | 
|                                                                      |                                                                                  |        |      |     |        |  |   |      |  |  |        |    |   |        |      |   |     |     |   |        |  |  |        |   |  |     |     
|Net unrealized (losses) gains                                         |                                                                                  |        | (8   | )   |        |  |  |      |  |  | (8     | )  |   |        |     |   |     |     |  |        |  |  |       |   |  |     |     |   |  |  |  |   |  |  |     |  
|Additional minimum pension liability                                  |                                                                                  |        |     |     |        |  |  |      |  |  |       |    |   |        | (2   | ) |     |     | 1 |        |  |  | (1     | ) |  |     | (2   | ) |  |  | 1 |   |  |  | (1   | )
|Foreign currency translation adjustment                               |                                                                                  |        | (35  | )   |        |  |  |      |  |  | (35    | )  |   |        | 45   |   |     |     |  |        |  |  | 45     |   |  |     | (66  | ) |  |  |  |   |  |  | (66  | )
|                                                                      |                                                                                  |        |      |     |        |  |   |      |  |  |        |    |   |        |      |   |     |     |   |        |  |  |        |   |  |     |     
|Other comprehensive (loss) income                                     |                                                                                  |        | (43  | )   |        |  |  |      |  |  | (43    | )  |   |        | 43   |   |     |     | 1 |        |  |  | 44     |   |  |     | (68  | ) |  |  | 1 |   |  |  | (67  | )
|Accumulated other comprehensive income (loss) 
    beginning of year |                                                                                  |        | (68  | )   |        |  |  |      |  |  | (68    | )  |   |        | (111 | ) |     |     |  |        |  |  | (111   | ) |  |     | (68  | ) |  |  | 1 |   |  |  | (67  | )
|                                                                      |                                                                                  |        |      |     |        |  |   |      |  |  |        |    |   |        |      |   |     |     |   |        |  |  |        |   |  |     |     
|Accumulated other comprehensive income (loss)  end of
    year       |                                                                                  |        | (111 | )   |        |  |  |      |  |  | (111   | )  |   |        | (68  | ) |     |     | 1 |        |  |  | (67    | ) |  |     | (136 | ) |  |  | 2 |   |  |  | (134 | )
|                                                                      |                                                                                  |        |      |     |        |  |   |      |  |  |        |    |   |        |      |   |     |     |   |        |  |  |        |   |  |     |     



|    |                                   
|--- | ----------------------------------
|26. | Supplemental Cash Flow Information

|                               |                                                                         |      |  |     |      |  |  |      |   |  |  |     |  
|------------------------------ | ----------------------------------------------------------------------- | ---- |  | --- | ---- |  |  | ---- | - |  |  | --- | -
|                               |                                                                         | 2004 |  |     | 2005 |  |  | 2006 |  
|                               |                                                                         |      |  |     |      |  |  |      |  
|Cash paid for:                 |                                                                         |      |  |     |      |  |  |      |   |  |  |    
|                               | Interest                                                                |      |  | 37  |      |  |  | 22   |   |  |  | 5   |  
|                               | Income taxes                                                            |      |  | 46  |      |  |  | 36   |   |  |  | 52  |  
|Non-cash investing activities: |                                                                         |      |  |     |      |  |  |      |   |  |  |    
|                               | Construction grants deducted from the cost of fixed assets
    (note 6) |      |  | 49  |      |  |  |     |   |  |  | 49  |  
|Non-cash financing activities: |                                                                         |      |  |     |      |  |  |      |   |  |  |    
|                               | Distribution to Infineon                                                |      |  |    |      |  |  | (374 | ) |  |  | (19 | )
|                               | Deferred tax assets retained by Infineon                                |      |  | (59 | )    |  |  | (6   | ) |  |  |    |  










F-41



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)




  




|    |                
|--- | ---------------
|27. | Related Parties







|                                |                                                                      |      |    |   |      |  |    |    | 
|------------------------------- | -------------------------------------------------------------------- | ---- | -- | - | ---- |  | -- | -- | 
|                                |                                                                      | 2005 |    |   | 2006 | 
|                                |                                                                      |      |    |   |      | 
|Current:                        |                                                                      |      |    |   |      |  |    |   
|                                | Infineon group  trade (note 12)                                     |      |    | 8 |      |  |    | 61 | 
|                                | Associated and Related Companies  trade (note 12)                   |      |    | 4 |      |  |    |   | 
|                                | Siemens group  trade (note 12)                                      |      |    | 1 |      |  |    |   | 
|                                | Associated and Related Companies  financial and other
    (note 14) |      |    | 1 |      |  |    |   | 
|                                | Employee receivables (note 14)                                       |      |    | 3 |      |  |    | 2  | 
|                                |                                                                      |      |    |   |      | 
|Total Related Party receivables |                                                                      |      | 17 |   |      |  | 63 |   
|                                |                                                                      |      |    |   |      | 





|                             |                                                                      |      |     |    |      |  |     |    | 
|---------------------------- | -------------------------------------------------------------------- | ---- | --- | -- | ---- |  | --- | -- | 
|                             |                                                                      | 2005 |     |    | 2006 | 
|                             |                                                                      |      |     |    |      | 
|Current:                     |                                                                      |      |     |    |      |  |     |   
|                             | Infineon group  trade (note 18)                                     |      |     | 31 |      |  |     | 71 | 
|                             | Associated and Related Companies  trade (note 18)                   |      |     | 64 |      |  |     | 76 | 
|                             | Siemens group  trade (note 18)                                      |      |     | 2  |      |  |     |   | 
|                             | Infineon group  financial and other (note 20)                       |      |     | 6  |      |  |     | 9  | 
|                             | Associated and Related Companies  financial and other
    (note 20) |      |     |   |      |  |     |   | 
|                             |                                                                      |      |     |    |      | 
|Total Related Party payables |                                                                      |      | 103 |    |      |  | 156 |   
|                             |                                                                      |      |     |    |      | 



F-42



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)






|                         |                               |      |     |     |      |  |     |     | 
|------------------------ | ----------------------------- | ---- | --- | --- | ---- |  | --- | --- | 
|                         |                               | 2005 |     |     | 2006 | 
|                         |                               |      |     |     |      | 
|Short-term debt:         |                               |      |     |     |      |  |     |    
|                         | Loans from Infineon (note 21) |      |     | 524 |      |  |     | 344 | 
|                         |                               |      |     |     |      | 
|Total Related Party debt |                               |      | 524 |     |      |  | 344 |    
|                         |                               |      |     |     |      | 



|                                |                                  |      |    |    |      |  |     |      |  |  |     |     | 
|------------------------------- | -------------------------------- | ---- | -- | -- | ---- |  | --- | ---- |  |  | --- | --- | 
|                                |                                  | 2004 |    |    | 2005 |  |     | 2006 | 
|                                |                                  |      |    |    |      |  |     |      | 
|Sales to Related Parties:       |                                  |      |    |    |      |  |     |      |  |  |     |    
|                                | Siemens group companies          |      |    | 9  |      |  |     | 3    |  |  |     | 17  | 
|                                | Infineon group companies         |      |    | 83 |      |  |     |     |  |  |     |    | 
|                                | Associated and Related Companies |      |    | 4  |      |  |     | 1    |  |  |     |    | 
|                                |                                  |      |    |    |      |  |     |      | 
|                                |                                  |      | 96 |    |      |  | 4   |      |  |  | 17  |    
|                                |                                  |      |    |    |      |  |     |      | 
|Purchases from Related Parties: |                                  |      |    |    |      |  |     |      |  |  |     |    
|                                | Siemens group companies          |      |    | 22 |      |  |     | 13   |  |  |     | 4   | 
|                                | Infineon group companies         |      |    |   |      |  |     | 265  |  |  |     | 403 | 
|                                | Associated and Related Companies |      |    | 23 |      |  |     | 247  |  |  |     | 438 | 
|                                |                                  |      |    |    |      |  |     |      | 
|                                |                                  |      | 45 |    |      |  | 525 |      |  |  | 845 |    
|                                |                                  |      |    |    |      |  |     |      | 



|                                                            |                                               |      |   |     |      |  |   |      |   |  |     |     |  
|----------------------------------------------------------- | --------------------------------------------- | ---- | - | --- | ---- |  | - | ---- | - |  | --- | --- | -
|                                                            |                                               | 2004 |   |     | 2005 |  |   | 2006 |  
|                                                            |                                               |      |   |     |      |  |   |      |  
|Interest income from (expense to) Infineon group companies: |                                               |      |   |     |      |  |   |      |   |  |     |    
|                                                            | Interest income from Infineon group companies |      |   | 21  |      |  |   | 40   |   |  |     | 15  |  
|                                                            | Interest expense to Infineon group companies  |      |   | (21 | )    |  |   | (34  | ) |  |     | (38 | )
|                                                            |                                               |      |   |     |      |  |   |      |  
|                                                            |                                               |      |  |     |      |  | 6 |      |   |  | (23 | )  
|                                                            |                                               |      |   |     |      |  |   |      |  



F-43



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)






|                                             |  |                   
|-------------------------------------------- |  | ------------------
|                                             |  | Five months ended 
|                                             |  | September 30, 2006
|                                             |  |                   
|Cost of goods sold                           |  | 95                
|Research and development expenses            |  | 10                
|Selling, general and administrative expenses |  | 14                
|                                             |  |                   
|                                             |  | 119               
|                                             |  |                   







| |                  
| | -----------------
| | Dresden 200mm Fab







|    |              
|--- | -------------
|28. | Pension Plans



F-44



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)












|                                            |                                                 |          |     |     |         |  |    |          |   |  |         |     |   |          |    |    |         |  |     |     |   |  |    |    |  
|------------------------------------------- | ----------------------------------------------- | -------- | --- | --- | ------- |  | -- | -------- | - |  | ------- | --- | - | -------- | -- | -- | ------- |  | --- | --- | - |  | -- | -- | -
|                                            |                                                 | 2004     |     |     | 2005    |  |    | 2006     |  
|                                            |                                                 |          |     |     |         |  |    |          |  
|                                            |                                                 | Domestic |     |     | Foreign |  |    | Domestic |   |  | Foreign |     |   | Domestic |    |    | Foreign | 
|                                            |                                                 | Plans    |     |     | Plans   |  |    | Plans    |   |  | Plans   |     |   | Plans    |    |    | Plans   | 
|                                            |                                                 |          |     |     |         |  |    |          |   |  |         |     |   |          |    |    |         | 
|Accumulated benefit obligations end of year |                                                 |          | (31 | )   |         |  | (3 | )        |   |  | (49     | )   |   |          | (4 | )  |         |  | (41 | )   |   |  | (3 | ) 
|                                            |                                                 |          |     |     |         |  |    |          |   |  |         |     |   |          |    |    |         | 
|Change in projected benefit obligation      |                                                 |          |     |     |         |  |    |          |   |  |         |     |   |          |    |    |         |  |     |     |   |  |    |   
|                                            | Projected benefit obligations beginning of year |          |     | (31 | )       |  |    | (7       | ) |  |         | (39 | ) |          |    | (5 | )       |  |     | (59 | ) |  |    | (6 | )
|                                            | Service cost                                    |          |     | (3  | )       |  |    | (1       | ) |  |         | (3  | ) |          |    | (1 | )       |  |     | (6  | ) |  |    |   |  
|                                            | Interest cost                                   |          |     | (2  | )       |  |    |         |   |  |         | (2  | ) |          |    |   |         |  |     | (3  | ) |  |    |   |  
|                                            | Actuarial (losses) gains                        |          |     | (1  | )       |  |    |         |   |  |         | (4  | ) |          |    |   |         |  |     | (2  | ) |  |    | 2  |  
|                                            | Disposal of plan                                |          |     |    |         |  |    | 4        |   |  |         | 7   |   |          |    |   |         |  |     |    |   |  |    |   |  
|                                            | Plan transfer                                   |          |     | (2  | )       |  |    | (1       | ) |  |         | (14 | ) |          |    |   |         |  |     | 17  |   |  |    |   |  
|                                            | Plan amendments                                 |          |     |    |         |  |    |         |   |  |         | (4  | ) |          |    |   |         |  |     |    |   |  |    |   |  
|                                            | Curtailment gain                                |          |     |    |         |  |    |         |   |  |         |    |   |          |    |   |         |  |     |    |   |  |    | 1  |  
|                                            |                                                 |          |     |     |         |  |    |          |   |  |         |     |   |          |    |    |         | 
|                                            | Projected benefit obligations end of year       |          |     | (39 | )       |  |    | (5       | ) |  |         | (59 | ) |          |    | (6 | )       |  |     | (53 | ) |  |    | (3 | )
|                                            |                                                 |          |     |     |         |  |    |          |   |  |         |     |   |          |    |    |         | 
|Change in fair value of plan assets:        |                                                 |          |     |     |         |  |    |          |   |  |         |     |   |          |    |    |         |  |     |     |   |  |    |   
|                                            | Fair value at beginning of year                 |          |     | 16  |         |  |    | 4        |   |  |         | 22  |   |          |    | 3  |         |  |     | 31  |   |  |    | 3  |  
|                                            | Contributions and transfers                     |          |     | 4   |         |  |    | (1       | ) |  |         | 6   |   |          |    |   |         |  |     |    |   |  |    |   |  
|                                            | Actual return on plan assets                    |          |     | 2   |         |  |    |         |   |  |         | 3   |   |          |    |   |         |  |     | 2   |   |  |    |   |  
|                                            | Plan transfer                                   |          |     |    |         |  |    |         |   |  |         |    |   |          |    |   |         |  |     | (8  | ) |  |    | (1 | )
|                                            |                                                 |          |     |     |         |  |    |          |   |  |         |     |   |          |    |    |         | 
|                                            | Fair value at end of year                       |          |     | 22  |         |  |    | 3        |   |  |         | 31  |   |          |    | 3  |         |  |     | 25  |   |  |    | 2  |  
|                                            |                                                 |          |     |     |         |  |    |          |   |  |         |     |   |          |    |    |         | 
|Funded status                               |                                                 |          | (17 | )   |         |  | (2 | )        |   |  | (28     | )   |   |          | (3 | )  |         |  | (28 | )   |   |  | (1 | ) 
|Unrecognized actuarial loss                 |                                                 |          | 2   |     |         |  |   |          |   |  | 4       |     |   |          |   |    |         |  | 8   |     |   |  | (1 | ) 
|                                            |                                                 |          |     |     |         |  |    |          |   |  |         |     |   |          |    |    |         | 
|Net liability recognized                    |                                                 |          | (15 | )   |         |  | (2 | )        |   |  | (24     | )   |   |          | (3 | )  |         |  | (20 | )   |   |  | (2 | ) 
|                                            |                                                 |          |     |     |         |  |    |          |   |  |         |     |   |          |    |    |         | 




F-45



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)






|                                       |  |          |     |   |         |  |    |          |  |  |         |   |  |          |    |   |         |  |     |   |  |  |    |  
|-------------------------------------- |  | -------- | --- | - | ------- |  | -- | -------- |  |  | ------- | - |  | -------- | -- | - | ------- |  | --- | - |  |  | -- | -
|                                       |  | 2004     |     |   | 2005    |  |    | 2006     | 
|                                       |  |          |     |   |         |  |    |          | 
|                                       |  | Domestic |     |   | Foreign |  |    | Domestic |  |  | Foreign |   |  | Domestic |    |   | Foreign | 
|                                       |  | Plans    |     |   | Plans   |  |    | Plans    |  |  | Plans   |   |  | Plans    |    |   | Plans   | 
|                                       |  |          |     |   |         |  |    |          |  |  |         |   |  |          |    |   |         | 
|Accumulated other comprehensive income |  |          |    |   |         |  |   |          |  |  | 2       |   |  |          |   |   |         |  | 4   |   |  |  |   |  
|Accrued pension liabilities (note 22)  |  |          | (15 | ) |         |  | (2 | )        |  |  | (26     | ) |  |          | (3 | ) |         |  | (24 | ) |  |  | (2 | )
|                                       |  |          |     |   |         |  |    |          |  |  |         |   |  |          |    |   |         | 
|Net liability recognized               |  |          | (15 | ) |         |  | (2 | )        |  |  | (24     | ) |  |          | (3 | ) |         |  | (20 | ) |  |  | (2 | )
|                                       |  |          |     |   |         |  |    |          |  |  |         |   |  |          |    |   |         | 



|                                |  |          |    |  |         |  |   |          |  |  |         |  |  |          |   |  |         |  |    |  |  |  |   | 
|------------------------------- |  | -------- | -- |  | ------- |  | - | -------- |  |  | ------- |  |  | -------- | - |  | ------- |  | -- |  |  |  | - | 
|                                |  | 2004     |    |  | 2005    |  |   | 2006     | 
|                                |  |          |    |  |         |  |   |          | 
|                                |  | Domestic |    |  | Foreign |  |   | Domestic |  |  | Foreign |  |  | Domestic |   |  | Foreign | 
|                                |  | Plans    |    |  | Plans   |  |   | Plans    |  |  | Plans   |  |  | Plans    |   |  | Plans   | 
|                                |  |          |    |  |         |  |   |          |  |  |         |  |  |          |   |  |         | 
|Projected benefit obligation    |  |          | 39 |  |         |  | 6 |          |  |  | 59      |  |  |          | 6 |  |         |  | 53 |  |  |  | 3 | 
|Fair value of plan assets       |  |          | 22 |  |         |  | 3 |          |  |  | 31      |  |  |          | 3 |  |         |  | 25 |  |  |  | 2 | 
|Accumulated benefit obligations |  |          | 31 |  |         |  | 3 |          |  |  | 49      |  |  |          | 4 |  |         |  | 41 |  |  |  | 3 | 
|Fair value of plan assets       |  |          | 22 |  |         |  | 3 |          |  |  | 31      |  |  |          | 3 |  |         |  | 25 |  |  |  | 2 | 



|                                   |  |          |     |   |         |  |     |          |  |  |         |   |  |          |     |   |         |  |     |   |  |  |     |  
|---------------------------------- |  | -------- | --- | - | ------- |  | --- | -------- |  |  | ------- | - |  | -------- | --- | - | ------- |  | --- | - |  |  | --- | -
|                                   |  | 2004     |     |   | 2005    |  |     | 2006     | 
|                                   |  |          |     |   |         |  |     |          | 
|                                   |  | Domestic |     |   | Foreign |  |     | Domestic |  |  | Foreign |   |  | Domestic |     |   | Foreign | 
|                                   |  | Plans    |     |   | Plans   |  |     | Plans    |  |  | Plans   |   |  | Plans    |     |   | Plans   | 
|                                   |  |          |     |   |         |  |     |          |  |  |         |   |  |          |     |   |         | 
|Discount rate                      |  |          | 5.8 | % |         |  | 5.6 | %        |  |  | 4.5     | % |  |          | 4.9 | % |         |  | 4.8 | % |  |  | 5.9 | %
|Rate of compensation increase      |  |          | 3.0 | % |         |  | 4.5 | %        |  |  | 2.5     | % |  |          | 3.6 | % |         |  | 2.5 | % |  |  | 3.6 | %
|Projected future pension increases |  |          | 1.3 | % |         |  | 2.2 | %        |  |  | 1.3     | % |  |          | 1.7 | % |         |  | 1.8 | % |  |  | 2.3 | %
|Expected return on plan assets     |  |          | 6.8 | % |         |  | 7.0 | %        |  |  | 7.3     | % |  |          | 6.4 | % |         |  | 6.5 | % |  |  | 6.6 | %





| |                      
| | ---------------------
| | Investment strategies



F-46



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)






| |                                                 
| | ------------------------------------------------
| | Expected long-term rate of return on plan assets







| |                      
| | ---------------------
| | Plan asset allocation





|                  |  |          |     |   |         |  |     |                     |  |  |         |   |  |          |     |   |         |  |     |   |  |  |     |  
|----------------- |  | -------- | --- | - | ------- |  | --- | ------------------- |  |  | ------- | - |  | -------- | --- | - | ------- |  | --- | - |  |  | --- | -
|                  |  | 2005     |     |   | 2006    |  |     | Targeted Allocation | 
|                  |  |          |     |   |         |  |     |                     | 
|                  |  | Domestic |     |   | Foreign |  |     | Domestic            |  |  | Foreign |   |  | Domestic |     |   | Foreign | 
|                  |  | Plans    |     |   | Plans   |  |     | Plans               |  |  | Plans   |   |  | Plans    |     |   | Plans   | 
|                  |  |          |     |   |         |  |     |                     |  |  |         |   |  |          |     |   |         | 
|Equity securities |  |          | 44  | % |         |  | 51  | %                   |  |  |        |   |  |          | 61  | % |         |  | 45  | % |  |  | 60  | %
|Debt securities   |  |          | 51  | % |         |  | 35  | %                   |  |  |        |   |  |          | 39  | % |         |  | 52  | % |  |  | 40  | %
|Cash              |  |          |    |   |         |  |    |                     |  |  | 100     | % |  |          |    |   |         |  | 3   | % |  |  |    |  
|Other             |  |          | 5   | % |         |  | 14  | %                   |  |  |        |   |  |          |    |   |         |  |    |   |  |  |    |  
|                  |  |          |     |   |         |  |     |                     |  |  |         |   |  |          |     |   |         | 
|Total             |  |          | 100 | % |         |  | 100 | %                   |  |  | 100     | % |  |          | 100 | % |         |  | 100 | % |  |  | 100 | %
|                  |  |          |     |   |         |  |     |                     |  |  |         |   |  |          |     |   |         | 

 Employers
Accounting for Pensions


 




F-47



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)








|                               |  |          |    |   |         |  |    |          |  |  |         |   |  |          |    |   |         |  |    |   |  |  |   | 
|------------------------------ |  | -------- | -- | - | ------- |  | -- | -------- |  |  | ------- | - |  | -------- | -- | - | ------- |  | -- | - |  |  | - | 
|                               |  | 2004     |    |   | 2005    |  |    | 2006     | 
|                               |  |          |    |   |         |  |    |          | 
|                               |  | Domestic |    |   | Foreign |  |    | Domestic |  |  | Foreign |   |  | Domestic |    |   | Foreign | 
|                               |  | Plans    |    |   | Plans   |  |    | Plans    |  |  | Plans   |   |  | Plans    |    |   | Plans   | 
|                               |  |          |    |   |         |  |    |          |  |  |         |   |  |          |    |   |         | 
|Service cost                   |  |          | (3 | ) |         |  | (1 | )        |  |  | (3      | ) |  |          | (1 | ) |         |  | (6 | ) |  |  |  | 
|Interest cost                  |  |          | (2 | ) |         |  |   |          |  |  | (2      | ) |  |          |   |   |         |  | (3 | ) |  |  |  | 
|Expected return on plan assets |  |          | 1  |   |         |  |   |          |  |  | 2       |   |  |          |   |   |         |  | 2  |   |  |  |  | 
|Curtailment gain recognized    |  |          |   |   |         |  |   |          |  |  |        |   |  |          |   |   |         |  |   |   |  |  | 1 | 
|                               |  |          |    |   |         |  |    |          |  |  |         |   |  |          |    |   |         | 
|Net periodic pension cost      |  |          | (4 | ) |         |  | (1 | )        |  |  | (3      | ) |  |          | (1 | ) |         |  | (7 | ) |  |  | 1 | 
|                               |  |          |    |   |         |  |    |          |  |  |         |   |  |          |    |   |         | 





