##### Table of Contents





As filed with the Securities and Exchange Commission on
    March 3, 2008
     SECURITIES AND EXCHANGE
    COMMISSION
 Washington, D.C.
    20549
  Form 20-F
  o

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
    (g)
    OF THE SECURITIES EXCHANGE ACT OF 1934ORþ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2007ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from           too

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
    THE SECURITIES EXCHANGE ACT OF 1934Date of event requiring this
    shell company report   Commission file number: 1-13546
 STMicroelectronics
    N.V.
 (Exact name of registrant as
    specified in its charter)
  Not Applicable

The Netherlands(Translation of
    registrants

(Jurisdiction of
    incorporationname into English)

or
    organization)   39, Chemin du Champ des Filles
 1228 Plan-Les-Ouates
 Geneva
 Switzerland
 (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:Common shares, nominal value 1.04 per share

New York Stock Exchange   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
    899,760,539 common shares at December 31, 2007
    þ o
    o þ
   þ o
  12b-2
  Large accelerated
    filer þ

Accelerated filer
    o

Non-accelerated
    filer o
    (Do not check if a smaller reporting company)

Smaller reporting
    company o     o þ
  Rule 12b-2
  o þ




---



##### 





TABLE OF
    CONTENTS
   
 PRESENTATION OF FINANCIAL AND OTHER
    INFORMATION


2PART I


4Item 1.


Identity of Directors, Senior Management and
    Advisers


4Item 2.


Offer Statistics and Expected Timetable


4Item 3.


Key Information


4Item 4.


Information on the Company


20Item 5.


Operating and Financial Review and Prospects


47Item 6.


Directors, Senior Management and Employees


89Item 7.


Major Shareholders and Related-Party
    Transactions


113Item 8.


Financial Information


120Item 9.


Listing


124Item 10.


Additional Information


130Item 11.


Quantitative and Qualitative Disclosures About
    Market Risk


148Item 12.


Description of Securities Other Than Equity
    Securities


150PART II


151Item 13.


Defaults, Dividend Arrearages and
    Delinquencies


151Item 14.


Material Modifications to the Rights of Security
    Holders and Use of Proceeds


151Item 15.


Controls and Procedures


151Item 16A.


Audit Committee Financial Expert


152Item 16B.


Code of Ethics


152Item 16C.


Principal Accountant Fees and Services


152Item 16D.


Exemptions from the Listing Standards for Audit
    Committees


153Item 16E.


Purchases of Equity Securities by the Issuer and
    Affiliated Purchasers


154PART III


155Item 17.


Financial Statements


155Item 18.


Financial Statements


155Item 19.


Exhibits


155EX-1.1:Amended and Related Articles of Associations of STMicroelectronics N.V.EX-8.1:SUBSIDIARIESEX-12.1:CERTIFICATIONEX-12.2:CERTIFICATIONEX-13.1:CERTIFICATIONEX-14.(a): CONSENT OF INDEPENDENT REGISTERED ACCOUNTING FIRM   1




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##### Table of Contents



PRESENTATION
    OF FINANCIAL AND OTHER INFORMATION
  Form 20-F Form 20-F),
    non-U.S. GAAP
  Form 20-F
   CAUTIONARY
    NOTE REGARDING FORWARD-LOOKING STATEMENTS  Form 20-F
  
    the closing of the transaction announced in May 2007 with Intel
    and Francisco Partners concerning the creation of a new
    independent Flash memory company, which was later named
    Numonyx, within the timeframe and pursuant to the
    terms currently planned; as well as any future losses that may
    be incurred once Numonyx begins operations, which would affect
    us in proportion to our equity holding in this company;
    our ability to address changes in the exchange rates between the
    U.S. dollar and the Euro, in particular with the further
    weakening of the U.S. dollar which impacts our gross margin
    since our fixed costs are incurred in Euros, when our selling
    prices are mainly in U.S. dollars as well as changes in the
    exchange rates between the U.S. dollar and the currencies
    of the other major countries in which we have our operating
    infrastructure;
    the attainment of anticipated benefits of cooperative research
    and development alliances and our ability to secure new process
    technologies in a timely and cost effective manner so that the
    resultant products can be commercially viable and acceptable in
    the marketplace;
    our ability, in an intensively competitive environment and
    cyclical industry, to design competitive products, to secure
    timely acceptance of our products by our customers, to
    adequately operate our manufacturing facilities at sufficient
    levels to cover fixed operating costs, and to achieve our
    pricing expectations for high-volume supplies of new products in
    whose development we have been, or are currently, investing;
    the results of actions by our competitors, including new product
    offerings and our ability to react thereto;
    pricing pressures, losses or curtailments of purchases from key
    customers all of which are highly variable and difficult to
    predict;
    the ability of our suppliers to meet our demands for supplies
    and materials and to offer competitive pricing; 2