  




|                           |  |          |   |  |         |  |   | 
|-------------------------- |  | -------- | - |  | ------- |  | - | 
|                           |  | Domestic |   |  | Foreign | 
|Years Ending September 30, |  | Plans    |   |  | Plans   | 
|                           |  |          |   |  |         | 
|2007                       |  |          |  |  |         |  |  | 
|2008                       |  |          | 1 |  |         |  |  | 
|2009                       |  |          | 1 |  |         |  |  | 
|2010                       |  |          | 1 |  |         |  |  | 
|2011                       |  |          | 1 |  |         |  |  | 
|2012-2016                  |  |          | 7 |  |         |  | 1 | 

 


  


F-48



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##### Table of Contents



QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)






|    |                      
|--- | ---------------------
|29. | Financial Instruments







|                             |                   |          |   |     |       |  |   |          |  |  |       |     |  |  |   |    |  
|---------------------------- | ----------------- | -------- | - | --- | ----- |  | - | -------- |  |  | ----- | --- |  |  | - | -- | -
|                             |                   | 2005     |   |     | 2006  | 
|                             |                   |          |   |     |       | 
|                             |                   | Notional |   |     | Fair  |  |   | Notional |  |  | Fair  |    
|                             |                   | Amount   |   |     | Value |  |   | Amount   |  |  | Value |    
|                             |                   |          |   |     |       |  |   |          |  |  |       |    
|Forward contracts sold:      |                   |          |   |     |       |  |   |          |  |  |       |     |  |  |   |   
|                             | U.S. dollar       |          |   | 42  |       |  |   | 2        |  |  |       | 168 |  |  |   | (1 | )
|                             | Japanese yen      |          |   | 34  |       |  |   |         |  |  |       | 26  |  |  |   |   |  
|Forward contracts purchased: |                   |          |   |     |       |  |   |          |  |  |       |     |  |  |   |   
|                             | U.S. dollar       |          |   | 122 |       |  |   | 1        |  |  |       | 17  |  |  |   |   |  
|                             | Japanese yen      |          |   |    |       |  |   |         |  |  |       | 22  |  |  |   |   |  
|                             | Singapore Dollar  |          |   |    |       |  |   |         |  |  |       | 3   |  |  |   |   |  
|                             | Malaysian Ringgit |          |   | 11  |       |  |   |         |  |  |       | 5   |  |  |   |   |  
|                             | Other currencies  |          |   | 16  |       |  |   |         |  |  |       |    |  |  |   |   |  
|Other                        |                   |          |  |     |       |  |  |          |  |  | 94    |     |  |  | 5 |   
|                             |                   |          |   |     |       |  |   |          |  |  |       |    
|Fair value, net              |                   |          |   |     |       |  | 3 |          |  |  |       |     |  |  | 4 |   
|                             |                   |          |   |     |       |  |   |          |  |  |       |    



|                                                                          |                                      |      |    |    |      |  |    |      |   |  |    |    |  
|------------------------------------------------------------------------- | ------------------------------------ | ---- | -- | -- | ---- |  | -- | ---- | - |  | -- | -- | -
|                                                                          |                                      | 2004 |    |    | 2005 |  |    | 2006 |  
|                                                                          |                                      |      |    |    |      |  |    |      |  
|Losses from foreign currency derivatives:                                 |                                      |      |    |    |      |  |    |      |   |  |    |   
|                                                                          | Cost of sales                        |      |    | (7 | )    |  |    | (1   | ) |  |    | (4 | )
|                                                                          |                                      |      |    |    |      |  |    |      |  
|Gains (losses) from foreign currency transactions:                        |                                      |      |    |    |      |  |    |      |   |  |    |   
|                                                                          | Cost of sales                        |      |    | 9  |      |  |    |     |   |  |    | (1 | )
|                                                                          | Other non-operating (expense) income |      |    | (7 | )    |  |    | 18   |   |  |    | 3  |  
|                                                                          |                                      |      |    |    |      |  |    |      |  
|                                                                          |                                      |      | 2  |    |      |  | 18 |      |   |  | 2  |   
|                                                                          |                                      |      |    |    |      |  |    |      |  
|Net (losses) gains from foreign currency derivatives and
    transactions |                                      |      | (5 | )  |      |  | 17 |      |   |  | (2 | ) 
|                                                                          |                                      |      |    |    |      |  |    |      |  



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QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)








|    |      
|--- | -----
|30. | Risks

















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QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)












|    |                              
|--- | -----------------------------
|31. | Commitments and Contingencies



| |                           
| | --------------------------
| | Contribution from Infineon











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QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)








| |   |                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | liabilities arising in connection with intellectual property
    infringement claims relating to memory products were fully
    allocated to the Company.
|
| |  | liabilities arising in connection with actual or alleged
    antitrust violations with respect to DRAM products were fully
    allocated to the Company. 



| |           
| | ----------
| | Litigation











F-52



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QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)












F-53



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QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)
















F-54



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QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)













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QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)






| |                        
| | -----------------------
| | Contractual Commitments

(1)(2)


|                         |                                    |       |       |                        |        |  |     |           |       |  |           |    |  |           |    |    |           |  |    |         |  |  |    |    |  |  |    |    | 
|------------------------ | ---------------------------------- | ----- | ----- | ---------------------- | ------ |  | --- | --------- | ----- |  | --------- | -- |  | --------- | -- | -- | --------- |  | -- | ------- |  |  | -- | -- |  |  | -- | -- | 
|                         |                                    |       |       | Payments Due to Period |       
|                         |                                    |       |       |                        |       
|                         |                                    |       |       | Less than              |        |  |     |           | After | 
|                         |                                    | Total |       |                        | 1 Year |  |     | 1-2 Years |       |  | 2-3 Years |    |  | 3-4 Years |    |    | 4-5 Years |  |    | 5 Years | 
|                         |                                    |       |       |                        |        |  |     |           |       |  |           |    |  |           |    |    |           |  |    |         | 
|Contractual commitments: |                                    |       |       |                        |        |  |     |           |       |  |           |    |  |           |    |    |           |  |    |         |  |  |    |    |  |  |    |   
|                         | Operating lease
    payments(3)    |       |       | 107                    |        |  |     | 27        |       |  |           | 26 |  |           |    | 24 |           |  |    | 9       |  |  |    | 8  |  |  |    | 13 | 
|                         | Unconditional purchase commitments |       |       | 954                    |        |  |     | 738       |       |  |           | 50 |  |           |    | 38 |           |  |    | 38      |  |  |    | 40 |  |  |    | 50 | 
|                         | Other long-term commitments        |       |       | 132                    |        |  |     | 66        |       |  |           | 66 |  |           |    | 0  |           |  |    | 0       |  |  |    | 0  |  |  |    | 0  | 
|                         |                                    |       |       |                        |        |  |     |           |       |  |           |    |  |           |    |    |           |  |    |         | 
|Total Commitments        |                                    |       | 1,193 |                        |        |  | 831 |           |       |  | 142       |    |  |           | 62 |    |           |  | 47 |         |  |  | 48 |    |  |  | 63 |   
|                         |                                    |       |       |                        |        |  |     |           |       |  |           |    |  |           |    |    |           |  |    |         | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Certain payments of obligations or expirations of commitments
    that are based on the achievement of milestones or other events
    that are not date-certain are included for purposes of this
    table based on estimates of the reasonably likely timing of
    payments or expirations in the particular case. Actual outcomes
    could differ from those estimates.                               
|   
|(2) | Product purchase commitments associated with continuing capacity
    reservation agreements are not included in this table, since the
    purchase prices are based, in part, on future market prices, and
    are accordingly not accurately quantifiable at
    September 30, 2006. Purchases under these arrangements
    aggregated approximately
    1,185 for the
    year ended September 30, 2006.
|   
|(3) | Operating lease payments include amounts allocated from Infineon
    for lease payments. Premises currently occupied by the Company
    that are leased by Infineon are expected to be the subject of a
    sublease agreement between Infineon and the Company at Formation.                                                                                                                              







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QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)






| |                    
| | -------------------
| | Other Contingencies

(1)


|                                   |                                     |       |     |                       |        |  |     |           |       |  |           |     |  |           |    |    |           |  |    |         |  |  |    |    |  |  |     |     | 
|---------------------------------- | ----------------------------------- | ----- | --- | --------------------- | ------ |  | --- | --------- | ----- |  | --------- | --- |  | --------- | -- | -- | --------- |  | -- | ------- |  |  | -- | -- |  |  | --- | --- | 
|                                   |                                     |       |     | Expirations by Period |       
|                                   |                                     |       |     |                       |       
|                                   |                                     |       |     | Less than             |        |  |     |           | After | 
|                                   |                                     | Total |     |                       | 1 Year |  |     | 1-2 Years |       |  | 2-3 Years |     |  | 3-4 Years |    |    | 4-5 Years |  |    | 5 Years | 
|                                   |                                     |       |     |                       |        |  |     |           |       |  |           |     |  |           |    |    |           |  |    |         | 
|Maximum potential future payments: |                                     |       |     |                       |        |  |     |           |       |  |           |     |  |           |    |    |           |  |    |         |  |  |    |    |  |  |     |    
|                                   | Guarantees(2)                       |       |     | 71                    |        |  |     |          |       |  |           | 2   |  |           |    | 7  |           |  |    |        |  |  |    | 9  |  |  |     | 53  | 
|                                   | Contingent government
    grants(3) |       |     | 452                   |        |  |     | 113       |       |  |           | 111 |  |           |    | 18 |           |  |    | 43      |  |  |    | 22 |  |  |     | 145 | 
|                                   |                                     |       |     |                       |        |  |     |           |       |  |           |     |  |           |    |    |           |  |    |         | 
|Total contingencies                |                                     |       | 523 |                       |        |  | 113 |           |       |  | 113       |     |  |           | 25 |    |           |  | 43 |         |  |  | 31 |    |  |  | 198 |    
|                                   |                                     |       |     |                       |        |  |     |           |       |  |           |     |  |           |    |    |           |  |    |         | 






|    |                                                                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Certain expirations of contingencies that are based on the
    achievement of milestones or other events that are not
    date-certain are included for purposes of this table based on
    estimates of the reasonably likely timing of expirations in the
    particular case. Actual outcomes could differ from those
    estimates.
|   
|(2) | Guarantees are mainly issued by the parent company for the
    payment of import duties, rentals of buildings, contingent
    obligations related to government grants received. Such
    guarantees which relate to Qimonda AG were transferred to the
    Company as part of the Formation.                                          
|   
|(3) | Contingent government grants refer to amounts previously
    received, related to the construction and financing of certain
    production facilities, which are not otherwise guaranteed and
    could be refundable if the total project requirements are not
    met.                                                               









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QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)






|                                 |  |      |    |  
|-------------------------------- |  | ---- | -- | -
|                                 |  | 2006 |   
|                                 |  |      |   
|Balance as of October 1, 2005    |  |      | 1  |  
|Accrued during the year, net     |  |      | 3  |  
|Settled during the year          |  |      | (3 | )
|Balance as of September 30, 2006 |  |      | 1  |  



|    |                                             
|--- | --------------------------------------------
|32. | Operating Segment and Geographic Information

Disclosure about Segments of an Enterprise and Related
Information.










|           |               |      |       |       |      |  |       |       |  |  |       |       | 
|---------- | ------------- | ---- | ----- | ----- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|           |               | 2004 |       |       | 2005 |  |       | 2006  | 
|           |               |      |       |       |      |  |       |       | 
|Net sales: |               |      |       |       |      |  |       |       |  |  |       |      
|           | Germany       |      |       | 398   |      |  |       | 232   |  |  |       | 316   | 
|           | Other Europe  |      |       | 342   |      |  |       | 332   |  |  |       | 428   | 
|           | North America |      |       | 1,135 |      |  |       | 1,067 |  |  |       | 1,591 | 
|           | Asia/ Pacific |      |       | 1,001 |      |  |       | 1,091 |  |  |       | 1,174 | 
|           | Japan         |      |       | 131   |      |  |       | 102   |  |  |       | 252   | 
|           | Other         |      |       | 1     |      |  |       | 1     |  |  |       | 54    | 
|           |               |      |       |       |      |  |       |       | 
|Total      |               |      | 3,008 |       |      |  | 2,825 |       |  |  | 3,815 |      
|           |               |      |       |       |      |  |       |       | 

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QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)




|                               |               |      |       |       |      |  |       |       | 
|------------------------------ | ------------- | ---- | ----- | ----- | ---- |  | ----- | ----- | 
|                               |               | 2005 |       |       | 2006 | 
|                               |               |      |       |       |      | 
|Property, plant and equipment: |               |      |       |       |      |  |       |      
|                               | Germany       |      |       | 804   |      |  |       | 654   | 
|                               | Other Europe  |      |       | 175   |      |  |       | 144   | 
|                               | North America |      |       | 1,082 |      |  |       | 1,100 | 
|                               | Asia/ Pacific |      |       | 155   |      |  |       | 182   | 
|                               |               |      |       |       |      | 
|Total                          |               |      | 2,216 |       |      |  | 2,080 |      
|                               |               |      |       |       |      | 







|                  |                            |      |     |     |      |  |     |      |  |  |     |     | 
|----------------- | -------------------------- | ---- | --- | --- | ---- |  | --- | ---- |  |  | --- | --- | 
|                  |                            | 2004 |     |     | 2005 |  |     | 2006 | 
|                  |                            |      |     |     |      |  |     |      | 
|Net (loss) income |                            |      | (79 | )   |      |  | 18  |      |  |  | 74  |    
|                  | Adjust: Income tax expense |      |     | 211 |      |  |     | 86   |  |  |     | 114 | 
|                  | Interest
    expense, net  |      |     | 30  |      |  |     | 7    |  |  |     | 25  | 
|                  |                            |      |     |     |      |  |     |      | 
|EBIT              |                            |      | 162 |     |      |  | 111 |      |  |  | 213 |    
|                  |                            |      |     |     |      |  |     |      | 



33.     Subsequent Events






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QIMONDA AG AND SUBSIDIARIES


Notes to the Combined and Consolidated Financial
Statements  (Continued)













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INOTERA MEMORIES, INC.





Balance Sheets


December 31, 2004 and 2005


(Expressed in thousands of New Taiwan Dollars and
U.S. Dollars)


|                                                             |                                                             |                                   |            |            |            |  |            |             |            |  |           |           |           | 
|------------------------------------------------------------ | ----------------------------------------------------------- | --------------------------------- | ---------- | ---------- | ---------- |  | ---------- | ----------- | ---------- |  | --------- | --------- | --------- | 
|                                                             |                                                             | 2004                              |            |            | 2005       | 
|                                                             |                                                             |                                   |            |            |            | 
|                                                             |                                                             | NTD                               |            |            | NTD        |  |            | USD         |           
|                                                             |                                                             |                                   |            |            |            |  |            |             |           
|Assets                                                      
|Current assets:                                              |                                                             |                                   |            |            |            |  |            |             |            |  |           |          
|                                                             | Cash and cash equivalents (note 5)                          |                                   | $          | 9,980,189  |            |  |            | 9,822,568   |            |  |           | 299,469   |          
|                                                             | Accounts receivable related parties (note 17)               |                                   |            | 2,589,503  |            |  |            | 5,050,277   |            |  |           | 153,972   |          
|                                                             | Other receivables (note 7 and 16)                           |                                   |            | 160,283    |            |  |            | 1,322,121   |            |  |           | 40,309    |          
|                                                             | Inventories, net (note 6)                                   |                                   |            | 2,127,530  |            |  |            | 3,485,585   |            |  |           | 106,268   |          
|                                                             | Current portion of lease receivables (note 7)               |                                   |            |           |            |  |            | 6,690       |            |  |           | 204       |          
|                                                             | Prepayments and other current assets                        |                                   |            | 1,011,742  |            |  |            | 616,693     |            |  |           | 18,802    |          
|                                                             | Deferred income tax assets  current, net
    (note 13)     |                                   |            | 12,163     |            |  |            | 36,405      |            |  |           | 1,110     |          
|                                                             |                                                             |                                   |            |            |            |  |            |             |           
|                                                             |                                                             | Total current assets              |            |            | 15,881,410 |  |            |             | 20,340,339 |  |           |           | 620,134   | 
|Property, plant and equipment (notes 7, 8, 9, 11 and
    17) |                                                             |                                   |            |            |            |  |            |             |            |  |           |          
|                                                             | Land                                                        |                                   |            | 1,225,459  |            |  |            | 2,801,467   |            |  |           | 85,411    |          
|                                                             | Buildings and structures                                    |                                   |            | 2,374,783  |            |  |            | 2,424,571   |            |  |           | 73,920    |          
|                                                             | Machinery and equipment                                     |                                   |            | 26,546,487 |            |  |            | 59,669,447  |            |  |           | 1,819,190 |          
|                                                             | Vehicles                                                    |                                   |            | 2,913      |            |  |            | 2,913       |            |  |           | 89        |          
|                                                             | Leased assets                                               |                                   |            |           |            |  |            | 135,996     |            |  |           | 4,146     |          
|                                                             | Miscellaneous equipment                                     |                                   |            | 5,087,028  |            |  |            | 6,465,676   |            |  |           | 197,124   |          
|                                                             |                                                             |                                   |            |            |            |  |            |             |           
|                                                             |                                                             |                                   | 35,236,670 |            |            |  | 71,500,070 |             |            |  | 2,179,880 |          
|                                                             | Less: accumulated depreciation                              |                                   |            | (2,042,536 | )          |  |            | (10,130,631 | )          |  |           | (308,861  | )        
|                                                             | Construction in progress                                    |                                   |            | 18,349,418 |            |  |            | 4,770,603   |            |  |           | 145,445   |          
|                                                             | Prepayment on land purchase                                 |                                   |            |           |            |  |            | 22,772      |            |  |           | 694       |          
|                                                             |                                                             |                                   |            |            |            |  |            |             |           
|                                                             |                                                             | Net property, plant and equipment |            |            | 51,543,552 |  |            |             | 66,162,814 |  |           |           | 2,017,158 | 
|Other assets:                                                |                                                             |                                   |            |            |            |  |            |             |            |  |           |          
|                                                             | Refundable deposits                                         |                                   |            | 46,661     |            |  |            | 28,544      |            |  |           | 870       |          
|                                                             | Deferred charges                                            |                                   |            | 118,283    |            |  |            | 134,846     |            |  |           | 4,111     |          
|                                                             | Lease receivables long-term (note 7)                        |                                   |            |           |            |  |            | 338,788     |            |  |           | 10,329    |          
|                                                             | Deferred income tax assets  non-current, net
    (note 13) |                                   |            | 562,198    |            |  |            | 352,758     |            |  |           | 10,755    |          
|                                                             |                                                             |                                   |            |            |            |  |            |             |           
|                                                             |                                                             | Total other assets                |            |            | 727,142    |  |            |             | 854,936    |  |           |           | 26,065    | 
|                                                             |                                                             |                                   |            |            |            |  |            |             |           
|Total assets                                                 |                                                             | $                                 | 68,152,104 |            |            |  | 87,358,089 |             |            |  | 2,663,357 |          
|                                                             |                                                             |                                   |            |            |            |  |            |             |           

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INOTERA MEMORIES, INC.


Balance Sheets  (Continued)


December 31, 2004 and 2005


(Expressed in thousands of New Taiwan Dollars and
U.S. Dollars)


|                                           |                                              |                             |            |            |            |  |            |            |            |  |           |         |           | 
|------------------------------------------ | -------------------------------------------- | --------------------------- | ---------- | ---------- | ---------- |  | ---------- | ---------- | ---------- |  | --------- | ------- | --------- | 
|                                           |                                              | 2004                        |            |            | 2005       | 
|                                           |                                              |                             |            |            |            | 
|                                           |                                              | NTD                         |            |            | NTD        |  |            | USD        |           
|                                           |                                              |                             |            |            |            |  |            |            |           
|Liabilities and Stockholders Equity      
|Current liabilities:                       |                                              |                             |            |            |            |  |            |            |            |  |           |        
|                                           | Short-term loans (note 10)                   |                             | $          | 2,481,500  |            |  |            | 2,323,300  |            |  |           | 70,832  |          
|                                           | Accounts payable                             |                             |            | 8,640,125  |            |  |            | 4,010,066  |            |  |           | 122,258 |          
|                                           | Accounts payable  related parties (note 17) |                             |            | 131,039    |            |  |            | 55,212     |            |  |           | 1,683   |          
|                                           | Income tax payable                           |                             |            |           |            |  |            | 124,302    |            |  |           | 3,790   |          
|                                           | Accrued expenses (notes 12 and 16)           |                             |            | 450,856    |            |  |            | 855,816    |            |  |           | 26,092  |          
|                                           | Other payables  related parties (note 17)   |                             |            | 284,521    |            |  |            | 86,253     |            |  |           | 2,630   |          
|                                           | Current portion of long-term loans (note 11) |                             |            |           |            |  |            | 6,431,636  |            |  |           | 196,086 |          
|                                           | Current portion of lease payables (note 9)   |                             |            |           |            |  |            | 3,390      |            |  |           | 103     |          
|                                           | Other current liabilities                    |                             |            | 8,759      |            |  |            | 14,014     |            |  |           | 427     |          
|                                           |                                              |                             |            |            |            |  |            |            |           
|                                           |                                              | Total current liabilities   |            |            | 11,996,800 |  |            |            | 13,903,989 |  |           |         | 423,901   | 
|                                           |                                              |                             |            |            |            |  |            |            |           
|Long-term liabilities:                     |                                              |                             |            |            |            |  |            |            |            |  |           |        
|                                           | Long-term loans (note 11)                    |                             |            | 14,681,820 |            |  |            | 26,034,564 |            |  |           | 793,737 |          
|                                           | Lease payables  long-term (note 9)          |                             |            |           |            |  |            | 130,967    |            |  |           | 3,993   |          
|                                           |                                              |                             |            |            |            |  |            |            |           
|                                           |                                              | Total long-term liabilities |            |            | 14,681,820 |  |            |            | 26,165,531 |  |           |         | 797,730   | 
|                                           |                                              |                             |            |            |            |  |            |            |           
|Other liabilities:                         |                                              |                             |            |            |            |  |            |            |            |  |           |        
|                                           | Accrued pension liabilities (note 12)        |                             |            | 30,755     |            |  |            | 50,594     |            |  |           | 1,543   |          
|                                           | Guarantee deposits                           |                             |            | 577        |            |  |            | 1,691      |            |  |           | 52      |          
|                                           |                                              |                             |            |            |            |  |            |            |           
|                                           |                                              | Total other liabilities     |            |            | 31,332     |  |            |            | 52,285     |  |           |         | 1,595     | 
|                                           |                                              |                             |            |            |            |  |            |            |           
|                                           |                                              | Total liabilities           |            |            | 26,709,952 |  |            |            | 40,121,805 |  |           |         | 1,223,226 | 
|                                           |                                              |                             |            |            |            |  |            |            |           
|Stockholders equity (note 14):            |                                              |                             |            |            |            |  |            |            |            |  |           |        
|                                           | Common stock                                 |                             |            | 24,976,600 |            |  |            | 25,109,540 |            |  |           | 765,535 |          
|                                           | Capital surplus                              |                             |            | 15,548,660 |            |  |            | 15,548,660 |            |  |           | 474,045 |          
|                                           | Legal reserve                                |                             |            | 1,559      |            |  |            | 91,689     |            |  |           | 2,795   |          
|                                           | Special reserve                              |                             |            |           |            |  |            | 542,605    |            |  |           | 16,543  |          
|                                           | Retained earnings                            |                             |            | 915,333    |            |  |            | 5,943,790  |            |  |           | 181,213 |          
|                                           |                                              |                             |            |            |            |  |            |            |           
|                                           |                                              | Total stockholders equity  |            |            | 41,442,152 |  |            |            | 47,236,284 |  |           |         | 1,440,131 | 
|                                           |                                              |                             |            |            |            |  |            |            |           
|Commitments and contingencies (note 19)    |                                              |                             |            |            |            |  |            |            |            |  |           |        
|                                           |                                              |                             |            |            |            |  |            |            |           
|Total liabilities and stockholders equity |                                              | $                           | 68,152,104 |            |            |  | 87,358,089 |            |            |  | 2,663,357 |        
|                                           |                                              |                             |            |            |            |  |            |            |           



F-63



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##### Table of Contents



INOTERA MEMORIES, INC.