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##### Table of Contents




    significant differences in the gross margins we achieve compared
    to expectations, based on changes in revenue levels, product mix
    and pricing, capacity utilization, variations in inventory
    valuation, excess or obsolete inventory, manufacturing yields,
    changes in unit costs, impairments of long-lived assets
    (including manufacturing, assembly/test and intangible assets),
    and the timing and execution of our manufacturing investment
    plans and associated costs, including
    start-up
    costs;
    the financial impact of obsolete or excess inventories if actual
    demand differs from our manufacturing plans;
    future developments of the world semiconductor market, in
    particular the future demand for semiconductor products in the
    key application markets and from key customers served by our
    products;
    changes in our overall tax position as a result of changes in
    tax laws or pursuant to tax audits, and our ability to
    accurately estimate tax credits, benefits, deductions and
    provisions and to realize deferred tax assets;
    the outcome of litigation;
    the impact of intellectual property claims by our competitors or
    other third parties, and our ability to obtain required licenses
    on reasonable terms and conditions; and
    changes in the economic, social or political environment,
    including military conflict
    and/or
    terrorist activities, as well as natural events such as severe
    weather, health risks, epidemics or earthquakes in the countries
    in which we, our key customers and our suppliers, operate.  Form 20-F Form 20-F
  and/or
 3




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##### Table of Contents



PART I  Item 1.
    Identity
    of Directors, Senior Management and Advisers    Item 2.
    Offer
    Statistics and Expected Timetable    Item 3.
    Key
    Information  Selected
    Financial Data
  Form 20-F,
  Form 20-F.
  Year Ended December 31,2007


2006


2005


2004


2003(In millions except per share and ratio data)Consolidated Statements of Income Data:Net sales

$
9,966


$
9,838


$
8,876


$
8,756


$
7,234Other revenues


35



16



6



4



4Net revenues


10,001



9,854



8,882



8,760



7,238Cost of sales


(6,465
)


(6,331
)


(5,845
)


(5,532
)


(4,672
)Gross profit


3,536



3,523



3,037



3,228



2,566Operating expenses:Selling, general and administrative


(1,099
)


(1,067
)


(1,026
)


(947
)


(785
)Research and development(1)


(1,802
)


(1,667
)


(1,630
)


(1,532
)


(1,238
)Other income and expenses, net(1)


48



(35
)


(9
)


10



(4
)Impairment, restructuring charges and other related closure costs


(1,228
)


(77
)


(128
)


(76
)


(205
)Total operating expenses


(4,081
)


(2,846
)


(2,793
)


(2,545
)


(2,232
)Operating income (loss)


(545
)


677



244



683



334Other-than-temporary impairment charge on financial assets


(46
)














Interest income (expense), net


83



93



34



(3
)


(52
)Earnings (loss) on equity investments


14



(6
)


(3
)


(4
)


(1
)Loss on extinguishment of convertible debt














(4
)


(39
)Income (loss) before income taxes and minority interests


(494
)


764



275



672



242Income tax benefit (expense)


23



20



(8
)


(68
)


14Income (loss) before minority interests


(471
)


784



267



604



256Minority interests


(6
)


(2
)


(1
)


(3
)


(3
)Net income (loss)

$
(477
)

$
782


$
266


$
601


$
253Earnings (loss) per share (basic)

$
(0.53
)

$
0.87


$
0.30


$
0.67


$
0.29Earnings (loss) per share (diluted)

$
(0.53
)

$
0.83


$
0.29


$
0.65


$
0.27Number of shares used in calculating earnings per share (basic)


898.7



896.1



892.8



891.2



888.2Number of shares used in calculating earnings per share (diluted)


898.7



958.5



935.6



935.1



937.1 4




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##### Table of Contents



Year Ended December 31,2007


2006


2005


2004


2003(In millions except per share and ratio data)Consolidated Balance Sheet Data (end of period):Cash and cash equivalents(2)

$
1,855


$
1,659


$
2,027


$
1,950


$
2,998Marketable securities


1,014



764











Short-term deposits






250











Restricted cash for equity investments


250



218











Non-current marketable securities


369















Total assets


14,272



14,198



12,439



13,800



13,477Short-term debt (including current portion of long-term debt)


103



136



1,533



191



151Long-term debt (excluding current portion)(2)


2,117



1,994



269



1,767



2,944Shareholders equity(2)