Statements of Income


For the years ended December 31, 2004 and 2005


(Expressed in thousands of New Taiwan Dollars and
U.S. Dollars except for earnings per share)


|                                      |                                                                                                                               |                                         |            |            |            |   |             |            |            |   |          |         |         |  
|------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------- | --------------------------------------- | ---------- | ---------- | ---------- | - | ----------- | ---------- | ---------- | - | -------- | ------- | ------- | -
|                                      |                                                                                                                               | 2004                                    |            |            | 2005       |  
|                                      |                                                                                                                               |                                         |            |            |            |  
|                                      |                                                                                                                               | NTD                                     |            |            | NTD        |   |             | USD        |           
|                                      |                                                                                                                               |                                         |            |            |            |   |             |            |           
|Operating revenues (note 17)          |                                                                                                                               |                                         |            |            |            |   |             |            |            |   |          |        
|                                      | Sales revenue                                                                                                                 |                                         | $          | 5,961,954  |            |   |             | 23,044,929 |            |   |          | 702,589 |        
|                                      | Sales returns                                                                                                                 |                                         |            | (161       | )          |   |             | (3,133     | )          |   |          | (96     | )      
|                                      | Sales allowances                                                                                                              |                                         |            | (963       | )          |   |             | (9,593     | )          |   |          | (292    | )      
|                                      |                                                                                                                               |                                         |            |            |            |   |             |            |           
|                                      |                                                                                                                               | Net operating revenues                  |            |            | 5,960,830  |   |             |            | 23,032,203 |   |          |         | 702,201 |  
|                                      |                                                                                                                               |                                         |            |            |            |   |             |            |           
|                                     
|Cost of goods sold (notes 17 and 22)  |                                                                                                                               |                                         | (3,912,658 | )          |            |   | (16,350,746 | )          |            |   | (498,498 | )      
|                                      |                                                                                                                               |                                         |            |            |            |   |             |            |           
|Gross profit                          |                                                                                                                               |                                         | 2,048,172  |            |            |   | 6,681,457   |            |            |   | 203,703  |        
|                                      |                                                                                                                               |                                         |            |            |            |   |             |            |           
|Operating expenses (notes 17 and 22): |                                                                                                                               |                                         |            |            |            |   |             |            |            |   |          |        
|                                      | Administrative and general expenses                                                                                           |                                         |            | (1,395,577 | )          |   |             | (283,853   | )          |   |          | (8,654  | )      
|                                      | Research and development expenses                                                                                             |                                         |            | (322,185   | )          |   |             | (658,134   | )          |   |          | (20,065 | )      
|                                      |                                                                                                                               |                                         |            |            |            |   |             |            |           
|                                      |                                                                                                                               | Total operating expenses                |            |            | (1,717,762 | ) |             |            | (941,987   | ) |          |         | (28,719 | )
|                                      |                                                                                                                               |                                         |            |            |            |   |             |            |           
|                                      |                                                                                                                               | Operating income                        |            |            | 330,410    |   |             |            | 5,739,470  |   |          |         | 174,984 |  
|                                      |                                                                                                                               |                                         |            |            |            |   |             |            |           
|Non-operating income:                 |                                                                                                                               |                                         |            |            |            |   |             |            |            |   |          |        
|                                      | Interest income (note 7)                                                                                                      |                                         |            | 24,110     |            |   |             | 309,821    |            |   |          | 9,446   |        
|                                      | Gain on disposal of investments                                                                                               |                                         |            | 85,648     |            |   |             | 4,532      |            |   |          | 138     |        
|                                      | Foreign exchange gain, net                                                                                                    |                                         |            | 551,248    |            |   |             | 676,797    |            |   |          | 20,634  |        
|                                      | Others (note 16)                                                                                                              |                                         |            | 12,966     |            |   |             | 306,754    |            |   |          | 9,352   |        
|                                      |                                                                                                                               |                                         |            |            |            |   |             |            |           
|                                      |                                                                                                                               | Total non-operating income and gains    |            |            | 673,972    |   |             |            | 1,297,904  |   |          |         | 39,570  |  
|                                      |                                                                                                                               |                                         |            |            |            |   |             |            |           
|Non-operating expenses:               |                                                                                                                               |                                         |            |            |            |   |             |            |            |   |          |        
|                                      | Interest expenses (excluding capitalized interest of NT$151,686
    and NT$395,501 for 2004 and 2005, respectively) (note 16) |                                         |            | (91,322    | )          |   |             | (760,618   | )          |   |          | (23,190 | )      
|                                      | Others (note 16)                                                                                                              |                                         |            | (11,713    | )          |   |             | (9,637     | )          |   |          | (294    | )      
|                                      |                                                                                                                               |                                         |            |            |            |   |             |            |           
|                                      |                                                                                                                               | Total non-operating expenses and losses |            |            | (103,035   | ) |             |            | (770,255   | ) |          |         | (23,484 | )
|                                      |                                                                                                                               |                                         |            |            |            |   |             |            |           
|                                     
|Income before income tax              |                                                                                                                               |                                         | 901,347    |            |            |   | 6,267,119   |            |            |   | 191,070  |        
|                                     
|Income tax expense (note 13)          |                                                                                                                               |                                         | (46        | )          |            |   | (337,361    | )          |            |   | (10,285  | )      
|                                      |                                                                                                                               |                                         |            |            |            |   |             |            |           
|Net income                            |                                                                                                                               | $                                       | 901,301    |            |            |   | 5,929,758   |            |            |   | 180,785  |        
|                                      |                                                                                                                               |                                         |            |            |            |   |             |            |           
|Basic earnings per share (note 15)    |                                                                                                                               |                                         |            |            |            |   |             |            |            |   |          |        
|                                      | Before tax                                                                                                                    |                                         | $          | 0.51       |            |   |             | 2.50       |            |   |          | 0.08    |        
|                                      |                                                                                                                               |                                         |            |            |            |   |             |            |           
|                                      | After tax                                                                                                                     |                                         | $          | 0.51       |            |   |             | 2.36       |            |   |          | 0.07    |        
|                                      |                                                                                                                               |                                         |            |            |            |   |             |            |           



F-64



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##### Table of Contents





INOTERA MEMORIES, INC.





Statements of Changes in Stockholders Equity


For the years ended December 31, 2004 and 2005


(Expressed in thousands of New Taiwan Dollars and
U.S. Dollars)


|                                                   |  |  |     |              |  |  |                 |                   |  |                  |            |  |                 |  |        |       |  |  |          |  |  |       |          |   |  |  |           |   |  |  |            |  
|-------------------------------------------------- |  |  | --- | ------------ |  |  | --------------- | ----------------- |  | ---------------- | ---------- |  | --------------- |  | ------ | ----- |  |  | -------- |  |  | ----- | -------- | - |  |  | --------- | - |  |  | ---------- | -
|                                                   |  |  |     |              |  |  |                 | Retained earnings |  |                  |           
|                                                   |  |  |     |              |  |  |                 |                   |  |                  |           
|                                                   |  |  |     |              |  |  |                 |                   |  | Accumulated loss |            |  |                 |  |       
|                                                   |  |  |     |              |  |  |                 |                   |  | during the       |            |  |                 |  |       
|                                                   |  |  |     |              |  |  |                 |                   |  | development      |            |  | Accumulated     |  |        |      
|                                                   |  |  |     | Common stock |  |  | Capital surplus |                   |  | Legal reserve    |            |  | Special reserve |  |        | stage |  |  | earnings |  |  | Total |         
|                                                   |  |  |     |              |  |  |                 |                   |  |                  |            |  |                 |  |        |       |  |  |          |  |  |       |         
|Balance as of January 1, 2004                      |  |  | NTD |              |  |  | 8,591,700       |                   |  |                  | 3,333,350  |  |                 |  |       |       |  |  |         |  |  |       | 15,591   |   |  |  |          |   |  |  | 11,940,641 |  
|Appropriation and distribution:                    |  |  |     |              |  |  |                 |                   |  |                  |            |  |                 |  |        |       |  |  |          |  |  |       |          |   |  |  |           |   |  |  |            |  
|Appropriation for legal reserve                    |  |  |     |              |  |  |                |                   |  |                  |           |  |                 |  | 1,559  |       |  |  |         |  |  |       | (1,559   | ) |  |  |          |   |  |  |           |  
|Issuance of common stock                           |  |  |     |              |  |  | 16,384,900      |                   |  |                  | 12,215,310 |  |                 |  |       |       |  |  |         |  |  |       |         |   |  |  |          |   |  |  | 28,600,210 |  
|Cumulative net loss from January 1 to May 31, 2004 |  |  |     |              |  |  |                |                   |  |                  |           |  |                 |  |       |       |  |  |         |  |  |       | (237,597 | ) |  |  |          |   |  |  | (237,597   | )
|Accumulated loss                                   |  |  |     |              |  |  |                |                   |  |                  |           |  |                 |  |       |       |  |  |         |  |  |       | 223,565  |   |  |  | (223,565  | ) |  |  |           |  
|Net income from June 1, 2004 to December 31, 2004  |  |  |     |              |  |  |                |                   |  |                  |           |  |                 |  |       |       |  |  |         |  |  |       |         |   |  |  | 1,138,898 |   |  |  | 1,138,898  |  
|                                                   |  |  |     |              |  |  |                 |                   |  |                  |            |  |                 |  |        |       |  |  |          |  |  |       |          |  
|Balance as of December 31, 2004                    |  |  | NTD |              |  |  | 24,976,600      |                   |  |                  | 15,548,660 |  |                 |  | 1,559  |       |  |  |         |  |  |       |         |   |  |  | 915,333   |   |  |  | 41,442,152 |  
|Appropriation and distribution:                    |  |  |     |              |  |  |                 |                   |  |                  |            |  |                 |  |        |       |  |  |          |  |  |       |          |   |  |  |           |   |  |  |            |  
|Appropriation for legal reserve                    |  |  |     |              |  |  |                |                   |  |                  |           |  |                 |  | 90,130 |       |  |  |         |  |  |       |         |   |  |  | (90,130   | ) |  |  |           |  
|Appropriation for special reserve                  |  |  |     |              |  |  |                |                   |  |                  |           |  |                 |  |       |       |  |  | 542,605  |  |  |       |         |   |  |  | (542,605  | ) |  |  |           |  
|Remuneration for directors and supervisors         |  |  |     |              |  |  |                |                   |  |                  |           |  |                 |  |       |       |  |  |         |  |  |       |         |   |  |  | (2,686    | ) |  |  | (2,686     | )
|Bonus for employees                                |  |  |     |              |  |  | 8,057           |                   |  |                  |           |  |                 |  |       |       |  |  |         |  |  |       |         |   |  |  | (16,114   | ) |  |  | (8,057     | )
|Bonus for stockholders                             |  |  |     |              |  |  | 124,883         |                   |  |                  |           |  |                 |  |       |       |  |  |         |  |  |       |         |   |  |  | (249,766  | ) |  |  | (124,883   | )
|Net income for the year ended December 31, 2005    |  |  |     |              |  |  |                |                   |  |                  |           |  |                 |  |       |       |  |  |         |  |  |       |         |   |  |  | 5,929,758 |   |  |  | 5,929,758  |  
|                                                   |  |  |     |              |  |  |                 |                   |  |                  |            |  |                 |  |        |       |  |  |          |  |  |       |          |  
|Balance as of December 31, 2005                    |  |  | NTD |              |  |  | 25,109,540      |                   |  |                  | 15,548,660 |  |                 |  | 91,689 |       |  |  | 542,605  |  |  |       |         |   |  |  | 5,943,790 |   |  |  | 47,236,284 |  
|                                                   |  |  |     |              |  |  |                 |                   |  |                  |            |  |                 |  |        |       |  |  |          |  |  |       |          |  
|Balance as of December 31, 2004                    |  |  | USD |              |  |  | 761,482         |                   |  |                  | 474,045    |  |                 |  | 48     |       |  |  |         |  |  |       |         |   |  |  | 27,906    |   |  |  | 1,263,481  |  
|Appropriation and distribution:                    |  |  |     |              |  |  |                 |                   |  |                  |            |  |                 |  |        |       |  |  |          |  |  |       |          |   |  |  |           |   |  |  |            |  
|Appropriation for legal reserve                    |  |  |     |              |  |  |                |                   |  |                  |           |  |                 |  | 2,747  |       |  |  |         |  |  |       |         |   |  |  | (2,747    | ) |  |  |           |  
|Appropriation for special reserve                  |  |  |     |              |  |  |                |                   |  |                  |           |  |                 |  |       |       |  |  | 16,543   |  |  |       |         |   |  |  | (16,543   | ) |  |  |           |  
|Remuneration for directors and supervisors         |  |  |     |              |  |  |                |                   |  |                  |           |  |                 |  |       |       |  |  |         |  |  |       |         |   |  |  | (82       | ) |  |  | (82        | )
|Bonus for employees                                |  |  |     |              |  |  | 246             |                   |  |                  |           |  |                 |  |       |       |  |  |         |  |  |       |         |   |  |  | (491      | ) |  |  | (245       | )
|Bonus for stockholders                             |  |  |     |              |  |  | 3,807           |                   |  |                  |           |  |                 |  |       |       |  |  |         |  |  |       |         |   |  |  | (7,615    | ) |  |  | (3,808     | )
|Net income for the year ended December 31, 2005    |  |  |     |              |  |  |                |                   |  |                  |           |  |                 |  |       |       |  |  |         |  |  |       |         |   |  |  | 180,785   |   |  |  | 180,785    |  
|                                                   |  |  |     |              |  |  |                 |                   |  |                  |            |  |                 |  |        |       |  |  |          |  |  |       |          |  
|Balance as of December 31, 2005                    |  |  | USD |              |  |  | 765,535         |                   |  |                  | 474,045    |  |                 |  | 2,795  |       |  |  | 16,543   |  |  |       |         |   |  |  | 181,213   |   |  |  | 1,440,131  |  
|                                                   |  |  |     |              |  |  |                 |                   |  |                  |            |  |                 |  |        |       |  |  |          |  |  |       |          |  



F-65



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##### Table of Contents



INOTERA MEMORIES, INC.





Statements of Cash Flows


For the years ended December 31, 2004 and 2005


(Expressed in thousands of New Taiwan Dollars and
U.S. Dollars)


|                                                 |                                                                                    |                                                     |           |             |             |   |           |             |             |   |         |          |          |  
|------------------------------------------------ | ---------------------------------------------------------------------------------- | --------------------------------------------------- | --------- | ----------- | ----------- | - | --------- | ----------- | ----------- | - | ------- | -------- | -------- | -
|                                                 |                                                                                    | 2004                                                |           |             | 2005        |  
|                                                 |                                                                                    |                                                     |           |             |             |  
|                                                 |                                                                                    | NTD                                                 |           |             | NTD         |   |           | USD         |            
|                                                 |                                                                                    |                                                     |           |             |             |   |           |             |            
|Cash flows from operating activities:            |                                                                                    |                                                     |           |             |             |   |           |             |             |   |         |         
|                                                 | Net income                                                                         |                                                     | $         | 901,301     |             |   |           | 5,929,758   |             |   |         | 180,785  |         
|                                                 | Depreciation                                                                       |                                                     |           | 2,041,633   |             |   |           | 8,099,551   |             |   |         | 246,938  |         
|                                                 | Amortization of deferred charges                                                   |                                                     |           | 12,269      |             |   |           | 36,165      |             |   |         | 1,103    |         
|                                                 | Unrealized foreign currency exchange gain, net                                     |                                                     |           | (549,374    | )           |   |           | (280,665    | )           |   |         | (8,557   | )       
|                                                 | Realized interest revenue from capital lease                                       |                                                     |           |            |             |   |           | (10,133     | )           |   |         | (309     | )       
|                                                 | Gain on disposal of short-term investments                                         |                                                     |           | (85,648     | )           |   |           | (4,532      | )           |   |         | (138     | )       
|                                                 | Amortization of deferred forward exchange premium                                  |                                                     |           |            |             |   |           | (287,851    | )           |   |         | (8,776   | )       
|                                                 | Increase in accounts receivable  related parties                                  |                                                     |           | (2,634,669  | )           |   |           | (2,554,838  | )           |   |         | (77,891  | )       
|                                                 | Decrease (increase) in other receivables                                           |                                                     |           | (40,841     | )           |   |           | 106,119     |             |   |         | 3,235    |         
|                                                 | Increase in inventories                                                            |                                                     |           | (2,095,342  | )           |   |           | (1,358,055  | )           |   |         | (41,404  | )       
|                                                 | Decrease in lease receivables                                                      |                                                     |           |            |             |   |           | 10,291      |             |   |         | 314      |         
|                                                 | Decrease (increase) in prepayments and other current assets                        |                                                     |           | (940,582    | )           |   |           | 395,049     |             |   |         | 12,044   |         
|                                                 | (Decrease) increase in accounts payable                                            |                                                     |           | 492,165     |             |   |           | (4,581,405  | )           |   |         | (139,677 | )       
|                                                 | Decrease in accounts payable  related parties                                     |                                                     |           | (160,139    | )           |   |           | (71,320     | )           |   |         | (2,174   | )       
|                                                 | Increase in tax payables                                                           |                                                     |           |            |             |   |           | 124,357     |             |   |         | 3,791    |         
|                                                 | Increase in accrued expenses                                                       |                                                     |           | 350,970     |             |   |           | 407,478     |             |   |         | 12,423   |         
|                                                 | (Decrease) increase in other payables  related parties                            |                                                     |           | 254,113     |             |   |           | (198,268    | )           |   |         | (6,045   | )       
|                                                 | Decrease in lease payables                                                         |                                                     |           |            |             |   |           | (1,639      | )           |   |         | (50      | )       
|                                                 | Increase in other current liabilities                                              |                                                     |           | 6,182       |             |   |           | 5,255       |             |   |         | 160      |         
|                                                 | Increase in accrued pension liability                                              |                                                     |           | 15,038      |             |   |           | 19,839      |             |   |         | 605      |         
|                                                 | Decrease in deferred income tax assets, net                                        |                                                     |           | 9           |             |   |           | 185,198     |             |   |         | 5,646    |         
|                                                 |                                                                                    |                                                     |           |             |             |   |           |             |            
|                                                 |                                                                                    | Net cash provided by (used in) operating activities |           |             | (2,432,915  | ) |           |             | 5,970,354   |   |         |          | 182,023  |  
|                                                 |                                                                                    |                                                     |           |             |             |   |           |             |            
|Cash flows from investing activities:            |                                                                                    |                                                     |           |             |             |   |           |             |             |   |         |         
|                                                 | Increase in short-term investments                                                 |                                                     |           | 4,822,138   |             |   |           | 4,532       |             |   |         | 138      |         
|                                                 | Purchases of property, plant and equipment                                         |                                                     |           | (37,915,757 | )           |   |           | (22,928,454 | )           |   |         | (699,038 | )       
|                                                 | Increase in deferred charges                                                       |                                                     |           | (123,218    | )           |   |           | (52,728     | )           |   |         | (1,608   | )       
|                                                 | Decrease (increase) in refundable deposits                                         |                                                     |           | (13,574     | )           |   |           | 18,117      |             |   |         | 552      |         
|                                                 |                                                                                    |                                                     |           |             |             |   |           |             |            
|                                                 |                                                                                    | Net cash used in investing activities               |           |             | (33,230,411 | ) |           |             | (22,958,533 | ) |         |          | (699,956 | )
|                                                 |                                                                                    |                                                     |           |             |             |   |           |             |            
|Cash flows from financing activities:            |                                                                                    |                                                     |           |             |             |   |           |             |             |   |         |         
|                                                 | (Decrease) increase in short-term loans                                            |                                                     |           | 1,728,852   |             |   |           | (158,200    | )           |   |         | (4,823   | )       
|                                                 | Increase in long-term loans                                                        |                                                     |           | 15,270,954  |             |   |           | 17,285,096  |             |   |         | 526,985  |         
|                                                 | Increase in capital                                                                |                                                     |           | 28,600,210  |             |   |           |            |             |   |         |         |         
|                                                 | Decrease in advance receipts for stock                                             |                                                     |           |            |             |   |           |            |             |   |         |         |         
|                                                 | Increase in guarantee deposits                                                     |                                                     |           | 448         |             |   |           | 1,114       |             |   |         | 34       |         
|                                                 | Cash dividends                                                                     |                                                     |           |            |             |   |           | (124,611    | )           |   |         | (3,799   | )       
|                                                 | Bonus for employees                                                                |                                                     |           |            |             |   |           | (8,057      | )           |   |         | (246     | )       
|                                                 | Remuneration of directors and supervisors                                          |                                                     |           |            |             |   |           | (2,686      | )           |   |         | (82      | )       
|                                                 |                                                                                    |                                                     |           |             |             |   |           |             |            
|                                                 |                                                                                    | Net cash provided by financing activities           |           |             | 45,600,464  |   |           |             | 16,992,656  |   |         |          | 518,069  |  
|                                                 |                                                                                    |                                                     |           |             |             |   |           |             |            
|Effect of foreign currency exchange translation  |                                                                                    |                                                     | (38,322   | )           |             |   | (162,098  | )           |             |   | (4,942  | )       
|                                                 |                                                                                    |                                                     |           |             |             |   |           |             |            
|Increase (decrease) in cash and cash equivalents |                                                                                    |                                                     | 9,898,816 |             |             |   | (157,621  | )           |             |   | (4,806  | )       
|Cash and cash equivalents at beginning of year   |                                                                                    |                                                     | 81,373    |             |             |   | 9,980,189 |             |             |   | 304,275 |         
|                                                 |                                                                                    |                                                     |           |             |             |   |           |             |            
|Cash and cash equivalents at end of year         |                                                                                    | $                                                   | 9,980,189 |             |             |   | 9,822,568 |             |             |   | 299,469 |         
|                                                 |                                                                                    |                                                     |           |             |             |   |           |             |            
|Supplemental cash flow information:              |                                                                                    |                                                     |           |             |             |   |           |             |             |   |         |         
|                                                 | Income tax paid                                                                    |                                                     | $         | 2,351       |             |   |           | 27,860      |             |   |         | 849      |         
|                                                 |                                                                                    |                                                     |           |             |             |   |           |             |            
|                                                 | Interest paid (excluding capitalized interest)                                     |                                                     | $         | 122,644     |             |   |           | 972,201     |             |   |         | 29,640   |         
|                                                 |                                                                                    |                                                     |           |             |             |   |           |             |            
|Non-cash investing and financing activities:     |                                                                                    |                                                     |           |             |             |   |           |             |             |   |         |         
|                                                 | Classification of current portion of long-term loans from
    long-term loans      |                                                     | $         |            |             |   |           | 6,431,636   |             |   |         | 196,086  |         
|                                                 |                                                                                    |                                                     |           |             |             |   |           |             |            
|                                                 | Lease payables and leased assets resulting from lease agreement                    |                                                     | $         |            |             |   |           | 135,996     |             |   |         | 4,146    |         
|                                                 |                                                                                    |                                                     |           |             |             |   |           |             |            
|                                                 | Lease receivables and leased assets transferred resulting from
    lease agreement |                                                     | $         |            |             |   |           | 345,637     |             |   |         | 10,538   |         
|                                                 |                                                                                    |                                                     |           |             |             |   |           |             |            



F-66



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##### Table of Contents



INOTERA MEMORIES, INC.





Notes to Financial Statements


December 31, 2004 and 2005


(All amounts expressed in thousands of New Taiwan Dollars


and U.S. Dollars except per share information or unless
otherwise specified)




|    |                                      
|--- | -------------------------------------
|(1) | Organization and Principal Activities









|    |                                           
|--- | ------------------------------------------
|(2) | Summary of Significant Accounting Policies





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) Foreign currency transactions and translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | The Companys reporting currency is the New Taiwan Dollar.
    Foreign currency transactions during the year are translated at
    the exchange rates on the transaction dates. Foreign
    currency-denominated assets and liabilities are translated into
    New Taiwan Dollar at the exchange rate prevailing on the balance
    sheet date, and the resulting realized and unrealized gains or
    losses are recognized as non-operating income or expenses.                                                                                                                                               
|
| | (b) Convenience translation into U.S. dollars                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | The financial statements are stated in New Taiwan Dollars.
    Translation of the 2005 New Taiwan Dollar amounts into
    U.S. dollar amounts is included solely for the convenience
    of the readers, using the Federal Reserve exchange rate on
    December 30, 2005, of NT$32.8 to US$1 uniformly for all the
    financial statements accounts. The convenience
    translations should not be construed as representations that the
    New Taiwan Dollar amounts have been, could have been, or could
    in the future be, converted into U.S. dollars at this rate
    or any other rate of exchange.
|
| | (c) Cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | Cash and cash equivalents consist of cash on hand, cash in
    banks, time deposits, negotiable time deposits and other cash
    equivalents. Other cash equivalents represent highly liquid debt
    instruments with a maturity period of less than three months,
    such as commercial paper, repurchased government bond and other
    highly liquid investments which do not have a significant level
    of market or credit risk from potential interest rate changes.                                                                                                                                   
|
| | (d) Short-term investments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | Short-term investments consist mainly of bond funds, which are
    stated at the lower of aggregate cost or market value. Aggregate
    cost is determined by the weighted-average method. Market value
    is the listed net value of the fund at the balance sheet date.
    Losses resulting from a decline in market value are recognized
    in the income statement of the current period.                                                                                                                                                                                                                 

F-67



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##### Table of Contents



INOTERA MEMORIES, INC.


Notes to Financial Statements  (Continued)




| |                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (e) Inventories                                                                                                                                                                                                                                                                                                                                                                 
|
| | Inventories are stated at the lower of cost or market value.
    Cost is determined by using the monthly weighted-average method.
    Market value represents replacement cost or net realizable value.                                                                                                                                                                         
|
| | (f) Property, plant and equipment/ Depreciation                                                                                                                                                                                                                                                                                                                                 
|
| | Property, plant and equipment are stated at cost. The cost less
    accumulated depreciation is the net book value. Interest from
    borrowings obtained to finance the construction of property,
    plant and equipment is capitalized. Maintenance and repairs are
    expensed when incurred; major addition, improvement and
    replacement expenditures are capitalized.
|
| | Depreciation of property, plant and equipment is provided over
    their estimated useful lives by using the straight-line method.
    Assets still in service after reaching the end of their
    estimated useful lives are depreciated based on the residual
    value over their re-estimated useful lives. The useful lives of
    the assets are as follows:              



| |                                            
| | -------------------------------------------
| | (i)   Buildings and structures: 8-50 years.
|
| | (ii)  Vehicles: 5 years.                   
|
| | (iii) Machinery and equipment: 3-5 years.  
|
| | (iv) Leased assets: 23.7 years.            
|
| | (v)  Miscellaneous equipment: 5-15 years.  



| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | Gains or losses on disposal of property, plant and equipment are
    recorded as non-operating income or expenses.
|
| | (g) Leases                                                                                                        
|
| | A lease is deemed to be a capital lease if it conforms to any
    one of the following classification criteria:   



| |       |                                                                                                                                                                                                                                                                                   
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | the lease transfers ownership of the leased assets to the lessee
    by the end of the lease term;                                                                                                                                                                                
|
| | (ii)  | the lease contains a bargain purchase option;                                                                                                                                                                                                                                     
|
| | (iii) | the lease term is equal to 75% or more of the total estimated
    economic life of the leased assets; this criterion should not be
    applied to leases in which the leased asset has been used for
    more than 75% of its estimated economic life before the lease
    begins;
|
| | (iv)  | The present value of the rental plus the bargain purchase price
    or the guaranteed residual value is at least 90% of the fair
    market value of the leased assets at the inception date of the
    lease.                                                                    



| |                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | For the lessor, a capital lease must also conform to any one of
    the four classification criteria specified above and both of the
    following two further criteria:



| |      |                                                                                                                             
| | ---- | ----------------------------------------------------------------------------------------------------------------------------
| | (i)  | collectibility of the lease payments is reasonably predictable;
    and                                                     
|
| | (ii) | no important uncertainties surround the amount of unreimbursable
    costs yet to be incurred by the lessor under the lease.



| |                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under a capital lease, the Company, as the lessee, capitalizes
    the leased assets based on (a) the present value of all
    future installment rental payments (minus executory costs born
    by lessor) plus the bargain purchase price or lessees
    guaranteed residual value or (b) the fair market value of
    leased assets

F-68



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##### Table of Contents



INOTERA MEMORIES, INC.


Notes to Financial Statements  (Continued)




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | at the lease inception date, whichever is lower. The
    depreciation period is restricted to the lease term, rather than
    the estimated useful life of the assets, unless the lease
    provides for transfer of title or includes a bargain purchase
    option.                                                                                                                                                                                                                                                                                                                   
|
| | Under a capital lease, the Company, as the lessor, records all
    installments plus the bargain purchase price or guaranteed
    residual value as the lease receivables. The implicit interest
    rate is used to calculate the present value of lease receivables
    as the cost of leased assets transferred. The difference between
    the total amount of lease receivables and the cost of leased
    assets transferred is recognized as unrealized interest income
    and is then recognized as realized interest income using the
    interest method over the lease term.
|
| | (h) Deferred charges                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    



| |     |                                                                                                                    
| | --- | -------------------------------------------------------------------------------------------------------------------
| | (i) | Any charges and consulting fees related to the syndicated loans
    are deferred and amortized over the loan terms.



| |      |                                                                                                                                                                                        
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (ii) | Power line compensation and the royalty paid to the Industrial
    Technology Research Institute are deferred and amortized over
    the estimated useful lives or the agreement terms.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) Employee retirement plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | The Company has established an employee noncontributory defined
    benefit retirement plan (the Plan) covering
    full-time employees in the Republic of China. In accordance with
    the Plan, employees are eligible for retirement or are required
    to retire after meeting certain age or service requirements.
    Payments of retirement benefits are based on years of service
    and the average salary for the last six months before the
    employees retirement. Each employee gets
    2 months salary for each service year for the first
    15 years, and 1 months salary for each service
    year thereafter. A lump-sum retirement benefit is paid through
    the retirement fund.
|
| | Starting from July 1, 2005, the enforcement date of the
    newly enacted Labor Pension Act (the New Act), those
    employees who adopt the defined contribution plan are stipulated
    as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           



| |     |                                                                                                                
| | --- | ---------------------------------------------------------------------------------------------------------------
| | (i) | employees who originally adopted the Plan and opt to be subject
    to the pension mechanism under the New Act;



| |      |                                                                               
| | ---- | ------------------------------------------------------------------------------
| | (ii) | employees who commenced working after the enforcement date of
    the New Act.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In accordance with the New Act, the rate of contribution by an
    employer to an individual labor pension fund account per month
    shall not be less than 6% of the workers monthly wages.                                                                                                                                                                                                                                                                                                                             
|
| | The Company has adopted Republic of China Statement of Financial
    Accounting Standards (SFAS) No. 18, Accounting
    for Pensions for the noncontributory defined benefit
    retirement plan. SFAS No. 18 requires an actuarial
    calculation of the Companys pension obligation as of each
    fiscal year-end. Based on the actuarial calculation, the Company
    recognizes a minimum pension liability and net periodic pension
    costs covering the service lives of the retirement plan
    participants.
|
| | (j) Revenue recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | Revenue is generally recognized when products are delivered to
    customers and the significant risks and rewards of ownership are
    transferred. Repair income is recognized when the services are
    provided.                                                                                                                                                                                                                                                                                                       

F-69



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##### Table of Contents



INOTERA MEMORIES, INC.


Notes to Financial Statements  (Continued)




| |                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------
| | Revenue is generally recognized when it is realized or
    realizable and earned when all of the following criteria are met:



| |                                                                        
| | -----------------------------------------------------------------------
| | (i) persuasive evidence of an arrangement exists,                      
|
| | (ii) delivery has occurred or services have been rendered,             
|
| | (iii) the sellers price to the buyer is fixed or
    determinable, and
|
| | (iv) collectibility is reasonably assured.                             



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (k) Income tax                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | Income taxes are accounted for using the asset and liability
    method. Deferred income tax is determined based on differences
    between the financial statements and tax basis of assets and
    liabilities using enacted tax rates in effect during the years
    in which the differences are expected to reverse. The income tax
    effects of taxable temporary differences are recognized as
    deferred income tax liabilities. The income tax effects
    resulting from deductible temporary differences, net operating
    loss carryforwards, and income tax credits are recognized as
    deferred income tax assets. The realization of the deferred
    income tax assets is evaluated, and if it is considered more
    likely than not that the asset will not be realized, a valuation
    allowance is recognized accordingly.
|
| | The classification of deferred income tax assets and liabilities
    as current or noncurrent is based on the classification of the
    related asset or liability. If the deferred income tax asset or
    liability is not directly related to a specific asset or
    liability, then the classification is based on the expected
    realization date of the asset or liability.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | A tax imputation system was adopted in accordance with the
    amended ROC Income Tax Law. Under this system, the Company may
    retain the earnings incurred after December 31, 1997, by
    paying 10% surtax on such undistributed earnings, calculated on
    tax basis, and the surtax is accounted for as income tax expense
    on the date when the stockholders resolve not to
    distribute the earnings.                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | (l) Earnings (loss) per common share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | Earnings (loss) per share are computed by dividing the net
    income (loss) made available for distribution to common
    stockholders by the weighted-average number of shares
    outstanding which is retroactively adjusted to include stock
    dividends issued during the period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | (m) Derivative financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) Foreign exchange forward contracts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | Foreign exchange forward contracts which are entered into for
    the purpose of hedging the risks of exchange rate fluctuation on
    foreign currency receivables and payables are translated into
    New Taiwan Dollars using spot rates on the balance sheet date.
    The resulting translation difference is recorded as an exchange
    gain or loss in the accompanying statements of income. The
    difference between the forward rate and spot rate at the
    contract date is amortized over the contract period.       
|
| | (ii) Interest rate swap contracts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | Because there is no physical transfer of principal, only memo
    entries of notional principals are made for interest rate swaps.
    For trading swaps, the differences between the present and
    market values of interest receivables or payables arising
    thereon are reported as unrealized gains or losses on derivative
    instruments. For non-trading swaps, interest is accrued based on
    contract terms with interest revenue and expense recognized in
    the same period that the hedged items affect earnings.

F-70



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##### Table of Contents



INOTERA MEMORIES, INC.


Notes to Financial Statements  (Continued)




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iii) Cross currency swaps (CCSs)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| | Memo entries of notional principals are made on the contract
    date for cross-currency swaps. Forward accounts receivables are
    offset against payables on the balance sheet date, with the
    difference reflected either as an asset or a liability. For
    trading swaps, gains or losses on the differences between the
    present and market value of principal and interests in
    New Taiwan Dollars, are recognized as unrealized gains or
    losses. For non-trading swaps, interest is accrued based on
    contract terms and principal repayment period, with interest
    revenue and expense recognized in the same period that the
    hedged items affect earnings.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (n) Asset impairment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | Effective January 1, 2005, the Company adopted Republic of
    China Statement of Financial Accounting Standards No. 35
    (ROC SFAS 35) Accounting for Asset
    Impairment. According to SFAS No. 35, the
    Company assesses at each balance sheet date whether there is any
    indication that an asset (individual asset or cash-generating
    unit) may have been impaired. If any such indication exists, the
    Company estimates the recoverable amount of the asset. The
    Company recognizes impairment loss for an asset whose carrying
    value is higher than the recoverable amount.
|
| | The Company reverses an impairment loss recognized in prior
    periods for assets if there is any indication that the
    impairment loss recognized no longer exists or has decreased.
    The carrying value after the reversal should not exceed the
    recoverable amount or the depreciated or amortized balance of
    the assets assuming no impairment loss was recognized in prior
    periods.                                                                                                                                                                                                   
|
| | (o) Basis for classifying assets and liabilities as current
    or non-current                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | Current assets are cash and other assets that a business will
    convert to cash or use up in a relatively short period of
    time  one year or one operating cycle, whichever is
    longer. Current liabilities are debts due within one year or one
    operating cycle, whichever is longer.                                                                                                                                                                                                                                                                                                          



|    |                                                                      
|--- | ---------------------------------------------------------------------
|(3) | Reasons for and Cumulative Effect of Accounting Principle
    Changes



F-71



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##### Table of Contents



INOTERA MEMORIES, INC.


Notes to Financial Statements  (Continued)




|    |                                               
|--- | ----------------------------------------------
|(4) | Revenues and expenses during development stage

|                        |                                |                    |            |         |                       |  |          |         |  
|----------------------- | ------------------------------ | ------------------ | ---------- | ------- | --------------------- |  | -------- | ------- | -
|                        |                                | 2004.1.1-2004.5.30 |            |         | 2002.12.17-2003.12.31 | 
|                        |                                |                    |            |         |                       | 
|                        |                                | NTD                |            |         | NTD                   | 
|                        |                                |                    |            |         |                       | 
|Operating revenue       |                                | $                  |           |         |                       |  |         |        
|Cost of goods sold      |                                |                    |           |         |                       |  |         |        
|                        |                                |                    |            |         |                       | 
|Gross profit            |                                |                    |           |         |                       |  |         |        
|                        |                                |                    |            |         |                       | 
|Administrative expenses |                                |                    | (1,452,163 | )       |                       |  | (566,506 | )      
|                        |                                |                    |            |         |                       | 
|Net loss                |                                |                    | (1,452,163 | )       |                       |  | (566,506 | )      
|                        |                                |                    |            |         |                       | 
|Non-operating income    |                                |                    |            |         |                       |  |          |        
|                        | Interest income                |                    |            | 1,171   |                       |  |          | 4,417   |  
|                        | Gain on disposal of investment |                    |            | 15,825  |                       |  |          | 20,737  |  
|                        | Exchange gain, net             |                    |            | 231,209 |                       |  |          | 5,259   |  
|                        | Other income                   |                    |            | 3,633   |                       |  |          | 773     |  
|                        |                                |                    |            |         |                       | 
|                        |                                |                    | 251,838    |         |                       |  | 31,186   |        
|                        |                                |                    |            |         |                       | 
|Non-operating expenses  |                                |                    |            |         |                       |  |          |        
|                        | Interest expenses              |                    |            | (40,420 | )                     |  |          | (23,336 | )
|                        | Other expenses                 |                    |            | (788    | )                     |  |          | (30     | )
|                        |                                |                    |            |         |                       | 
|                        |                                |                    | (41,208    | )       |                       |  | (23,366  | )      
|                        |                                |                    |            |         |                       | 
|Loss before income tax  |                                |                    | (1,241,533 | )       |                       |  | (558,686 | )      
|Income tax benefit      |                                |                    | 1,003,936  |         |                       |  | 574,277  |        
|                        |                                |                    |            |         |                       | 
|Net (loss) income       |                                | $                  | (237,597   | )       |                       |  | 15,591   |        
|                        |                                |                    |            |         |                       | 

(5) Cash and cash equivalents




|                                        |  |      |           |  |      |  |           |     |  |  |         | 
|--------------------------------------- |  | ---- | --------- |  | ---- |  | --------- | --- |  |  | ------- | 
|                                        |  | 2004 |           |  | 2005 | 
|                                        |  |      |           |  |      | 
|                                        |  | NTD  |           |  | NTD  |  |           | USD | 
|                                        |  |      |           |  |      |  |           |     | 
|Cash on hand and petty cash             |  | $    | 130       |  |      |  | 160       |     |  |  | 5       | 
|Cash in bank  checking account         |  |      | 4,159     |  |      |  | 5,346     |     |  |  | 163     | 
|Cash in bank  demand deposit account   |  |      | 7,616,966 |  |      |  | 5,143     |     |  |  | 157     | 
|Cash in bank  foreign currency account |  |      | 600,106   |  |      |  | 546,761   |     |  |  | 16,670  | 
|Time deposit                            |  |      | 1,758,828 |  |      |  | 9,265,158 |     |  |  | 282,474 | 
|                                        |  |      |           |  |      |  |           |     | 
|Total                                   |  | $    | 9,980,189 |  |      |  | 9,822,568 |     |  |  | 299,469 | 
|                                        |  |      |           |  |      |  |           |     | 



F-72



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##### Table of Contents



INOTERA MEMORIES, INC.


Notes to Financial Statements  (Continued)




|    |            
|--- | -----------
|(6) | Inventories



|                     |  |      |           |  |      |  |           |     |  |  |         | 
|-------------------- |  | ---- | --------- |  | ---- |  | --------- | --- |  |  | ------- | 
|                     |  | 2004 |           |  | 2005 | 
|                     |  |      |           |  |      | 
|                     |  | NTD  |           |  | NTD  |  |           | USD | 
|                     |  |      |           |  |      |  |           |     | 
|Raw material         |  | $    | 541,186   |  |      |  | 557,814   |     |  |  | 17,007  | 
|Supplies             |  |      | 379,428   |  |      |  | 468,803   |     |  |  | 14,293  | 
|Work in process      |  |      | 1,188,247 |  |      |  | 2,341,178 |     |  |  | 71,377  | 
|Finished goods       |  |      | 130       |  |      |  | 9,394     |     |  |  | 286     | 
|Inventory in transit |  |      | 18,539    |  |      |  | 108,396   |     |  |  | 3,305   | 
|                     |  |      |           |  |      |  |           |     | 
|Total                |  | $    | 2,127,530 |  |      |  | 3,485,585 |     |  |  | 106,268 | 
|                     |  |      |           |  |      |  |           |     | 



| |     |                                                                                                                                         
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------
| | (a) | The insurance coverage for inventories amounted to NT$2,412,642
    and NT$3,245,671 as of December 31, 2004 and 2005,
    respectively.





|    |                  
|--- | -----------------
|(7) | Lease Receivables





|                                  |  |         |         |   |             |  |      |     |  |  |          |   |  |  |         |  
|--------------------------------- |  | ------- | ------- | - | ----------- |  | ---- | --- |  |  | -------- | - |  |  | ------- | -
|                                  |  | 2005    |        
|                                  |  |         |        
|                                  |  | Current |         |   | Non-current | 
|                                  |  |         |         |   |             | 
|                                  |  | NTD     |         |   | USD         |  |      | NTD |  |  | USD      |  
|                                  |  |         |         |   |             |  |      |     |  |  |          |  
|Gross lease receivables           |  | $       | 26,756  |   |             |  | 816  |     |  |  | 691,540  |   |  |  | 21,084  |  
|Less: Unrealized interest revenue |  |         | (20,066 | ) |             |  | (612 | )   |  |  | (352,752 | ) |  |  | (10,755 | )
|                                  |  |         |         |   |             |  |      |     |  |  |          |  
|Net lease receivables             |  | $       | 6,690   |   |             |  | 204  |     |  |  | 338,788  |   |  |  | 10,329  |  
|                                  |  |         |         |   |             |  |      |     |  |  |          |  



F-73



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##### Table of Contents



INOTERA MEMORIES, INC.