9,573



9,747



8,480



9,110



8,100Capital stock(3)


3,253



3,177



3,120



3,074



3,051Other Data:Dividends per share

$
0.30


$
0.12


$
0.12


$
0.12


$
0.08Capital expenditures(4)


1,140



1,533



1,441



2,050



1,221Net cash provided by operating activities


2,188



2,491



1,798



2,342



1,920Depreciation and amortization(4)


1,413



1,766



1,944



1,837



1,608Debt-to-equity ratio(5)


0.23



0.22



0.21



0.21



0.38Net debt (cash) to total shareholders equity ratio(5)


(0.132
)


(0.078
)


(0.026
)


0.001



0.012     (1)
    
    Other income and expenses, net includes, among other
    things, funds received through government agencies for research
    and development expenses, the cost of new production facilities
    start-ups,
    foreign currency gains and losses, gains on sales of marketable
    securities and non-current assets and the costs of certain
    activities relating to intellectual property. Our reported
    research and development expenses are mainly in the areas of
    product design, technology and development, and do not include
    marketing design center costs, which are accounted for as
    selling expenses, or process engineering, pre-production and
    process-transfer costs, which are accounted for as cost of sales.(2)
    
    On November 16, 2000, we issued $2,146 million initial
    aggregate principal amount of Zero-Coupon Senior Convertible
    Bonds due 2010 (the 2010 Bonds), for net proceeds of
    $1,458 million; in 2003, we repurchased on the market
    approximately $1,674 million aggregate principal amount at
    maturity of 2010 Bonds. During 2004, we completed the repurchase
    of our 2010 Bonds and repurchased on the market approximately
    $472 million aggregate principal amount at maturity for a
    total amount paid of $375 million. In 2001, we redeemed the
    remaining $52 million of our outstanding Liquid Yield
    Option Notes due 2008 (our 2008 LYONs) and converted
    them into common shares in May and June 2001. In 2001, we
    repurchased 9,400,000 common shares for $233 million, and
    in 2002, we repurchased an additional 4,000,000 shares for
    $115 million. We reflected these purchases at cost as a
    reduction of shareholders equity. The repurchased shares
    have been designated for allocation under our share-based
    compensation programs on non-vested shares, including the plans
    as approved by the 2005, 2006 and 2007 annual general
    shareholders meetings, and those which may be attributed
    in the future. As of December 31, 2007,
    2,867,119 shares were transferred to employees upon vesting
    of stock awards. In August 2003, we issued $1,332 million
    principal amount at issuance of our convertible bonds due 2013
    (our 2013 Convertible Bonds) with a negative yield
    of 0.5% that resulted in a higher principal amount of
    $1,400 million and net proceeds of $1,386 million.
    During 2004, we repurchased all of our outstanding Liquid Yield
    Option Notes due 2009 (our 2009 LYONs) for a total
    amount of cash paid of $813 million. In February 2006, we
    issued Zero Coupon Senior Convertible Bonds due 2016 (our
    2016 Convertible Bonds) representing total gross
    proceeds of $974 million. In March 2006, we issued
    500 million Floating Rate Senior Bonds due 2013 (our
    2013 Senior Bonds). In August 2006, as a result of
    almost all of the holders of our 2013 Convertible Bonds
    exercising their August 4, 2006 put option, we repurchased
    $1,397 million aggregate principal amount of the
    outstanding convertible bonds at a conversion ratio of $985.09
    per $1,000 aggregate principal amount at issuance resulting in a
    cash disbursement of $1,377 million.(3)
    
    Capital stock consists of common stock and capital surplus.(4)
    
    Capital expenditures are net of certain funds received through
    government agencies, the effect of which is to decrease
    depreciation. 5




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(5)
    
    Net debt (cash) to total shareholders equity ratio is a
    non-U.S.
    GAAP financial measure. The most directly comparable U.S. GAAP
    financial measure is considered to be Debt-to-Equity
    Ratio. However, the Debt-to-Equity Ratio measures gross
    debt relative to equity, and does not reflect the current cash
    position of the Company. We believe that our net debt (cash) to
    total shareholders equity ratio is useful to investors as
    a measure of our financial position and leverage. The ratio is
    computed on the basis of our net financial position divided by
    total shareholders equity. Our net financial position is
    the difference between our total cash position (cash and cash
    equivalents, current and non-current marketable securities,
    short-term deposits and restricted cash) net of total financial
    debt (bank overdrafts, current portion of long-term debt and
    long-term debt). For more information on our net financial
    position, see Item 5. Operating and Financial Review
    and Prospects  Liquidity and Capital
    Resources  Capital Resources  Net
    financial position. Our computation of net debt (cash) to
    total shareholders equity ratio may not be consistent with
    that of other companies, which could make comparability
    difficult.  Risk
    Factors
  Risks
    Related to the Semiconductor Industry
  The
    semiconductor industry is cyclical and downturns in the
    semiconductor industry can negatively affect our results of
    operations and financial condition.
  and/or
    Reduction
    in demand or increase in production capacity for semiconductor
    products may lead to overcapacity, which in turn may require
    plant closures, asset impairments, restructuring charges and
    inventory write-offs.
        and/or and/or
 6