Notes to Financial Statements  (Continued)




|                    |  |               |         |  |                 |  |        |     |  |  |         |  |  |  |       | 
|------------------- |  | ------------- | ------- |  | --------------- |  | ------ | --- |  |  | ------- |  |  |  | ----- | 
|                    |  | Capital lease |         |  | Operating lease | 
|                    |  |               |         |  |                 | 
|Duration            |  | NTD           |         |  | USD             |  |        | NTD |  |  | USD     | 
|                    |  |               |         |  |                 |  |        |     |  |  |         | 
|2006.1.1-2006.12.31 |  | $             | 24,698  |  |                 |  | 753    |     |  |  | 3,719   |  |  |  | 113   | 
|2007.1.1-2007.12.31 |  |               | 24,698  |  |                 |  | 753    |     |  |  | 3,719   |  |  |  | 113   | 
|2008.1.1-2008.12.31 |  |               | 24,698  |  |                 |  | 753    |     |  |  | 3,719   |  |  |  | 113   | 
|2009.1.1-2009.12.31 |  |               | 24,698  |  |                 |  | 753    |     |  |  | 3,719   |  |  |  | 113   | 
|2010.1.1-2034.12.31 |  |               | 617,447 |  |                 |  | 18,825 |     |  |  | 92,964  |  |  |  | 2,834 | 
|                    |  |               |         |  |                 |  |        |     |  |  |         | 
|                    |  | $             | 716,239 |  |                 |  | 21,837 |     |  |  | 107,840 |  |  |  | 3,286 | 
|                    |  |               |         |  |                 |  |        |     |  |  |         | 



|    |                                            
|--- | -------------------------------------------
|(8) | Property, Plant and Equipment/ Depreciation



|                         |  |      |           |  |      |  |            |     |  |  |         | 
|------------------------ |  | ---- | --------- |  | ---- |  | ---------- | --- |  |  | ------- | 
|                         |  | 2004 |           |  | 2005 | 
|                         |  |      |           |  |      | 
|                         |  | NTD  |           |  | NTD  |  |            | USD | 
|                         |  |      |           |  |      |  |            |     | 
|Buildings and structures |  | $    | 24,756    |  |      |  | 99,863     |     |  |  | 3,045   | 
|Machinery and equipment  |  |      | 1,845,574 |  |      |  | 9,219,024  |     |  |  | 281,067 | 
|Vehicles                 |  |      | 239       |  |      |  | 725        |     |  |  | 22      | 
|Leased assets            |  |      |          |  |      |  | 2,873      |     |  |  | 88      | 
|Miscellaneous equipment  |  |      | 171,967   |  |      |  | 808,146    |     |  |  | 24,639  | 
|                         |  |      |           |  |      |  |            |     | 
|Total                    |  | $    | 2,042,536 |  |      |  | 10,130,631 |     |  |  | 308,861 | 
|                         |  |      |           |  |      |  |            |     | 



| |     |                                                                                                                                                                                                                                                                                                                                             
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | All construction in progress is insured, and the insurance
    coverage thereon amounted to NT$60,354,152 and NT$35,778,787 as
    of December 31, 2004 and 2005, respectively.                                                                                                                                                             
|
| | (b) | As of December 31, 2004 and 2005, the insurance coverage on
    the buildings and equipment against fire loss amounted to
    NT$33,186,671 and NT$67,533,079, respectively.                                                                                                                                                                
|
| | (c) | In March 2005, the Company purchased two parcels of land
    numbered 350 and 351 located in Hwa-Ya, Kueishan, Taoyuan
    County, for NT$28,465 from the Land Readjustment Committee in
    Kueishan, Taoyuan County. As of December 31, 2005, the
    Company had paid NT$22,772, which was recorded as a prepayment
    on land purchase.
|
| | (d) | As of December 31, 2005, the insurance coverage for losses
    on business interruption amounted to NT$13,658,519.                                                                                                                                                                                                                          
|
| | (e) | The property, plant and equipment pledged to secure bank loans
    as of December 31, 2004 and 2005, were described in
    note 11.                                                                                                                                                                                                         

(9) Leased Assets and Lease Payables




| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | The Company signed a long-term lease agreement with NTC to lease
    a portion of the building and land located on the land numbered
    348, 348-2 and 348-4, Hwa-Ya Section, Kueishan Valley, Taoyuan
    County. The lease took effect on July 1, 2005, and remains
    effective until February 28, 2029 (including the period
    when the agreement can be automatically extended), a total of
    284 months. The lease agreement for the building is treated
    as a capital lease because (a) the present value of the
    periodic rental payments made since the inception date is at
    least 90% of the

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##### Table of Contents



INOTERA MEMORIES, INC.


Notes to Financial Statements  (Continued)




| |  |                                                                                                                                                                                                                                                                                                   
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | market value of the leased assets and (b) the lease term is
    equal to 75% of or more of the total estimated economic life of
    the leased assets. The land is treated as an operating lease.
    The monthly rents for the leased building and land were NT$775
    and NT$357, respectively.



| |     |                                                                                                                                                                                                                            
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) | The total amount of lease payables for the capital lease of the
    building was NT$135,996; the implicit interest rate was 4.46%.
    The fair value of the leased assets was NT$135,996. The details
    were as follows:

|                                        |  |            |         |   |     |  |       |  
|--------------------------------------- |  | ---------- | ------- | - | --- |  | ----- | -
|                                        |  | 2005.12.31 |        
|                                        |  |            |        
|                                        |  | NTD        |         |   | USD | 
|                                        |  |            |         |   |     | 
|Lease payables                          |  | $          | 134,357 |   |     |  | 4,096 |  
|Less: Current portion of lease payables |  |            | (3,390  | ) |     |  | (103  | )
|                                        |  |            |         |   |     | 
|                                        |  | $          | 130,967 |   |     |  | 3,993 |  
|                                        |  |            |         |   |     | 



| |     |                                                                                                                                                      
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | (c) | For the year ended December 31, 2005, the lease expense for
    the operating lease for land was NT$2,141, which was fully paid.                     
|
| | (d) | Future lease payments (excluding interest component) classified
    as capital lease or operating lease as of December 31,
    2005, were as follows:

|                    |  |               |         |  |                 |  |       |     |  |  |        |  |  |  |       | 
|------------------- |  | ------------- | ------- |  | --------------- |  | ----- | --- |  |  | ------ |  |  |  | ----- | 
|Duration            |  | Capital lease |         |  | Operating lease | 
|                    |  |               |         |  |                 | 
|                    |  | NTD           |         |  | USD             |  |       | NTD |  |  | USD    | 
|                    |  |               |         |  |                 |  |       |     |  |  |        | 
|2006.1.1-2006.12.31 |  | $             | 3,390   |  |                 |  | 103   |     |  |  | 4,282  |  |  |  | 131   | 
|2007.1.1-2007.12.31 |  |               | 3,544   |  |                 |  | 108   |     |  |  | 4,282  |  |  |  | 131   | 
|2008.1.1-2008.12.31 |  |               | 3,706   |  |                 |  | 113   |     |  |  | 4,282  |  |  |  | 131   | 
|2009.1.1-2009.12.31 |  |               | 3,874   |  |                 |  | 118   |     |  |  | 4,282  |  |  |  | 131   | 
|2010.1.1-2029.02.28 |  |               | 119,843 |  |                 |  | 3,654 |     |  |  | 82,068 |  |  |  | 2,502 | 
|                    |  |               |         |  |                 |  |       |     |  |  |        | 
|                    |  | $             | 134,357 |  |                 |  | 4,096 |     |  |  | 99,196 |  |  |  | 3,026 | 
|                    |  |               |         |  |                 |  |       |     |  |  |        | 



|     |                 
|---- | ----------------
|(10) | Short-term Loans



|                     |  |            |  |           |  |       
|-------------------- |  | ---------- |  | --------- |  | ------
|                     |  | 2004       |  | 2005     
|                     |  |            |  |          
|                     |  | NTD        |  | NTD       |  | USD   
|                     |  |            |  |           |  |       
|Unsecured borrowings |  | $2,481,500 |  | 2,323,300 |  | 70,832
|                     |  |            |  |           |  |       





F-75



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##### Table of Contents



INOTERA MEMORIES, INC.


Notes to Financial Statements  (Continued)




|     |                
|---- | ---------------
|(11) | Long-term Loans



|                                            |  |                                     |  |  |                |  |  |               |                 |  |     |   |           |   |            | 
|------------------------------------------- |  | ----------------------------------- |  |  | -------------- |  |  | ------------- | --------------- |  | --- | - | --------- | - | ---------- | 
|                                            |  |                                     |  |  |                |  |  | 2004          |                
|                                            |  |                                     |  |  |                |  |  |               |                
|Bank                                        |  | Repayment period                    |  |  | Nature         |  |  | Interest rate |                 |  | NTD |  
|                                            |  |                                     |  |  |                |  |  |               |                 |  |     |  
|Taiwan Cooperative Bank (the managing bank) |  | February 2, 2006-February 2, 2009   |  |  | Machinery loan |  |  |               | 1.1725%-2.5793% |  |     | $ | 8,298,420 |  
|I.C.B.C. (the managing bank)                |  | November 15, 2006-November 15, 2009 |  |  | Machinery loan |  |  |               | 3.1607%-3.4567% |  |     |   | 6,383,400 |  
|                                            |  |                                     |  |  |                |  |  |               |                 |  |     |  
|                                            |  |                                     |  |  |                |  |  |               |                 |  |     |   |           | $ | 14,681,820 | 
|                                            |  |                                     |  |  |                |  |  |               |                 |  |     |  

|                                            |  |                                     |  |  |                |  |  |               |                 |  |     |   |            |     |            |   |         |  |          |  
|------------------------------------------- |  | ----------------------------------- |  |  | -------------- |  |  | ------------- | --------------- |  | --- | - | ---------- | --- | ---------- | - | ------- |  | -------- | -
|                                            |  |                                     |  |  |                |  |  | 2005          |                
|                                            |  |                                     |  |  |                |  |  |               |                
|Bank                                        |  | Repayment period                    |  |  | Nature         |  |  | Interest rate |                 |  | NTD |   |            | USD |           
|                                            |  |                                     |  |  |                |  |  |               |                 |  |     |   |            |     |           
|Taiwan Cooperative Bank (the managing bank) |  | February 2, 2006-February 2, 2009   |  |  | Machinery loan |  |  |               | 4.6214%-4.7688% |  |     | $ | 8,541,000  |     |            |   | 260,396 | 
|I.C.B.C. (the managing bank)                |  | November 15, 2006-November 15, 2009 |  |  | Machinery loan |  |  |               | 5.3488%         |  |     |   | 22,075,200 |     |            |   | 673,025 | 
|I.C.B.C. (the managing bank)                |  | November 15, 2006-November 15, 2009 |  |  | Machinery loan |  |  |               | 2.4260%         |  |     |   | 1,850,000  |     |            |   | 56,402  | 
|                                            |  |                                     |  |  |                |  |  |               |                 |  |     |   |            |     |           
|                                            |  |                                     |  |  |                |  |  |               |                 |  |     |   |            |     | 32,466,200 |   |         |  | 989,823  |  
|Less: Current portion of long-term loans    |  |                                     |  |  |                |  |  |               |                 |  |     |   |            |     | (6,431,636 | ) |         |  | (196,086 | )
|                                            |  |                                     |  |  |                |  |  |               |                 |  |     |   |            |     |           
|                                            |  |                                     |  |  |                |  |  |               |                 |  |     |   |            | $   | 26,034,564 |   |         |  | 793,737  |  
|                                            |  |                                     |  |  |                |  |  |               |                 |  |     |   |            |     |           





| |     |                                                                                                                                                                                             
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | Credit line: US$260,000.                                                                                                                                                                    
|
| | (b) | Interest rate: USD 3-month or
    6-month London
    Inter-bank Offered Rate (LIBOR) plus margin.                                                                                         
|
| | (c) | Duration: 5 years.                                                                                                                                                                          
|
| | (d) | Repayment: The principal is payable in 7 semi-annual
    installments starting from 24 months after the first
    drawing date.                                                             
|
| | (e) | The long-term loan is secured by machinery. As of
    December 31, 2004 and 2005, the net book value of the
    pledged assets amounted to NT$11,654,503 and NT$9,625,951,
    respectively.



| |     |                                                                            
| | --- | ---------------------------------------------------------------------------
| | (f) | This long-term borrowing was guaranteed by Nan Ya Plastics
    Corporation.



| |     |                                                                  
| | --- | -----------------------------------------------------------------
| | (g) | The Company has issued a promissory note for the syndicated loan.



F-76



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##### Table of Contents



INOTERA MEMORIES, INC.


Notes to Financial Statements  (Continued)






| |     |                                                                                                                                                                
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | Credit line: US$672,000 and NT$5,700,000.                                                                                                                      
|
| | (b) | Interest rate for Tranche A: USD 3-month or
    6-month London
    Inter-bank Offered Rate (LIBOR) plus margin.                                              
|
| | (c) | Interest rate for Tranche B: The
    180-day commercial
    paper rate in the primary market which appears on Moneyline
    Telerate, plus margin.             
|
| | (d) | Duration: 5 years.                                                                                                                                             
|
| | (e) | Repayment: The principal is payable in 7 semi-annual
    installments starting from 24 months after the first
    drawing date.                                
|
| | (f) | This long-term debt is secured by buildings and machinery. As of
    December 31, 2005, the net book value of the pledged assets
    amounted to NT$17,949,184.
|
| | (g) | This long-term borrowing was guaranteed by Nan Ya Plastics
    Corporation.                                                                                    
|
| | (h) | The Company has issued a promissory note for this syndicated
    loan.                                                                                         



|     |                          
|---- | -------------------------
|(12) | Accrued Pension Liability



|                               |                                 |      |        |        |      |  |        |        |  |  |       |       | 
|------------------------------ | ------------------------------- | ---- | ------ | ------ | ---- |  | ------ | ------ |  |  | ----- | ----- | 
|                               |                                 | 2004 |        |        | 2005 | 
|                               |                                 |      |        |        |      | 
|                               |                                 | NTD  |        |        | NTD  |  |        | USD    | 
|                               |                                 |      |        |        |      |  |        |        | 
|Balance of the retirement fund |                                 | $    | 12,637 |        |      |  | 29,193 |        |  |  | 890   |      
|The net pension costs          |                                 |      |        |        |      |  |        |        |  |  |       |      
|                               | Defined benefit retirement plan |      |        | 30,094 |      |  |        | 35,317 |  |  |       | 1,077 | 
|                               | Defined contribution plan       |      |        |       |      |  |        | 23,482 |  |  |       | 716   | 
|Accrued pension expenses       |                                 |      |       |        |      |  | 12,265 |        |  |  | 374   |      
|Accrued pension liabilities    |                                 |      | 30,755 |        |      |  | 50,594 |        |  |  | 1,543 |      



| |     |                                                                                                                                                                                                                                                                                                                                                                              
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | The Company adopted Republic of China Statement of Financial
    Accounting Standards No. 18, Accounting for
    Pensions for those employees covered by the
    non-contributory defined benefit retirement plan. The Company
    recognizes a minimum pension liability based on the actuarial
    report, which uses the balance sheet date as the measurement
    date.

F-77



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##### Table of Contents



INOTERA MEMORIES, INC.


Notes to Financial Statements  (Continued)




| |     |                                                                                                                                                      
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) | The following table sets forth the details of the reconciliation
    of funded status to accrued pension liability on
    December 31, 2004 and 2005:

|                                   |                                 |      |         |         |      |  |         |          |   |  |        |        |  
|---------------------------------- | ------------------------------- | ---- | ------- | ------- | ---- |  | ------- | -------- | - |  | ------ | ------ | -
|                                   |                                 | 2004 |         |         | 2005 | 
|                                   |                                 |      |         |         |      | 
|                                   |                                 | NTD  |         |         | NTD  |  |         | USD      |  
|                                   |                                 |      |         |         |      |  |         |          |  
|Benefit obligation:                |                                 |      |         |         |      |  |         |          |   |  |        |       
|                                   | Vested benefit obligation       |      | $       | (1,589  | )    |  |         | (4,227   | ) |  |        | (129   | )
|                                   | Non-vested benefit obligation   |      |         | (33,262 | )    |  |         | (54,372  | ) |  |        | (1,658 | )
|                                   |                                 |      |         |         |      |  |         |          |  
|                                   | Accumulated benefit obligation  |      |         | (34,851 | )    |  |         | (58,599  | ) |  |        | (1,787 | )
|                                   | Projected compensation increase |      |         | (38,746 | )    |  |         | (65,607  | ) |  |        | (2,000 | )
|                                   |                                 |      |         |         |      |  |         |          |  
|                                   | Projected benefit obligation    |      |         | (73,597 | )    |  |         | (124,206 | ) |  |        | (3,787 | )
|Fair value of plan assets          |                                 |      | 15,132  |         |      |  | 31,115  |          |   |  | 949    |       
|                                   |                                 |      |         |         |      |  |         |          |  
|Funded status                      |                                 |      | (58,465 | )       |      |  | (93,091 | )        |   |  | (2,838 | )     
|Unamortized pension gain or losses |                                 |      | 27,710  |         |      |  | 42,497  |          |   |  | 1,295  |       
|                                   |                                 |      |         |         |      |  |         |          |  
|Accrued pension liability          |                                 | $    | (30,755 | )       |      |  | (50,594 | )        |   |  | (1,543 | )     
|                                   |                                 |      |         |         |      |  |         |          |  



| |     |                                                                                                                                                                                                                                                                                                                                                                 
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (c) | As of December 31, 2004 and 2005, the actuarial present
    value of the vested benefits for the Companys employees in
    accordance with the retirement benefit plan was approximately
    NT$1,835 and NT$4,609, respectively. Major assumptions used to
    determine the pension plan funded status as of December 31,
    2004 and 2005, were as follows:

|                                                 |  |      |       |  |      |  |       | 
|------------------------------------------------ |  | ---- | ----- |  | ---- |  | ----- | 
|                                                 |  | 2004 |       |  | 2005 | 
|                                                 |  |      |       |  |      | 
|Discount rate                                    |  |      | 3.00% |  |      |  | 3.00% | 
|Rate of increase in compensation                 |  |      | 3.00% |  |      |  | 3.00% | 
|Expected long-term rate of return on plan assets |  |      | 3.00% |  |      |  | 3.00% | 



|     |           
|---- | ----------
|(13) | Income Tax



| |     |                                                                                                                                                                                               
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | The Companys earnings are subject to income tax at a
    statutory rate of 25%. For the years ended December 31,
    2004 and 2005, the components of income tax expense were as
    follows:

|                              |  |      |    |  |      |  |         |     |  |  |        | 
|----------------------------- |  | ---- | -- |  | ---- |  | ------- | --- |  |  | ------ | 
|                              |  | 2004 |    |  | 2005 | 
|                              |  |      |    |  |      | 
|                              |  | NTD  |    |  | NTD  |  |         | USD | 
|                              |  |      |    |  |      |  |         |     | 
|Income tax expense  current  |  | $    | 46 |  |      |  | 152,162 |     |  |  | 4,639  | 
|Income tax expense  deferred |  |      |   |  |      |  | 185,199 |     |  |  | 5,646  | 
|                              |  |      |    |  |      |  |         |     | 
|Income tax expense            |  | $    | 46 |  |      |  | 337,361 |     |  |  | 10,285 | 
|                              |  |      |    |  |      |  |         |     | 



| |     |                                                                                                                                                                                                                                                                                
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) | The differences between expected income tax expense calculated
    at a statutory income tax rate of 25% and the actual income tax
    as reported in the accompanying financial statements for the
    years ended December 31, 2004 and 2005, were summarized as
    follows:

|                                                                         |  |      |            |   |      |  |            |     |  |  |          |  
|------------------------------------------------------------------------ |  | ---- | ---------- | - | ---- |  | ---------- | --- |  |  | -------- | -
|                                                                         |  | 2004 |            |   | 2005 | 
|                                                                         |  |      |            |   |      | 
|                                                                         |  | NTD  |            |   | NTD  |  |            | USD | 
|                                                                         |  |      |            |   |      |  |            |     | 
|Income tax calculated based on financial pretax income                   |  | $    | 225,327    |   |      |  | 1,566,770  |     |  |  | 47,767   |  
|Tax effect of tax-free income from income tax holiday                    |  |      |           |   |      |  | (1,269,719 | )   |  |  | (38,711  | )
|Increase in income tax credit for purchasing machinery and
    equipment |  |      | (3,480,741 | ) |      |  | (3,353,698 | )   |  |  | (102,248 | )

F-78



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##### Table of Contents



INOTERA MEMORIES, INC.


Notes to Financial Statements  (Continued)


|                                                                       |  |      |           |   |      |  |           |     |  |  |        |  
|---------------------------------------------------------------------- |  | ---- | --------- | - | ---- |  | --------- | --- |  |  | ------ | -
|                                                                       |  | 2004 |           |   | 2005 | 
|                                                                       |  |      |           |   |      | 
|                                                                       |  | NTD  |           |   | NTD  |  |           | USD | 
|                                                                       |  |      |           |   |      |  |           |     | 
|Differences between estimated and actual income tax expense
    filing |  |      | (85       | ) |      |  | 263,056   |     |  |  | 8,020  |  
|Tax-exempt securities                                                  |  |      | (21,412   | ) |      |  | (985      | )   |  |  | (30    | )
|Increase in valuation allowance for deferred income tax assets         |  |      | 3,276,911 |   |      |  | 3,123,694 |     |  |  | 95,235 |  
|10% surtax on undistributed earnings                                   |  |      |          |   |      |  | 7,862     |     |  |  | 240    |  
|Income tax expense imposed separately                                  |  |      | 46        |   |      |  | 381       |     |  |  | 12     |  
|                                                                       |  |      |           |   |      |  |           |     | 
|Income tax expense                                                     |  | $    | 46        |   |      |  | 337,361   |     |  |  | 10,285 |  
|                                                                       |  |      |           |   |      |  |           |     | 



|                                                         |  |      |            |   |      |  |            |     |  |  |          |  
|-------------------------------------------------------- |  | ---- | ---------- | - | ---- |  | ---------- | --- |  |  | -------- | -
|                                                         |  | 2004 |            |   | 2005 | 
|                                                         |  |      |            |   |      | 
|                                                         |  | NTD  |            |   | NTD  |  |            | USD | 
|                                                         |  |      |            |   |      |  |            |     | 
|Current:                                                 |  |      |            |   |      |  |            |     |  |  |          |  
|Deferred income tax assets                               |  |      | 23,744     |   |      |  | 66,267     |     |  |  | 2,020    |  
|Deferred income tax liabilities                          |  |      | (11,581    | ) |      |  | (29,862    | )   |  |  | (910     | )
|                                                         |  |      |            |   |      |  |            |     | 
|Current deferred income tax assets, net                  |  | $    | 12,163     |   |      |  | 36,405     |     |  |  | 1,110    |  
|                                                         |  |      |            |   |      |  |            |     | 
|Non-current:                                             |  |      |            |   |      |  |            |     |  |  |          |  
|Deferred income tax assets                               |  | $    | 4,182,020  |   |      |  | 7,194,031  |     |  |  | 219,331  |  
|Valuation allowance for deferred income tax assets       |  |      | (3,472,538 | ) |      |  | (6,596,233 | )   |  |  | (201,105 | )
|                                                         |  |      |            |   |      |  |            |     | 
|Deferred income tax assets, net                          |  |      | 709,482    |   |      |  | 597,798    |     |  |  | 18,226   |  
|Deferred income tax liabilities                          |  |      | (147,284   | ) |      |  | (245,040   | )   |  |  | (7,471   | )
|                                                         |  |      |            |   |      |  |            |     | 
|Non-current deferred income tax assets, net              |  | $    | 562,198    |   |      |  | 352,758    |     |  |  | 10,755   |  
|                                                         |  |      |            |   |      |  |            |     | 
|Total deferred income tax assets, gross                  |  | $    | 4,205,764  |   |      |  | 7,260,298  |     |  |  | 221,351  |  
|                                                         |  |      |            |   |      |  |            |     | 
|Total deferred income tax liabilities, gross             |  | $    | 158,865    |   |      |  | 274,902    |     |  |  | 8,381    |  
|                                                         |  |      |            |   |      |  |            |     | 
|Total valuation allowance for deferred income tax assets |  | $    | 3,472,538  |   |      |  | 6,596,233  |     |  |  | 201,105  |  
|                                                         |  |      |            |   |      |  |            |     | 

F-79



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##### Table of Contents



INOTERA MEMORIES, INC.


Notes to Financial Statements  (Continued)




| |     |                                                                                                                   
| | --- | ------------------------------------------------------------------------------------------------------------------
| | (d) | As of December 31, 2004 and 2005, the components of
    deferred income tax assets or liabilities were as follows:

|                                  |                                                                                           |        |   |            |            |  |           |           |            |  |            |           |  |            |           |           |            |  |  |         |  |  |         |         | 
|--------------------------------- | ----------------------------------------------------------------------------------------- | ------ | - | ---------- | ---------- |  | --------- | --------- | ---------- |  | ---------- | --------- |  | ---------- | --------- | --------- | ---------- |  |  | ------- |  |  | ------- | ------- | 
|                                  |                                                                                           | 2004   |   |            | 2005       | 
|                                  |                                                                                           |        |   |            |            | 
|                                  |                                                                                           | NTD    |   |            | NTD        |  |           | USD       |           
|                                  |                                                                                           |        |   |            |            |  |           |           |           
|                                  |                                                                                           |        |   | Effects on |            |  |           |           | Effects on |  |            |           |  | Effects on |          
|                                  |                                                                                           | Amount |   |            | income tax |  |           | Amount    |            |  | income tax |           |  | Amount     |           |           | income tax | 
|                                  |                                                                                           |        |   |            |            |  |           |           |            |  |            |           |  |            |           |           |            | 
|Deferred income tax assets:       |                                                                                           |        |   |            |            |  |           |           |            |  |            |           |  |            |           |           |            |  |  |         |  |  |         |        
|                                  | Investment tax credit                                                                     |        | $ | 4,105,880  |            |  |           | 4,105,880 |            |  |            | 7,023,377 |  |            |           | 7,023,377 |            |  |  | 214,127 |  |  |         | 214,127 | 
|                                  | Difference in depreciation expense for tax purposes and
    financial accounting purposes |        |   | 13,075     |            |  |           | 3,269     |            |  |            | 8,030     |  |            |           | 2,008     |            |  |  | 245     |  |  |         | 61      | 
|                                  | Pension expense in excess of tax limit                                                    |        |   | 32,056     |            |  |           | 8,014     |            |  |            | 50,594    |  |            |           | 12,648    |            |  |  | 1,543   |  |  |         | 386     | 
|                                  | Loss carryforwards                                                                        |        |   | 189,657    |            |  |           | 47,414    |            |  |            |          |  |            |           |          |            |  |  |        |  |  |         |        | 
|                                  | Unrealized foreign exchange loss                                                          |        |   | 86,083     |            |  |           | 21,521    |            |  |            | 818,944   |  |            |           | 204,736   |            |  |  | 24,968  |  |  |         | 6,242   | 
|                                  | Unrealized operating expense                                                              |        |   | 78,665     |            |  |           | 19,666    |            |  |            | 70,114    |  |            |           | 17,529    |            |  |  | 2,138   |  |  |         | 535     | 
|                                  |                                                                                           |        |   |            |            |  |           |           |            |  |            |           |  |            |           |           |            | 
|Deferred income tax assets, gross |                                                                                           |        |   |            |            |  | 4,205,764 |           |            |  |            |           |  |            | 7,260,298 |           |            |  |  |         |  |  | 221,351 |        
|                                  |                                                                                           |        |   |            |            |  |           |           |            |  |            |           |  |            |           |           |            | 
|Deferred income tax liabilities:  |                                                                                           |        |   |            |            |  |           |           |            |  |            |           |  |            |           |           |            |  |  |         |  |  |         |        
|                                  | Unrealized foreign exchange gain                                                          |        | $ | 635,458    |            |  |           | 158,864   |            |  |            | 1,099,609 |  |            |           | 274,902   |            |  |  | 33,525  |  |  |         | 8,381   | 
|                                  |                                                                                           |        |   |            |            |  |           |           |            |  |            |           |  |            |           |           |            | 



| |     |                                                                                                                                              
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------
| | (e) | Under the ROC Statute for Upgrading Industries, the
    Companys unused investment tax credits as of
    December 31, 2005, were as follows:

|                                                              |  |                      |           |  |        |  |         |             |  |  |      | 
|------------------------------------------------------------- |  | -------------------- | --------- |  | ------ |  | ------- | ----------- |  |  | ---- | 
|                                                              |  | Remaining deductible |          
|                                                              |  |                      |          
|Year                                                          |  | Amount               |           |  | Amount |  |         | Expiry Year | 
|                                                              |  |                      |           |  |        |  |         |             | 
|                                                              |  | NTD                  |           |  | USD    |  |         |            
|                                                              |  |                      |           |  |        |  |         |            
|Investment tax credit for purchasing machinery and equipment: |  |                      |           |  |        |  |         |             |  |  |      | 
|2003                                                          |  | $                    | 427,988   |  |        |  | 13,048  |             |  |  | 2007 | 
|2004                                                          |  |                      | 3,241,691 |  |        |  | 98,832  |             |  |  | 2008 | 
|2005                                                          |  |                      | 3,353,698 |  |        |  | 102,247 |             |  |  | 2009 | 
|                                                              |  |                      |           |  |        |  |         |             | 
|                                                              |  | $                    | 7,023,377 |  |        |  | 214,127 |             |  |  |      | 
|                                                              |  |                      |           |  |        |  |         |             | 





| |     |                                                                                                      
| | --- | -----------------------------------------------------------------------------------------------------
| | (f) | The Companys income tax returns have not been examined or
    assessed yet by the ROC tax authority.
|
| | (g) | Imputation credit account (ICA) and creditable ratio                                                 



| |     |                                                                                                                                                                                                                                                                      
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (h) | As of December 31, 2004 and 2005, the balance of the
    Companys ICA amounted to NT$196 and NT$27,822,
    respectively. The Companys creditable ratio related to
    2005 was 0.06%. There were no undistributed earnings belonging
    to the years before 1997.



| |     |                                                                                                                                                                                                              
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) | The stockholders approved a resolution during their meetings on
    June 29, 2005, and October 18, 2004, to allow the
    Company to avail itself of the Income Tax Holiday for investment
    projects under

F-80



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##### Table of Contents



INOTERA MEMORIES, INC.


Notes to Financial Statements  (Continued)




| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Article 9 of the Statute for Upgrading Industries. The
    Company has availed itself of the five-year Income Tax Holiday
    commencing from January 1, 2005 and June 1, 2005,
    respectively, for the taxable income that is derived only from
    the sale of products produced from its Fab 1-Phases 1 and 2
    investment project. This income tax holiday reduced the
    Companys effective income tax rate to as low as 5% in
    2005. As of December 31, 2005, the exemption from
    profit-seeking enterprise income tax (Income Tax
    Holiday) under Article 9 of the Statute for Upgrading
    Industries for the aforesaid investment projects had the
    following duration.

|                        |  |                               
|----------------------- |  | ------------------------------
|                        |  | Duration of Income Tax Holiday
|                        |  |                               
|Inotera Fab-1  Phase 1 |  | January 2005-December 2009    
|Inotera Fab-1  Phase 2 |  | June 2005-May 2009            

(14) Stockholders Equity














|                                       |  |             |  |            |  |        
|-------------------------------------- |  | ----------- |  | ---------- |  | -------
|                                       |  | 2004        |  | 2005      
|                                       |  |             |  |           
|                                       |  | NTD         |  | NTD        |  | USD    
|                                       |  |             |  |            |  |        
|Paid-in capital in excess of par value |  | $15,548,660 |  | 15,548,660 |  | 474,045
|                                       |  |             |  |            |  |        









| |     |                                                 
| | --- | ------------------------------------------------
| | (i) | 0.1%-1% as bonuses for directors and supervisors

F-81



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##### Table of Contents



INOTERA MEMORIES, INC.


Notes to Financial Statements  (Continued)




| |       |                                                                                                                               
| | ----- | ------------------------------------------------------------------------------------------------------------------------------
| | (ii)  | 1%-8% as employee bonuses                                                                                                     
|
| | (iii) | The remainder as dividends and bonuses for stockholders,
    distributed in the form of cash dividends and/or stock dividends.







| |       |                                                                          
| | ----- | -------------------------------------------------------------------------
| | (i)   | Legal reserve (10% of net income): NT$90,130                             
|
| | (ii)  | Voluntary reserve: NT$542,605                                            
|
| | (iii) | Remuneration of directors and supervisors: NT$2,686                      
|
| | (iv)  | Employees bonus  cash: NT$8,057                                        
|
| | (v)   | Employees bonus  stock: NT$8,057                                       
|
| | (vi)  | Stockholders dividend  stock (0.05 NT dollar
    per share): NT$124,883
|
| | (vii) | Stockholders dividend  cash (0.05 NT dollar per
    share): NT$124,883 





(15) Earnings per Share




|                                                  |  |               |         |  |              |  |                    |              |  |  |            |  |  |            |      |  |  |  |      | 
|------------------------------------------------- |  | ------------- | ------- |  | ------------ |  | ------------------ | ------------ |  |  | ---------- |  |  | ---------- | ---- |  |  |  | ---- | 
|                                                  |  | 2004          |        
|                                                  |  |               |        
|                                                  |  | Amount        |         |  |              |  | Earnings per share |             
|                                                  |  |               |         |  |              |  |                    |             
|                                                  |  | Income before |         |  | Income after |  |                    | Total shares |  |  | Before     |  |  | After      |     
|                                                  |  | income tax    |         |  | income tax   |  |                    | outstanding  |  |  | income tax |  |  | income tax |     
|                                                  |  |               |         |  |              |  |                    |              |  |  |            |  |  |            |     
|Basic earnings per share  retroactively adjusted |  | $             | 901,347 |  |              |  | 901,301            |              |  |  | 1,767,217  |  |  |            | 0.51 |  |  |  | 0.51 | 
|                                                  |  |               |         |  |              |  |                    |              |  |  |            |  |  |            |     

F-82



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##### Table of Contents



INOTERA MEMORIES, INC.


Notes to Financial Statements  (Continued)


|                                                  |  |               |           |  |              |  |                    |              |  |  |            |  |  |            |      |  |  |  |      | 
|------------------------------------------------- |  | ------------- | --------- |  | ------------ |  | ------------------ | ------------ |  |  | ---------- |  |  | ---------- | ---- |  |  |  | ---- | 
|                                                  |  | 2005          |          
|                                                  |  |               |          
|                                                  |  | Amount        |           |  |              |  | Earnings per share |             
|                                                  |  |               |           |  |              |  |                    |             
|                                                  |  | Income before |           |  | Income after |  |                    | Total shares |  |  | Before     |  |  | After      |     
|                                                  |  | income tax    |           |  | income tax   |  |                    | outstanding  |  |  | income tax |  |  | income tax |     
|                                                  |  |               |           |  |              |  |                    |              |  |  |            |  |  |            |     
|                                                  |  | NTD           |          
|                                                  |  |               |          
|Basic earnings per share  retroactively adjusted |  | $             | 6,267,119 |  |              |  | 5,929,758          |              |  |  | 2,510,954  |  |  |            | 2.50 |  |  |  | 2.36 | 
|                                                  |  |               |           |  |              |  |                    |              |  |  |            |  |  |            |     

|                                                  |  |     |         |  |  |  |         |  |  |  |           |  |  |  |      |  |  |  |      | 
|------------------------------------------------- |  | --- | ------- |  |  |  | ------- |  |  |  | --------- |  |  |  | ---- |  |  |  | ---- | 
|                                                  |  | USD |        
|                                                  |  |     |        
|Basic earnings per share  retroactively adjusted |  | $   | 191,070 |  |  |  | 180,785 |  |  |  | 2,510,954 |  |  |  | 0.08 |  |  |  | 0.07 | 
|                                                  |  |     |         |  |  |  |         |  |  |  |           |  |  |  |     

(16) Financial Instrument Information






| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | In July 2004, the Company entered into two Euro forward exchange
    contracts to hedge the risk of Euro payments with Chinatrust
    Commercial Bank and Taishin International Bank, respectively.
    The foreign exchange loss thereon amounted to NT$1,387, which
    was recorded under other losses on the income statement. These
    contracts had the same notional amount of EUR4,000 thousand and
    were settled in advance on August 9, 2004.                                                                                                                                                                                                                                                                              
|
| | (ii)  | The Company entered into four interest rate swap agreements with
    Taipei Fubon Bank and three other banks to hedge the risk from
    fluctuations of interest rates for foreign long-term loans which
    were obtained by the Company in 2004. As of December 31,
    2005 and 2004, the notional amounts of the outstanding interest
    rate swap agreements amounted to US$130,000 and US$130,000,
    respectively. Interest expenses incurred from these interest
    hedging activities amounted to NT$12,822 and NT$36,580,
    respectively. The net interest receivable and a payable as of
    December 31, 2005 and 2004, amounted to interest receivable
    of NT$1,348 and interest payable of NT$20,554, respectively.
|
| | (iii) | The Company entered into seventeen forward foreign exchange
    contracts with Standard Chartered Bank and three other banks to
    hedge the risk of foreign currency exchange rate fluctuations
    for foreign long-term loans. The deferred exchange gain for the
    year ended December 31, 2005, amounted to NT$1,313,265, of
    which NT$287,851 was amortized as non-operating income. The
    remaining unamortized balance was NT$1,025,414 as of
    December 31, 2005. As of December 31, 2005, the
    balance of forward foreign exchange contracts amounted to
    US$650,000, the details of which were as follows:                                                                                                    

|                                 |  |      |             |   |     |  |          |  
|-------------------------------- |  | ---- | ----------- | - | --- |  | -------- | -
|                                 |  | 2005 |            
|                                 |  |      |            
|                                 |  | NTD  |             |   | USD | 
|                                 |  |      |             |   |     | 
|Forward contract receivables     |  | $    | 21,352,500  |   |     |  | 650,991  |  
|Payables for forward purchases   |  |      | (19,059,075 | ) |     |  | (581,069 | )
|Deferred exchange gains          |  |      | (1,025,414  | ) |     |  | (31,263  | )
|                                 |  |      |             |   |     | 
|Forward contract receivable, net |  | $    | 1,268,011   |   |     |  | 38,659   |  
|                                 |  |      |             |   |     | 



| |      |                                                                                                                                                                                                                                                                                                                                            
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iv) | The Company entered into five foreign currency swap agreements
    with Citibank to hedge the foreign currency exchange risk for
    Euro payments. There was no unsettled balance as of
    December 31, 2005. For the year ended December 31,
    2005, the exchange loss incurred amounted to NT$3,004 and
    recorded as other losses.

F-83



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##### Table of Contents



INOTERA MEMORIES, INC.


Notes to Financial Statements  (Continued)




| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (v) | The Companys hedging strategy is to cover the biggest part
    of the risk. Because the foreign forward exchange rate is fixed,
    the cash flow risk is low. Credit risk is the risk that a
    counter-party will default on its obligation. The banks with
    which the Company entered into derivative transactions are all
    well-known financial institutions. Therefore, the Company does
    not expect the banks to default. As a result, the Company
    estimates credit risk to be reasonably low.





|                                   |  |       |   |       |      |  |       |     |  |       |       |  |       |  |     |       |  |  |    |  |  |  |    | 
|---------------------------------- |  | ----- | - | ----- | ---- |  | ----- | --- |  | ----- | ----- |  | ----- |  | --- | ----- |  |  | -- |  |  |  | -- | 
|                                   |  | 2004  |   |       | 2005 | 
|                                   |  |       |   |       |      | 
|                                   |  | NTD   |   |       | NTD  |  |       | USD | 
|                                   |  |       |   |       |      |  |       |     | 
|                                   |  | Book  |   | Fair  |      |  | Book  |     |  | Fair  |       |  | Book  |  |     | Fair  | 
|Financial Instruments              |  | value |   | value |      |  | value |     |  | value |       |  | value |  |     | value | 
|                                   |  |       |   |       |      |  |       |     |  |       |       |  |       |  |     |       | 
|Forward foreign exchange contracts |  | $     |  |       |      |  |      |     |  |       | 1,268 |  |       |  | 912 |       |  |  | 39 |  |  |  | 28 | 
|Interest rate swap agreements      |  |       |  |       |      |  | (37   | )   |  |       |      |  |       |  | 39  |       |  |  |   |  |  |  | 1  | 
|                                   |  |       |   |       |      |  |       |     |  |       |       |  |       |  |     |       |  | 
|                                   |  |       |  |       |      |  | (37   | )   |  |       | 1,268 |  |       |  | 951 |       |  |  | 39 |  |  |  | 29 | 
|                                   |  |       |   |       |      |  |       |     |  |       |       |  |       |  |     |       |  | 





| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | The book value is believed to be not materially different from
    their fair value because the maturity dates of short-term
    financial instruments are within one year from the balance sheet
    date. Therefore, their book value is adopted as a reasonable
    basis for determining their fair value. This principle is
    applied in estimating the fair value of short-term financial
    instruments including cash and cash equivalents, account
    receivables, account payables, accrued expenses and short-term
    loans.
|
| | (ii)  | Refundable deposits and guarantee deposits are collected or
    refunded in cash based on their amount. Therefore, their book
    value is equivalent to their fair value.                                                                                                                                                                                                                                                                                                                                                                  
|
| | (iii) | The discounted present value of anticipated cash flows is
    adopted as the fair value of long-term debt and corporate bonds
    payable. The discounting rates used in calculating the present
    value are similar to those of the Companys existing
    long-term loans.                                                                                                                                                                                                                                                              
|
| | (iv)  | The fair values of derivative financial instruments are the
    estimated amounts expected to be received or to be paid by the
    Company assuming that it terminates the contracts on the balance
    sheet date. The majority of the Companys derivative
    financial instruments have quotations available from financial
    institutions which are used in the calculation of the fair value.                                                                                                                                       



| |     |                                                                                                   
| | --- | --------------------------------------------------------------------------------------------------
| | (v) | The fair value of letters of credit or endorsements/guarantees
    is based on the contract price.



| |     |                                                                                                                                                                       
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (c) | As of December 31, 2004 and 2005, the fair values of
    non-derivative financial instruments were estimated to be equal
    to their book values as of the same date.

F-84



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##### Table of Contents



INOTERA MEMORIES, INC.


Notes to Financial Statements  (Continued)




|     |                           
|---- | --------------------------
|(17) | Related-party Transactions



|                                              |  |                                                                           
|--------------------------------------------- |  | --------------------------------------------------------------------------
|Name                                          |  | Relationship with the Company                                             
|                                              |  |                                                                           
|Nan Ya Plastics Corp. (NPC)                   |  | The president of Nan Ya Plastics Corp. is the chairman of
    the Company.
|Nanya Technology Corp. (NTC)                  |  | Major shareholder                                                         
|Infineon Technologies AG (IFX)                |  | Major shareholder                                                         
|Infineon Technologies Suzhou Co., Ltd. (IFSZ) |  | Subsidiary of IFX                                                         
|Infineon Technologies, Richmond (IFR)         |  | Subsidiary of IFX                                                         





| |                                                                                                          
| | ---------------------------------------------------------------------------------------------------------
| | (i) Sales revenue, and accounts receivable                                                               
|
| | Significant sales to related parties for the years ended
    December 31, 2004 and 2005, were as follows:

|     |  |        |           |  |          |  |        |        |  |  |            |  |  |          |         |  |  |  |        | 
|---- |  | ------ | --------- |  | -------- |  | ------ | ------ |  |  | ---------- |  |  | -------- | ------- |  |  |  | ------ | 
|     |  | 2004   |           |  | 2005     | 
|     |  |        |           |  |          | 
|     |  | NTD    |           |  | % of net |  |        | NTD    |  |  | USD        |  |  | % of net |        
|     |  | Amount |           |  | sales    |  |        | Amount |  |  | Amount     |  |  | sales    |        
|     |  |        |           |  |          |  |        |        |  |  |            |  |  |          |        
|NTC  |  | $      | 2,985,699 |  |          |  | 50.09  |        |  |  | 11,502,292 |  |  |          | 350,680 |  |  |  | 49.94  | 
|IFX  |  |        | 2,975,131 |  |          |  | 49.91  |        |  |  | 9,180,137  |  |  |          | 279,882 |  |  |  | 39.86  | 
|IFSZ |  |        |          |  |          |  |       |        |  |  | 2,347,571  |  |  |          | 71,572  |  |  |  | 10.19  | 
|IFR  |  |        |          |  |          |  |       |        |  |  | 2,203      |  |  |          | 67      |  |  |  | 0.01   | 
|     |  |        |           |  |          |  |        |        |  |  |            |  |  |          |        
|     |  | $      | 5,960,830 |  |          |  | 100.00 |        |  |  | 23,032,203 |  |  |          | 702,201 |  |  |  | 100.00 | 
|     |  |        |           |  |          |  |        |        |  |  |            |  |  |          |        



| |                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------
| | The balances of accounts receivable resulting from the above
    transactions as of December 31, 2004 and 2005, consisted of
    the following:

|     |  |        |           |  |      |  |        |        |  |     |           |  |  |   |         |  |  |  |        | 
|---- |  | ------ | --------- |  | ---- |  | ------ | ------ |  | --- | --------- |  |  | - | ------- |  |  |  | ------ | 
|     |  | 2004   |           |  | 2005 | 
|     |  |        |           |  |      | 
|     |  | NTD    |           |  |      |  | NTD    |        |  | USD |           |  | 
|     |  | Amount |           |  | %    |  |        | Amount |  |     | Amount    |  |  | % |        
|     |  |        |           |  |      |  |        |        |  |     |           |  |  |   |        
|NTC  |  | $      | 1,354,917 |  |      |  | 52.32  |        |  |     | 2,362,640 |  |  |   | 72,032  |  |  |  | 46.78  | 
|IFX  |  |        | 1,234,586 |  |      |  | 47.68  |        |  |     | 1,898,230 |  |  |   | 57,873  |  |  |  | 37.59  | 
|IFSZ |  |        |          |  |      |  |       |        |  |     | 789,407   |  |  |   | 24,067  |  |  |  | 15.63  | 
|     |  |        |           |  |      |  |        |        |  |     |           |  |  |   |        
|     |  | $      | 2,589,503 |  |      |  | 100.00 |        |  |     | 5,050,277 |  |  |   | 153,972 |  |  |  | 100.00 | 
|     |  |        |           |  |      |  |        |        |  |     |           |  |  |   |        



| |                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------
| | The normal credit term with related parties above is
    60 days from delivery date.                           
|
| | (ii) Purchases and accounts payable                                                                            
|
| | Significant purchases from related parties for the years ended
    December 31, 2004 and 2005, were as follows:

|    |  |        |         |  |           |  |       |        |  |  |         |  |  |           |        |  |  |  |      | 
|--- |  | ------ | ------- |  | --------- |  | ----- | ------ |  |  | ------- |  |  | --------- | ------ |  |  |  | ---- | 
|    |  | 2004   |         |  | 2005      | 
|    |  |        |         |  |           | 
|    |  | NTD    |         |  | % of net  |  |       | NTD    |  |  | USD     |  |  | % of net  |       
|    |  | Amount |         |  | purchases |  |       | Amount |  |  | Amount  |  |  | purchases |       
|    |  |        |         |  |           |  |       |        |  |  |         |  |  |           |       
|NPC |  | $      | 165,793 |  |           |  | 3.63  |        |  |  | 49,827  |  |  |           | 1,519  |  |  |  | 0.51 | 
|IFX |  |        | 562,897 |  |           |  | 12.31 |        |  |  | 464,481 |  |  |           | 14,161 |  |  |  | 4.71 | 
|NTC |  |        |        |  |           |  |      |        |  |  |        |  |  |           |       |  |  |  |     | 
|    |  |        |         |  |           |  |       |        |  |  |         |  |  |           |       
|    |  | $      | 728,690 |  |           |  | 15.94 |        |  |  | 514,308 |  |  |           | 15,680 |  |  |  | 5.22 | 
|    |  |        |         |  |           |  |       |        |  |  |         |  |  |           |       

F-85



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##### Table of Contents



INOTERA MEMORIES, INC.