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Competition
    in the semiconductor industry is intense, and we may not be able
    to compete successfully if our product design technologies,
    process technologies and products do not meet market
    requirements.
    
    price;
    technical performance;
    product features;
    product system compatibility;
    product design and technology;
    timely introduction of new products;
    product availability;
    manufacturing yields; and
    sales and technical support.  and/or
        Semiconductor
    and other products that we design and manufacture are
    characterized by rapidly changing technology and new product
    introductions, and our success depends on our ability to develop
    and manufacture complex products cost- effectively and to
    scale.
       7




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300-mm
    The
    competitive environment of the semiconductor industry may lead
    to further measures to improve our competitive position and cost
    structure, which in turn may result in loss of revenues, asset
    impairments and/or capital losses.
      and/or and/or
  Risks
    Related to Our Operations
  Strategic
    repositioning may be required, in light of market dynamics, to
    improve our business performance.
     8




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Future
    acquisitions or divestitures may adversely affect our
    business.
        
    diversion of managements attention;
    difficult integration of acquired company operations and
    personnel;
    loss of activities and technologies that may have complemented
    our remaining businesses;
    insufficient intellectual property rights or potential
    inaccuracies in the ownership of key IP;
    assumption of potential liabilities, disclosed or undisclosed,
    associated with the business acquired, which liabilities may
    exceed the amount of indemnification available from the seller;
    potential inaccuracies in the financial and accounting systems
    utilized by the business acquired;
    that the businesses acquired will not maintain the quality of
    products and services that we have historically provided;
    whether we are able to attract and retain qualified management
    for the acquired business;
    loss of important services provided by key employees that are
    assigned to divested activities;
    whether we are able to retain customers of the acquired
    entity; and
    goodwill and other intangible asset impairment, due to the
    inability of the business to meet managements expectations
    at the time of the acquisition.    In
    difficult market conditions, our high fixed costs adversely
    impact our results.
    The
    competitive environment of the semiconductor industry has led to
    industry consolidation and we may face even more intense
    competition from newly merged competitors or we may seek to
    acquire a competitor or become an acquisition
    target.
   9




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Our
    financial results can be adversely affected by fluctuations in
    exchange rates, principally in the value of the U.S.
    dollar.
    Euro-denominated
    Because
    we have our own manufacturing facilities, our capital needs are
    high compared to competitors who do not produce their own
    products.
    300-mm 150-mm 200-mm 300-mm 200-mm
 10




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150-mm
  We may
    also need additional funding in the coming years to finance our
    investments or to purchase other companies or technologies
    developed by third parties.
  and/or
  Our
    research and development efforts are increasingly expensive and
    dependent on alliances, and our business, results of operations
    and prospects could be materially adversely affected by the
    failure or termination of such alliances, or failure to find new
    partners in such alliance and/or in developing new process
    technologies in line with market requirements.
  300-mm 300-mm 300-mm
  300-mm System-on-Chip
  and/or
  Our
    operating results may vary significantly from quarter to quarter
    and annually and may differ significantly from our expectations
    or guidance.
   11




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
    performance of our key customers in the markets they serve;
    order cancellations or reschedulings by customers;
    excess inventory held by customers leading to reduced bookings
    or product returns by key customers;
    manufacturing capacity and utilization rates;
    restructuring and impairment charges;
    fluctuations in currency exchange rates, particularly between
    the U.S. dollar and other currencies in jurisdictions where
    we have activities;
    intellectual property developments;
    changes in distribution and sales arrangements;
    failure to win new design projects;
    manufacturing performance and yields;
    product liability or warranty claims;
    litigation;
    acquisitions or divestitures;
    problems in obtaining adequate raw materials or production
    equipment on a timely basis;
    property damage or business interruption losses resulting from a
    catastrophic event not covered by insurance; and
    changes in the market value or yield of the financial
    instruments in which we invest our liquidity.    Our
    business is dependent in large part on continued growth in the
    industries and segments into which our products are sold and in
    our ability to attract and retain new customers. A market
    decline in any of these industries or our inability to attract
    new customers could have a material adverse effect on our
    results of operations.
    