Notes to Financial Statements  (Continued)




| |                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------
| | The balances of accounts payable resulting from the above
    transactions as of December 31, 2004 and 2005, were as
    follows:

|    |  |        |         |            |           |  |      |        |            |  |        |  |  |           |       |  |  |  |      | 
|--- |  | ------ | ------- | ---------- | --------- |  | ---- | ------ | ---------- |  | ------ |  |  | --------- | ----- |  |  |  | ---- | 
|    |  | 2004   |         |            | 2005      | 
|    |  |        |         |            |           | 
|    |  |        |         | % of total |           |  |      |        | % of total | 
|    |  |        |         | accounts   |           |  |      |        | accounts   | 
|    |  | NTD    |         |            | and notes |  |      | NTD    |            |  | USD    |  |  | and notes |      
|    |  | Amount |         |            | payable   |  |      | Amount |            |  | Amount |  |  | payable   |      
|    |  |        |         |            |           |  |      |        |            |  |        |  |  |           |      
|NPC |  | $      | 88,654  |            |           |  | 0.98 |        |            |  | 32,420 |  |  |           | 988   |  |  |  | 0.80 | 
|IFX |  |        | 42,385  |            |           |  | 0.47 |        |            |  | 22,792 |  |  |           | 695   |  |  |  | 0.56 | 
|NTC |  |        |        |            |           |  |     |        |            |  |       |  |  |           |      |  |  |  |     | 
|    |  |        |         |            |           |  |      |        |            |  |        |  |  |           |      
|    |  | $      | 131,039 |            |           |  | 1.45 |        |            |  | 55,212 |  |  |           | 1,683 |  |  |  | 1.36 | 
|    |  |        |         |            |           |  |      |        |            |  |        |  |  |           |      



| |                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company pays NPC on the 15th of the month following the
    month of purchase, and pays IFX within 30 days of the
    invoice date. Purchasing prices and payment terms of purchases
    from related parties are not materially different from those of
    non-related general suppliers.
|
| | (iii) Due to related parties                                                                                                                                                                                                                                                                   
|
| | The details of financial borrowing from related parties for the
    year ended December 31, 2004, were as follows:                                                                                                                                                                             

|              |  |               |         |  |             |  |   |               |  |  |                  |   |  |  |    | 
|------------- |  | ------------- | ------- |  | ----------- |  | - | ------------- |  |  | ---------------- | - |  |  | -- | 
|              |  | 2004          |        
|              |  |               |        
|              |  | Maximum daily |         |  | Balance on  |  |   |              
|              |  | balance       |         |  | December 31 |  |   |              
|Related party |  | NTD           |         |  | NTD         |  |   | Interest rate |  |  | Interest expense |  
|              |  |               |         |  |             |  |   |               |  |  |                  |  
|NTC           |  | $             | 315,500 |  |             |  |  |               |  |  | 2.281-2.849      | % |  |  | 68 | 
|              |  |               |         |  |             |  |   |               |  |  |                  |  



| |                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | No financial borrowing was obtained from related parties for the
    year ended December 31, 2005.                                                                                                                                                                                                          
|
| | As of December 31 2004, the Company had interest payable of
    NT$9 to NTC which was accounted as other payables 
    related parties.                                                                                                                                                                    
|
| | (iv) Acquisition of property, plant and equipment                                                                                                                                                                                                                                                           
|
| | In May 2005, the Company purchased from NTC six parcels of land
    numbered 347 and five other numbers which are located in Hwa-Ya,
    Kueishan, Taoyuan County for NT$1,575,000. As of
    December 31, 2005, the Company had fully paid the purchase
    price.                                         
|
| | In June 2005, the Company purchased electronic equipment from
    NTC for NT$73,827. As of December 31, 2005, the Company had
    fully paid the purchase price.                                                                                                                                            
|
| | (v) Training expense                                                                                                                                                                                                                                                                                        
|
| | NTC and IFX both transferred a number of their employees to the
    Company to enable the Company to maintain a sufficient number of
    high-quality and loyal staff. Consequently, the Company is
    required to reimburse NTC and IFX for the loss of their
    experienced employees an amount equal to

F-86



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##### Table of Contents



INOTERA MEMORIES, INC.


Notes to Financial Statements  (Continued)




| |                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6 months salary of those employees. The Company
    accrued and booked this expenditure as training expenses for the
    years ended December 31, 2004 and 2005 under administrative
    expenses, as follows:

|              |  |                  |   |                  |  |  |        | 
|------------- |  | ---------------- | - | ---------------- |  |  | ------ | 
|              |  | 2004             |  
|              |  |                  |  
|              |  | Training expense |   |                 
|Related party |  | payable          |   | Training expense | 
|              |  |                  |   |                  | 
|IFX           |  | $                |  |                  |  |  | 3,718  | 
|NTC           |  |                  |  |                  |  |  | 6,960  | 
|              |  |                  |   |                  |  | 
|Total         |  | $                |  |                  |  |  | 10,678 | 
|              |  |                  |   |                  |  | 

|              |  |                  |   |                  |  |  |       | 
|------------- |  | ---------------- | - | ---------------- |  |  | ----- | 
|              |  | 2005             |  
|              |  |                  |  
|              |  | Training expense |   |                 
|Related party |  | payable          |   | Training expense | 
|              |  |                  |   |                  | 
|NTC-NTD       |  | $                |  |                  |  |  | 5,180 | 
|              |  |                  |   |                  |  | 
|NTC-USD       |  | $                |  |                  |  |  | 158   | 
|              |  |                  |   |                  |  | 



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (vi) Lease contracts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | Commencing from July 1, 2005, the Company had signed lease
    contracts with NTC, as described in notes 7 and 9.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | (vii) Other significant transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | IFX provides some construction, technical and inspection
    services, etc., to the Company. As of December 31, 2004 and
    2005, the unpaid liability from this transaction amounted to
    NT$245,892 and NT$61,757, respectively, which was accounted for
    as other payables  related parties.                                                                                                                                                                                                                                                                                                                                                                    
|
| | NTC supplies some of the Companys utilities, steam,
    purification for waste water, etc. As of December 31, 2004
    and 2005, the unpaid liability from this transaction amounted to
    NT$38,629 and NT$20,059, respectively, which was accounted for
    as other payables  related parties.                                                                                                                                                                                                                                                                                                                                                                      
|
| | NPC rents out dormitory space to the Company. As of
    December 31, 2005, the unpaid liability from this
    transaction amounted to NT$4,437, which was accounted for as
    other payables  related parties.                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | (viii) Contracts with related parties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | The Company signed a Product Purchase and Capacity
    Reservation Agreement with NTC and IFX. Under this
    agreement, these entities are each entitled to a contracted
    percentage of the Companys production capacity. The
    Company is committed to sell its production to these entities at
    a transfer price calculated in accordance with the formula
    stated in the agreement. This agreement took effect on
    July 15, 2003, and will continue in effect until the
    termination by either party with cause or when Joint Venture
    Agreement and/or the License and Technical Cooperation Agreement
    between NTC and IFX are terminated.
|
| | The Company signed a Know-How Transfer Agreement
    with NTC and IFX. Under this agreement, these entities allowed
    the Company to utilize their know-how in the semiconductor
    manufacturing process. This contract took effect on
    July 15, 2003, and it will continue in effect until either
    of the following conditions has been fulfilled: 1) both
    corporations decide to terminate their Joint Venture Agreement
    or 2) three years after the completion of know-how transfer.                                                                                                                                                               
|
| | The Company signed a service contract with NTC. Under this
    contract, NTC provides transaction support in the following
    areas: human resources, finance, engineering and construction,
    raw material and inventory, etc. The service fee is charged
    based on the actual type of service rendered. The contract took
    effect on July 15, 2003, and will continue in effect until
    terminated mutually by both parties.                                                                                                                                                                                                                                 

F-87



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##### Table of Contents



INOTERA MEMORIES, INC.


Notes to Financial Statements  (Continued)




|     |                   
|---- | ------------------
|(18) | Pledged Properties





|     |                              
|---- | -----------------------------
|(19) | Commitments and Contingencies





|     |                                 
|---- | --------------------------------
|(20) | Significant Disaster Loss: None.



|     |                  
|---- | -----------------
|(21) | Subsequent Events



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | The Board of Directors of the Company resolved to adopt a
    Deferred Stock Purchase Plan (the Plan). Under this
    Plan, the employees of the Company are allowed to purchase the
    Companys shares which are being held by Hwa-Keng
    Investment Corp., a corporate stockholder of the Company,
    following the approval thereof by the board of directors and
    stockholders of Hwa-Keng Investment Corp. Also, the Plan
    requires that its actual implementation shall be made within
    4 weeks after the approval of the Companys stock
    listing by the SFB. The purchase price is the higher of
    NT$15 per share or the net book value per share of the
    Company at the time of the Plans execution plus 10%
    premium thereof. There were 71,124 thousand Company shares which
    were made available for purchase by the employees. On
    January 6, 2006, the Company received the approval from the
    SFB, and implemented the Plan on the same day. As of
    February 9, 2006, Hwa-Keng Investment Corp. sold 64,032,908
    Company shares at NT$20.07 per share to the employees of
    the Company, following the Companys implementation of the
    Plan.



|    |    |                                                                                                                                                                                                                     
|--- | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) | i. | On January 12, 2006, the Company was granted approval of
    its application to list its shares on the Taiwan Stock Exchange
    (TSE). The Companys shares were initially listed on the
    TSE on March 17, 2006.



| |      |                                                                                                                                                                                                                                                                                                                                                                          
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ii.  | On February 6, 2006 and in accordance with the resolution
    approved by the Shareholders on September 27, 2005, the
    Board of Directors approved the Initial Public Offering of the
    Company shares through the issuance of 200 million Company
    shares for cash at proposed price of NT$33 per share on the TSE.
    The offering occurred on March 17, 2006.
|
| | iii. | On March 9, 2006 and in accordance with the resolution
    approved by the Shareholders on September 27, 2005, the
    Board of Directors approved the offering of Global Depositary
    Shares (GDS) through the issuance of 335 million to
    400 million Company shares for cash. The offering is still
    pending.                                                 

F-88



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##### Table of Contents



INOTERA MEMORIES, INC.


Notes to Financial Statements  (Continued)




|     |       
|---- | ------
|(22) | Others



| |     |                                                                                      
| | --- | -------------------------------------------------------------------------------------
| | (a) | The Companys personnel, depreciation, and amortization
    expenses were as follows:

|                      |                            |               |           |         |           |  |        |         |  |  |           |         | 
|--------------------- | -------------------------- | ------------- | --------- | ------- | --------- |  | ------ | ------- |  |  | --------- | ------- | 
|                      |                            |               |           | 2004    |           | 
|                      |                            |               |          
|                      |                            | Cost of goods |           |         | Operating |  |        |        
|                      |                            | sold          |           |         | expenses  |  |        | Total   | 
|                      |                            |               |           |         |           |  |        |         | 
|                      |                            | NTD           |          
|Personnel expenses    |                            |               |           |         |           |  |        |         |  |  |           |        
|                      | Salaries                   |               | $         | 470,957 |           |  |        | 447,971 |  |  |           | 918,928 | 
|                      | Labor and health insurance |               |           | 28,996  |           |  |        | 22,486  |  |  |           | 51,482  | 
|                      | Pension expenses           |               |           | 14,535  |           |  |        | 15,559  |  |  |           | 30,094  | 
|                      | Other personnel expenses   |               |           | 14,076  |           |  |        | 11,108  |  |  |           | 25,184  | 
|Depreciation expenses |                            |               | 2,008,139 |         |           |  | 33,495 |         |  |  | 2,041,634 |        
|Amortization expenses |                            |               | 12,269    |         |           |  |       |         |  |  | 12,269    |        

|                      |                            |               |           |           |           |  |        |         |  |  |           |           | 
|--------------------- | -------------------------- | ------------- | --------- | --------- | --------- |  | ------ | ------- |  |  | --------- | --------- | 
|                      |                            |               |           | 2005      |           | 
|                      |                            |               |          
|                      |                            | Cost of goods |           |           | Operating |  |        |        
|                      |                            | sold          |           |           | expenses  |  |        | Total   | 
|                      |                            |               |           |           |           |  |        |         | 
|                      |                            | NTD           |          
|Personnel expenses    |                            |               |           |           |           |  |        |         |  |  |           |          
|                      | Salaries                   |               | $         | 1,048,968 |           |  |        | 192,903 |  |  |           | 1,241,871 | 
|                      | Labor and health insurance |               |           | 63,796    |           |  |        | 8,084   |  |  |           | 71,880    | 
|                      | Pension expenses           |               |           | 48,974    |           |  |        | 9,825   |  |  |           | 58,799    | 
|                      | Other personnel expenses   |               |           | 29,724    |           |  |        | 3,628   |  |  |           | 33,352    | 
|Depreciation expenses |                            |               | 8,049,956 |           |           |  | 49,595 |         |  |  | 8,099,551 |          
|Amortization expenses |                            |               | 36,165    |           |           |  |       |         |  |  | 36,165    |          

|                      |                            |               |         |        |           |  |       |       |  |  |         |        | 
|--------------------- | -------------------------- | ------------- | ------- | ------ | --------- |  | ----- | ----- |  |  | ------- | ------ | 
|                      |                            |               |         | 2005   |           | 
|                      |                            |               |        
|                      |                            | Cost of goods |         |        | Operating |  |       |      
|                      |                            | sold          |         |        | expenses  |  |       | Total | 
|                      |                            |               |         |        |           |  |       |       | 
|                      |                            |               |         | USD    |           | 
|Personnel expenses    |                            |               |         |        |           |  |       |       |  |  |         |       
|                      | Salaries                   |               | $       | 31,981 |           |  |       | 5,881 |  |  |         | 37,862 | 
|                      | Labor and health insurance |               |         | 1,945  |           |  |       | 246   |  |  |         | 2,191  | 
|                      | Pension expenses           |               |         | 1,493  |           |  |       | 300   |  |  |         | 1,793  | 
|                      | Other personnel expenses   |               |         | 906    |           |  |       | 111   |  |  |         | 1,017  | 
|Depreciation expenses |                            |               | 245,425 |        |           |  | 1,512 |       |  |  | 246,937 |       
|Amortization expenses |                            |               | 1,103   |        |           |  |      |       |  |  | 1,103   |       





|     |                    
|---- | -------------------
|(23) | Segment Information





F-89



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##### Table of Contents



INOTERA MEMORIES, INC.


Notes to Financial Statements  (Continued)










|                 |  |        |           |      |       |  |       |        |      |  |            |  |  |       |         |  |  |  |       | 
|---------------- |  | ------ | --------- | ---- | ----- |  | ----- | ------ | ---- |  | ---------- |  |  | ----- | ------- |  |  |  | ----- | 
|                 |  | 2004   |           |      | 2005  | 
|                 |  |        |           |      |       | 
|                 |  |        |           | % of |       |  |       |        | % of | 
|                 |  | NTD    |           |      | net   |  |       | NTD    |      |  | USD        |  |  | net   |        
|Destination area |  | Amount |           |      | sales |  |       | Amount |      |  | Amount     |  |  | sales |        
|                 |  |        |           |      |       |  |       |        |      |  |            |  |  |       |        
|Europe           |  | $      | 2,975,131 |      |       |  | 49.91 |        |      |  | 9,180,137  |  |  |       | 279,882 |  |  |  | 39.86 | 
|Asia             |  |        |          |      |       |  |      |        |      |  | 2,347,571  |  |  |       | 71,572  |  |  |  | 10.19 | 
|North America    |  |        |          |      |       |  |      |        |      |  | 2,203      |  |  |       | 67      |  |  |  | 0.01  | 
|                 |  |        |           |      |       |  |       |        |      |  |            |  |  |       |        
|                 |  | $      | 2,975,131 |      |       |  | 49.91 |        |      |  | 11,529,911 |  |  |       | 351,521 |  |  |  | 50.06 | 
|                 |  |        |           |      |       |  |       |        |      |  |            |  |  |       |        





|     |  |        |           |      |       |  |        |        |      |  |            |  |  |       |         |  |  |  |       | 
|---- |  | ------ | --------- | ---- | ----- |  | ------ | ------ | ---- |  | ---------- |  |  | ----- | ------- |  |  |  | ----- | 
|     |  | 2004   |           |      | 2005  | 
|     |  |        |           |      |       | 
|     |  |        |           | % of |       |  |        |        | % of | 
|     |  | NTD    |           |      | net   |  |        | NTD    |      |  | USD        |  |  | net   |        
|     |  | Amount |           |      | sales |  |        | Amount |      |  | Amount     |  |  | sales |        
|     |  |        |           |      |       |  |        |        |      |  |            |  |  |       |        
|NTC  |  | $      | 2,985,699 |      |       |  | 50.09  |        |      |  | 11,502,292 |  |  |       | 350,680 |  |  |  | 49.94 | 
|IFX  |  |        | 2,975,131 |      |       |  | 49.91  |        |      |  | 9,180,137  |  |  |       | 279,882 |  |  |  | 39.86 | 
|IFSZ |  |        |          |      |       |  |       |        |      |  | 2,347,571  |  |  |       | 71,572  |  |  |  | 10.19 | 
|     |  |        |           |      |       |  |        |        |      |  |            |  |  |       |        
|     |  | $      | 5,960,830 |      |       |  | 100.00 |        |      |  | 23,030,000 |  |  |       | 702,134 |  |  |  | 99.99 | 
|     |  |        |           |      |       |  |        |        |      |  |            |  |  |       |        



|     |                                                                                                                                                                             
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(24) | Summary of Significant Difference Between Accounting
    Principles Followed by the Company and Generally Accepted
    Accounting Principles in the United States of America







| |                                                
| | -----------------------------------------------
| | a. Derivative Financial Instrument Transactions



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under ROC GAAP, there are no specific rules related to
    accounting for derivative financial instruments, nor criteria
    for hedge accounting. Therefore, companies have flexibility in
    choosing when to recognize derivative financial instruments and
    when to follow hedge accounting versus fair value accounting for
    such instruments.                                                                                      
|
| | U.S. GAAP contains detailed rules as to when hedge
    accounting is appropriate. As a consequence, certain derivative
    contracts such as foreign currency forward contracts and
    interest rate swaps included in the Companys balance sheet
    would be recorded at the derivatives contracts market rate
    as of the reporting date, resulting in a decrease in other
    receivables as reported under the ROC GAAP balance sheet.

F-90



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##### Table of Contents



INOTERA MEMORIES, INC.


Notes to Financial Statements  (Continued)




| |                                                   
| | --------------------------------------------------
| | b. Bonuses to Employees, Directors and Supervisors



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under the ROC regulations and the Companys Articles of
    Incorporation, a portion of distributable earnings should be set
    aside as bonuses to employees, directors and supervisors.
    Bonuses to directors and supervisors are always paid in cash.
    However, bonuses to employees may be granted in cash or shares
    or both. All of these appropriations, including share bonuses
    which are valued at par value of NT$10, are charged against
    retained earnings, after such appropriations are formally
    approved by the shareholders in the following year.
|
| | Under U.S. GAAP, bonuses and remuneration are generally
    expensed as services are rendered. Also under U.S. GAAP,
    bonuses which are paid in the form of Company shares are
    recorded within equity at fair market value, with a
    corresponding charge to earnings for the difference between the
    fair value of the shares at the date of grant and the price paid
    by the employee, if any.                                                                                                                                                                        



| |          
| | ---------
| | c. Surtax



| |                                                                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Companies in the ROC are subject to a 10% surtax on
    undistributed tax basis profits earned after December 31,
    1997. If the undistributed tax earnings are distributed in the
    following year, the 10% surtax is not due. Under ROC GAAP,
    income tax expense is recorded in the statement of operations in
    the following year if the earnings are not distributed to the
    shareholders.
|
| | Under U.S. GAAP, a 10% surtax leviable on the
    undistributed tax earnings is recorded in the statement of
    income in the year when the profits were earned. The income tax
    expense, including the tax effects of temporary differences, in
    such year is measured by using the rate that includes this
    10% surtax.                                                                         



| |                        
| | -----------------------
| | d. Capital contribution



| |                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under ROC GAAP, the expatriate employees payroll cost paid by a
    foreign joint venture partner/shareholder is not recorded nor
    treated as the shareholders capital contribution in the
    Company.
|
| | Under U.S. GAAP, the expatriate employees payroll cost paid by a
    foreign joint venture partner would be recorded as expense and
    treated as capital contribution in the Company.                    



| |         
| | --------
| | e. Lease



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under ROC GAAP, the estimated fair value of a partial leased
    building used in evaluating the lease classification described
    under note 2 (g) to the financial statements can be
    based on the proportionate fair value of the entire building.                                                                                                                                                                                                                                                                                                    
|
| | Under U.S. GAAP, the fair value of a partial lease building used
    in determining the lease classification must be based on the
    specific fair value of the leased asset. In the event that the
    fair value of the partial leased building can not be determined,
    the lease of a partial building should be treated as an
    operating lease. As a result, the leased asset described in
    note 7 to the financial statements, which was treated as a
    capital lease under ROC, would be treated as an operating lease
    under U.S. GAAP.



| |                 
| | ----------------
| | f. Related party



| |                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------
| | Under ROC GAAP, the transaction with the Formosa Group as
    described in note 22(b) is not treated as a related party
    transaction.
|
| | Under U.S. GAAP, the transaction would be considered a related
    party transaction.                                                   



| |                      
| | ---------------------
| | g. Earnings per share



| |                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under ROC GAAP, earnings per share in calculated based on the
    weighted average number of outstanding shares. The number of
    outstanding shares is retroactively adjusted for stock dividends
    and new common stock issued through unappropriated earnings and
    capital surplus.

F-91



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##### Table of Contents



INOTERA MEMORIES, INC.


Notes to Financial Statements  (Continued)




| |                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under U.S. GAAP, when a simple capital structure exists, basic
    earnings per share is calculated using the weighted average
    number of common shares outstanding. The number of outstanding
    shares is not retroactively adjusted for stock dividends.



|                                                                                |                                                                                    |      |            |          |      |   |            |          |   |  |           |         |  
|------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | ---- | ---------- | -------- | ---- | - | ---------- | -------- | - |  | --------- | ------- | -
|                                                                                |                                                                                    | 2004 |            |          | 2005 |  
|                                                                                |                                                                                    |      |            |          |      |  
|                                                                                |                                                                                    | NTD  |            |          | NTD  |   |            | USD      |  
|                                                                                |                                                                                    |      |            |          |      |   |            |          |  
|Net income                                                                      |                                                                                    | $    | 901,301    |          |      | $ | 5,929,758  |          |   |  | 180,785   |        
|Net income based on ROC GAAP                                                    |                                                                                    |      |            |          |      |   |            |          |   |  |           |        
|Adjustments:                                                                    |                                                                                    |      |            |          |      |   |            |          |   |  |           |        
|                                                                                | a. Foreign currency forward contracts-mark-to-market                               |      |            |         |      |   |            | (355,857 | ) |  |           | (10,849 | )
|                                                                                | a. Interest rate swaps-mark-to-market                                              |      |            | (53,763  | )    |   |            | 75,943   |   |  |           | 2,315   |  
|                                                                                | b. Bonuses to employees                                                            |      |            | (24,976  | )    |   |            | (298,866 | ) |  |           | (9,112  | )
|                                                                                | b. Remuneration to directors and supervisors                                       |      |            | (2,686   | )    |   |            | (3,736   | ) |  |           | (114    | )
|                                                                                | c. 10% surtax on undistributed tax earnings                                        |      |            |         |      |   |            | (565,812 | ) |  |           | (17,250 | )
|                                                                                | c. Tax expense                                                                     |      |            | 50,725   |      |   |            | 588,522  |   |  |           | 17,943  |  
|                                                                                | d. Expatriate employees payroll cost paid by IFX                                   |      |            | (156,076 | )    |   |            | (168,697 | ) |  |           | (5,143  | )
|                                                                                | e. Operating lease                                                                 |      |            |         |      |   |            | (4,742   | ) |  |           | (145    | )
|                                                                                |                                                                                    |      |            |          |      |   |            |          |  
|Net decrease in net income                                                      |                                                                                    |      | (186,776   | )        |      |   | (733,245   | )        |   |  | (22,355   | )      
|Net income based on U.S. GAAP                                                   |                                                                                    | $    | 714,525    |          |      | $ | 5,196,513  |          |   |  | 158,430   |        
|Earnings per share                                                              |                                                                                    | $    | 0.41       |          |      | $ | 2.08       |          |   |  | 0.06      |        
|                                                                                |                                                                                    |      |            |          |      |   |            |          |  
|Shareholders equity                                                            |                                                                                    |      |            |          |      |   |            |          |   |  |           |        
|Shareholders equity based on ROC GAAP                                          |                                                                                    | $    | 41,442,152 |          |      | $ | 47,236,284 |          |   |  | 1,440,131 |        
|Adjustments:                                                                    |                                                                                    |      |            |          |      |   |            |          |   |  |           |        
|                                                                                | a. Foreign currency forward contracts 
    mark-to-market                         |      |            |         |      |   |            | (355,857 | ) |  |           | (10,849 | )
|                                                                                | a. Interest rate swaps  mark-to-market                                            |      |            | (37,306  | )    |   |            | 38,637   |   |  |           | 1,178   |  
|                                                                                | b. Bonuses to employees                                                            |      |            | (24,976  | )    |   |            | (298,866 | ) |  |           | (9,112  | )
|                                                                                | b. Remuneration to directors and supervisors                                       |      |            | (2,686   | )    |   |            | (3,736   | ) |  |           | (114    | )
|                                                                                | c. 10% surtax on undistributed tax earnings                                        |      |            |         |      |   |            | (565,812 | ) |  |           | (17,250 | )
|                                                                                | c. Tax expense                                                                     |      |            | 50,725   |      |   |            | 639,247  |   |  |           | 19,489  |  
|                                                                                | d. Expatriate employees payroll cost paid by IFX                                   |      |            | (156,076 | )    |   |            | (324,773 | ) |  |           | (9,902  | )
|                                                                                | d. Contributed capital (net of tax) arising from employees
    payroll paid by IFX |      |            | 105,351  |      |   |            | 219,221  |   |  |           | 6,684   |  
|                                                                                | e. Operating lease                                                                 |      |            |         |      |   |            | (4,742   | ) |  |           | (145    | )
|                                                                                |                                                                                    |      |            |          |      |   |            |          |  
|Net decrease in shareholders equity                                            |                                                                                    |      | (64,968    | )        |      |   | (656,681   | )        |   |  | (20,021   | )      
|                                                                                |                                                                                    |      |            |          |      |   |            |          |  
|Shareholders equity based on U.S. GAAP                                         |                                                                                    | $    | 41,377,184 |          |      | $ | 46,579,603 |          |   |  | 1,420,110 |        
|                                                                                |                                                                                    |      |            |          |      |   |            |          |  
|Changes in shareholders equity based on U.S. GAAP                              |                                                                                    |      |            |          |      |   |            |          |   |  |           |        
|Balance, beginning of year                                                      |                                                                                    | $    | 11,957,098 |          |      | $ | 41,377,184 |          |   |  | 1,261,500 |        
|Issuance of common stock                                                        |                                                                                    |      | 28,600,210 |          |      |   |           |          |   |  |          |        
|Bonus to stockholders                                                           |                                                                                    |      |           |          |      |   | (124,883   | )        |   |  | (3,807    | )      
|Bonus share issued at a premium to the employees                                |                                                                                    |      |           |          |      |   | 16,919     |          |   |  | 516       |        
|Contributed capital (net of tax) arising from employees payroll
    paid by IFX |                                                                                    |      | 105,351    |          |      |   | 113,870    |          |   |  | 3,471     |        
|Net income for the twelve months                                                |                                                                                    |      | 714,525    |          |      |   | 5,196,513  |          |   |  | 158,430   |        
|                                                                                |                                                                                    |      |            |          |      |   |            |          |  
|Balance, end of year                                                            |                                                                                    | $    | 41,377,184 |          |      | $ | 46,579,603 |          |   |  | 1,420,110 |        
|                                                                                |                                                                                    |      |            |          |      |   |            |          |  

F-92



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##### Table of Contents



INOTERA MEMORIES, INC.


Notes to Financial Statements  (Continued)




|                              |                                                     |      |            |        |      |   |            |          |   |  |           |         |  
|----------------------------- | --------------------------------------------------- | ---- | ---------- | ------ | ---- | - | ---------- | -------- | - |  | --------- | ------- | -
|                              |                                                     | 2004 |            |        | 2005 |  
|                              |                                                     |      |            |        |      |  
|                              |                                                     | NTD  |            |        | NTD  |   |            | USD      |  
|                              |                                                     |      |            |        |      |   |            |          |  
|Current Assets                |                                                     |      |            |        |      |   |            |          |   |  |           |        
|As reported                   |                                                     | $    | 15,881,410 |        |      | $ | 20,340,339 |          |   |  | 620,132   |        
|U.S. GAAP adjustments         |                                                     |      |            |        |      |   |            |          |   |  |           |        
|                              | Financial assets-Interest rate swaps                |      |            |       |      |   |            | 38,637   |   |  |           | 1,178   |  
|                              | Financial assets-Foreign currency forward contracts |      |            |       |      |   |            | (355,857 | ) |  |           | (10,849 | )
|                              | Current portion of lease receivables                |      |            |       |      |   |            | (6,690   | ) |  |           | (204    | )
|                              | Deferred tax assets  current, net                  |      |            |       |      |   |            | 11,277   |   |  |           | 344     |  
|                              | Other current assets                                |      |            |       |      |   |            | 2,057    |   |  |           | 63      |  
|                              |                                                     |      |            |        |      |   |            |          |  
|As adjusted                   |                                                     | $    | 15,881,410 |        |      | $ | 20,029,763 |          |   |  | 610,664   |        
|                              |                                                     |      |            |        |      |   |            |          |  
|Property, plant and equipment |                                                     |      |            |        |      |   |            |          |   |  |           |        
|As reported                   |                                                     | $    | 51,543,552 |        |      | $ | 66,162,814 |          |   |  | 2,017,158 |        
|U.S. GAAP adjustments         |                                                     |      |            |        |      |   |            |          |   |  |           |        
|                              | Building and structure                              |      |            |       |      |   |            | 281,538  |   |  |           | 8,583   |  
|                              | Other equipment                                     |      |            |       |      |   |            | 75,555   |   |  |           | 2,304   |  
|                              | Accumulated depreciation                            |      |            |       |      |   |            | (18,414  | ) |  |           | (561    | )
|                              |                                                     |      |            |        |      |   |            |          |  
|As adjusted                   |                                                     | $    | 51,543,552 |        |      | $ | 66,501,493 |          |   |  | 2,027,484 |        
|                              |                                                     |      |            |        |      |   |            |          |  
|Other Assets                  |                                                     |      |            |        |      |   |            |          |   |  |           |        
|As reported                   |                                                     | $    | 727,142    |        |      | $ | 854,936    |          |   |  | 26,065    |        
|U.S. GAAP adjustments         |                                                     |      |            |        |      |   |            |          |   |  |           |        
|                              | Deferred tax assets  non-current, net              |      |            |       |      |   |            | 239,512  |   |  |           | 7,302   |  
|                              | Lease Receivables  long term                       |      |            |       |      |   |            | (338,788 | ) |  |           | (10,329 | )
|                              |                                                     |      |            |        |      |   |            |          |  
|As adjusted                   |                                                     | $    | 727,142    |        |      | $ | 755,660    |          |   |  | 23,038    |        
|                              |                                                     |      |            |        |      |   |            |          |  
|Current Liabilities           |                                                     |      |            |        |      |   |            |          |   |  |           |        
|As reported                   |                                                     | $    | 11,996,800 |        |      | $ | 13,903,989 |          |   |  | 423,902   |        
|U.S. GAAP adjustments         |                                                     |      |            |        |      |   |            |          |   |  |           |        
|                              | Employees bonus                                     |      |            | 24,976 |      |   |            | 298,866  |   |  |           | 9,112   |  
|                              | Remuneration to directors and supervisors           |      |            | 2,686  |      |   |            | 3,736    |   |  |           | 114     |  
|                              | 10% surtax on undistributed earnings                |      |            |       |      |   |            | 282,906  |   |  |           | 8,625   |  
|                              |                                                     |      |            |        |      |   |            |          |  
|As adjusted                   |                                                     | $    | 12,024,462 |        |      | $ | 14,489,497 |          |   |  | 441,753   |        
|                              |                                                     |      |            |        |      |   |            |          |  
|Other Liabilities             |                                                     |      |            |        |      |   |            |          |   |  |           |        
|As reported                   |                                                     | $    | 31,332     |        |      | $ | 52,285     |          |   |  | 1,594     |        
|U.S. GAAP adjustments         |                                                     |      |            |        |      |   |            |          |   |  |           |        
|                              | Other financial liabilities-IRS                     |      |            | 37,306 |      |   |            |         |   |  |           |        |  
|                              |                                                     |      |            |        |      |   |            |          |  
|As adjusted                   |                                                     | $    | 68,638     |        |      | $ | 52,285     |          |   |  | 1,594     |        
|                              |                                                     |      |            |        |      |   |            |          |  

F-93



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##### Table of Contents



SIGNATURES


20-F




| |           
| | ----------
| | Qimonda AG



| |     |                
| | --- | ---------------
| | By: | /s/ Kin Wah Loh

| |                                 
| | --------------------------------
| |                                 
| | Name: Kin Wah Loh               
| | Chairman of the Management Board



| |     |                        
| | --- | -----------------------
| | By: | /s/ Dr. Michael Majerus

| |                               
| | ------------------------------
| |                               
| | Name: Dr. Michael Majerus     
| | Member of the Management Board





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##### Table of Contents






EXHIBIT INDEX


|        |          |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------- | -------- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |          |            
|No.     |          | Description
|        |          |            
|        | 1(i)     |             |  | Articles of Association of Qimonda AG, as amended (English
    translation).                                                                                                                                                                                                                                                                                                                                                                                              
|        | 1(ii)(A) |             |  | Rules of Procedure for the Management Board of Qimonda AG, as
    amended (English translation).                                                                                                                                                                                                                                                                                                                                                                          
|        | 1(ii)(B) |             |  | Rules of Procedure for the Supervisory Board of Qimonda AG
    (English translation). (incorporated by reference to
    Exhibit 3(ii)(B) of Qimonda AGs Registration
    Statement on Form F-1, as amended, filed with the SEC on
    August 8, 2006).                                                                                                                                                                                                                   
|        | 2        |             |  | The total amount of long-term debt securities of Qimonda AG
    authorized under any instrument does not exceed 10% of the total
    assets of the group on a consolidated basis. Qimonda AG hereby
    agrees to furnish to the SEC, upon its request, a copy of any
    instrument defining the rights of holders of long-term debt of
    Qimonda AG or of its subsidiaries for which consolidated or
    unconsolidated financial statements are required to be filed.
|        | 4(i)(A)  |             |  | Contribution Agreement (Einbringungsvertrag) between
    Infineon Technologies AG and Qimonda AG, dated as of
    April 25, 2006, and addendum thereto, dated as of
    June 2, 2006 (English translation). (incorporated by
    reference to Exhibit 10(i)(A) of Qimonda AGs
    Registration Statement on Form F-1, as amended, filed with
    the SEC on August 8, 2006)                                                                                              
|        | 4(i)(B)  |             |  | Contribution Agreement (Einbringungsvertrag) between
    Infineon Holding B.V. and Qimonda AG, dated as of May 4,
    2006 (English translation). (incorporated by reference to
    Exhibit 10(i)(B) of Qimonda AGs Registration
    Statement on Form F-1, as amended, filed with the SEC on
    August 8, 2006)                                                                                                                                                        
|        | 4(i)(C)  |             |  | Trust Agreement between Infineon Technologies AG and
    Qimonda AG, dated as of April 25, 2006, as amended (English
    translation).                                                                                                                                                                                                                                                                                                                                    
|        | 4(i)(D)  |             |  | Master Loan Agreement between Qimonda AG and Infineon
    Technologies Holding B.V., dated April 28, 2006.
    (incorporated by reference to Exhibit 10(i)(D) of Qimonda
    AGs Registration Statement on Form F-1, as amended,
    filed with the SEC on August 8, 2006)                                                                                                                                                                                               
|        | 4(i)(E)  |             |  | Global Services Agreement between Infineon Technologies AG and
    Qimonda AG, effective May 1, 2006. (incorporated by
    reference to Exhibit 10(i)(E) of Qimonda AGs
    Registration Statement on Form F-1, as amended, filed with
    the SEC on August 8, 2006)                                                                                                                                                                                                    
|        | 4(i)(F)  |             |  | Multicurrency Revolving Credit Facility Agreement dated
    July 31, 2006 for Qimonda AG coordinated by Citigroup
    Global Markets Limited, Credit Suisse, London Branch,
    J.P. Morgan PLC and the other lenders listed therein, with
    Citibank International PLC acting as agent. (incorporated by
    reference to Exhibit 10(i)(F) of Qimonda AGs
    Registration Statement on Form F-1, as amended, filed with
    the SEC on August 8, 2006)               
|        | 4(i)(G)  |             |  | Joint Venture Agreement between Infineon and Nanya Technology
    Corporation, executed on November 13, 2002. (incorporated
    by reference to Exhibit 10(i)(G) of Qimonda AGs
    Registration Statement on Form F-1, as amended, filed with
    the SEC on August 8, 2006, for portions of which
    confidential treatment has been granted)                                                                                                                         
|        | 4(i)(H)  |             |  | Amendments No. 1, 2 and 3 to the Joint Venture Agreement
    between Infineon and Nanya Technology Corporation, executed on
    November 13, 2002. (incorporated by reference to
    Exhibit 10(i)(H) of Qimonda AGs Registration
    Statement on Form F-1, as amended, filed with the SEC on
    August 8, 2006, for portions of which confidential
    treatment has been granted)                                                                                    
|        | 4(i)(I)  |             |  | Amendment No. 4 to the Joint Venture Agreement between
    Infineon and Nanya Technology Corporation, executed on
    November 13, 2002. (incorporated by reference to
    Exhibit 10(i)(I) of Qimonda AGs Registration
    Statement on Form F-1, as amended, filed with the SEC on
    August 8, 2006, for portions of which confidential
    treatment has been granted)                                                                                              



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##### Table of Contents



|        |         |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------- | ------- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |            
|No.     |         | Description
|        |         |            
|        | 4(i)(J) |             |  | 60nm Technical Cooperation Agreement between Nanya Technology
    Corporation and Infineon Technologies AG for DRAM Process
    Technology, dated September 29, 2005. , (incorporated
    by reference to Exhibit 10(i)(J) of Qimonda AGs
    Registration Statement on Form F-1, as amended, filed with
    the SEC on August 8, 2006, for portions of which
    confidential treatment has been granted)                                                                                                
|        | 4(i)(K) |             |  | 110nm License and 90/70nm Technical Cooperation Agreement
    between Nanya Technology Corporation and Infineon Technologies
    AG for DRAM Process Technology, dated November 13, 2002, as
    amended.,  (incorporated by reference to
    Exhibit 10(i)(K) of Qimonda AGs Registration
    Statement on Form F-1, as amended, filed with the SEC on
    August 8, 2006, for portions of which confidential
    treatment has been granted)                                                           
|        | 4(i)(L) |             |  | Product Purchase and Capacity Reservation Agreement by and
    between Hwa-Ya Semiconductor Inc. (Inotera), Nanya Technology
    Corporation and Infineon Technologies AG, dated July 15,
    2003, as amended. (incorporated by reference to
    Exhibit 10(i)(L) of Qimonda AGs Registration
    Statement on Form F-1, as amended, filed with the SEC on
    August 8, 2006, for portions of which confidential
    treatment has been granted)                                                         
|        | 4(i)(M) |             |  | Product Purchase and Capacity Reservation Agreement by and
    between Semiconductor Manufacturing International Corporation,
    Semiconductor Manufacturing International (Shanghai) Corporation
    and Infineon Technologies AG, dated December 4, 2002, as
    amended. (incorporated by reference to Exhibit 10(i)(M) of
    Qimonda AGs Registration Statement on Form F-1, as
    amended, filed with the SEC on August 8, 2006, for portions
    of which confidential treatment has been granted)
|        | 4(i)(N) |             |  | Product Purchase and Capacity Reservation Agreement 300nm by and
    between Winbond Electronics Corporation and Infineon
    Technologies AG, dated August 6, 2004. (incorporated by
    reference to Exhibit 10(i)(N) of Qimonda AGs
    Registration Statement on Form F-1, as amended, filed with
    the SEC on August 8, 2006, for portions of which
    confidential treatment has been granted)                                                                                                    
|        | 4(i)(O) |             |  | Cooperative Joint Venture Contract between Infineon Technologies
    China Co., Ltd. and China-Singapore Suzhou Industrial Park
    Ventures Co., Ltd., dated July 28, 2003, as amended.
    (incorporated by reference to Exhibit 10(i)(O) of Qimonda
    AGs Registration Statement on Form F-1, as amended,
    filed with the SEC on August 8, 2006, for portions of which
    confidential treatment has been granted)                                                                                
|        | 4(i)(P) |             |  | Settlement and License Agreement by and among Rambus Inc.,
    Infineon, Infineon Technologies North America Corp. and Infineon
    Technologies Holding North America Inc., dated as of
    March 21, 2005. (incorporated by reference to
    Exhibit 10(i)(P) of Qimonda AGs Registration
    Statement on Form F-1, as amended, filed with the SEC on
    August 8, 2006, for portions of which confidential
    treatment has been granted)                                                            
|        | 4(i)(Q) |             |  | Master IT Cost Sharing Agreement by and between Infineon
    Technologies AG and Qimonda AG, effective May 1, 2006.
    (incorporated by reference to Exhibit 10(i)(Q) of Qimonda
    AGs Registration Statement on Form F-1, as amended,
    filed with the SEC on August 8, 2006                                                                                                                                                                                                                         
|        | 4(i)(R) |             |  | License Agreement between Tessera, Inc. and Qimonda AG, dated
    August 1, 2006. (incorporated by reference to
    Exhibit 10(i)(R) of Qimonda AGs Registration
    Statement on Form F-1, as amended, filed with the SEC on
    August 8, 2006, for portions of which confidential
    treatment has been granted)                                                                                                                                                                                       
|        | 4(i)(S) |             |  | Eleventh Amendment to License and Technical Cooperation
    Agreement dated November 13, 2002 and First Amendment to
    60nm Technical Cooperation Agreement dated September 29,
    2005, both between Nanya Technology Corporation and Infineon
    Technologies AG. (incorporated by reference to
    Exhibit 10(i)(S) of Qimonda AGs Registration
    Statement on Form F-1, as amended, filed with the SEC on
    August 8, 2006)                                                                    



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##### Table of Contents



|        |         |             |  |                                                                                                                                                                                                                                                                                                                                                             
|------- | ------- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |            
|No.     |         | Description
|        |         |            
|        | 4(i)(T) |             |  | Twelfth Amendment to License and Technical Cooperation Agreement
    dated November 13, 2002 between Nanya Technology
    Corporation and Infineon Technologies AG, for portions of which
    confidential treatment has been requested.                                                                                                                    
|        | 4(i)(U) |             |  | Addenda No. 6 and 7 to Product Purchase and Capacity
    Reservation Agreement by and between Semiconductor Manufacturing
    International Corporation, Semiconductor Manufacturing
    International (Shanghai) Corporation and Infineon Technologies
    AG, dated December 4, 2002, for portions of which
    confidential treatment has been requested.
|        | 4(i)(V) |             |  | First Addendum to Product Purchase and Capacity Reservation
    Agreement 300mm by and between Winbond Electronics Corporation
    and Infineon Technologies AG, dated August 6, 2004, for
    portions of which confidential treatment has been requested.                                                                                                 
|        | 4(i)(W) |             |  | Addenda No. 2 and 3 to Contribution Agreement
    (Einbringungsvertrag) between Infineon Technologies AG
    and Qimonda AG, dated as of April 25, 2006 (English
    Translation).                                                                                                                                                                          
|        | 8       |             |  | List of Significant Subsidiaries and Associated Companies of
    Qimonda AG as defined in Rule 1-02(w) of
    Regulation S-X: See Additional
    Information  Group Structure  Significant
    Subsidiaries.                                                                                                                                            
|        | 12(i)   |             |  | Certification pursuant to Section 302 of the Sarbanes-Oxley
    Act.                                                                                                                                                                                                                                                                                        
|        | 12(ii)  |             |  | Certification pursuant to Section 302 of the Sarbanes-Oxley
    Act.                                                                                                                                                                                                                                                                                        
|        | 13      |             |  | Certification pursuant to Section 906 of the Sarbanes-Oxley
    Act.                                                                                                                                                                                                                                                                                        
|        | 15      |             |  | Articles of Association of Inotera Memories, Inc., amended as of
    June, 7 2006 (incorporated by reference to
    Exhibit 99(A) of Qimonda AGs Registration Statement
    on Form F-1, as amended, filed with the SEC on
    August 8, 2006)                                                                                                             






|  |                                                                                                                                                                                                                                                                                                     
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Eleventh Amendment to 110nm License and 90/70nm Technical
    Cooperation Agreement and First Amendment to 60nm Technical
    Cooperation Agreement were filed as Exhibit 10(i)(S) to
    Qimonda AGs Registration Statement on
    Form F-1, as
    amended, filed with the SEC on August 8, 2006.
| 
| | Twelfth Amendment to 110nm License and 90/70nm Technical
    Cooperation Agreement is filed as Exhibit 4(i)(T) to this Annual
    Report on Form 20-F.