    spending levels of telecommunications equipment, industrial
    and/or
    automotive providers;
    development of new consumer products or applications requiring
    high semiconductor content;
    evolving industry standards;
    the rate of adoption of new or alternative technologies; and
    demand for automobiles, consumer confidence and general economic
    conditions.   12




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Disruptions
    in our relationships with any one of our key customers could
    adversely affect our results of operations.
    Our
    operating results can also vary significantly due to impairment
    of goodwill and other intangible assets incurred in the course
    of acquisitions, as well as to impairment of tangible assets due
    to changes in the business environment.
   13




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Because
    we depend on a limited number of suppliers for raw materials and
    certain equipment, we may experience supply disruptions if
    suppliers interrupt supply or increase prices.
  just-in-time
  Our
    manufacturing processes are highly complex, costly and
    potentially vulnerable to impurities, disruptions or inefficient
    implementation of production changes that can significantly
    increase our costs and delay product shipments to our
    customers.
      We may
    be faced with product liability or warranty
    claims.
   14




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If our
    outside contractors fail to perform, this could adversely affect
    our ability to exploit growth opportunities.
    We
    depend on patents to protect our rights to our
    technology.
    and/or
    Some
    of our production processes and materials are environmentally
    sensitive, which could lead to increased costs due to
    environmental regulations or to damage to the
    environment.
   15




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Loss
    of key employees could hurt our competitive
    position.
    We
    operate in many jurisdictions with highly complex and varied tax
    regimes. Changes in tax rules or the outcome of tax assessments
    and audits could cause a material adverse effect on our
    results.
      and/or
  We are
    required to prepare Consolidated Financial Statements using both
    International Financial Reporting Standards (IFRS)
    in addition to our Consolidated Financial Statements prepared
    pursuant to Generally Accepted Accounting Principles in the
    United States (U.S. GAAP) and dual reporting may
    impair the clarity of our financial reporting.
     16




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If our
    internal control over financial reporting fails to meet the
    requirements of Section 404 of the Sarbanes-Oxley Act, it
    may have a materially adverse effect on our stock
    price.
  Form 20-F.
  Reduction
    in the amount of public funding available to us, changes in
    existing public funding programs or demands for repayment may
    increase our costs and impact our results of
    operations.
  and/or and/or
    project-by-project
  The
    interests of our controlling shareholders, which are in turn
    controlled respectively by the French and Italian governments,
    may conflict with investors interests.
   17




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Our
    shareholder structure and our preference shares may deter a
    change of control.
      Our
    direct or indirect shareholders may sell our existing common
    shares or issue financial instruments exchangeable into our
    common shares at any time. In addition, substantial sales by us
    of new common shares or convertible bonds could cause our common
    share price to drop significantly.
   18




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Because
    we are a Dutch company subject to the corporate law of the
    Netherlands, U.S. investors might have more difficulty
    protecting their interests in a court of law or otherwise than
    if we were a U.S. company.
        Removal
    of our common shares from the CAC 40 on Euronext Paris, the
    S&P/MIB on the Borsa Italiana or the Philadelphia Stock
    Exchange Semiconductor Sector Index could cause the market price
    of our common shares to drop significantly.
   19




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Item 4.
    Information
    on the Company  History
    and Development of the Company
  75006-5039
    Business
    Overview
         20




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##### Table of Contents



System-in-Package
    
    ASG is comprised of the Mobile, Multimedia &
    Communications Group (MMC), the Home
    Entertainment & Displays Group (HED), the
    Automotive Product Group (APG) and the Computer
    Peripherals Group (CPG);
    IMS is comprised of the Analog, Micro-Electronic-Mechanical
    Systems (MEMS), and Power Group (AMP)
    and the Microcontrollers, Memories and Smartcards Group
    (MMS); and
    the FMG incorporates all of the Flash memory operations (both
    NOR and NAND), including technology R&D, all product
    related activities, front-end and back-end manufacturing,
    marketing and sales worldwide.     21




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Results
    of Operations
    Year Ended December 31,2007


2006


2005(In millions, except percentages)Net Revenues by Product SegmentApplication Specific Groups (ASG)

$
5,439


$
5,395


$
4,991Industrial and Multisegment Sector (IMS)


3,138



2,842



2,482Flash Memories Group (FMG)


1,364



1,570



1,351Others(1)


60



47



58Total

$
10,001


$
9,854


$
8,882Net Revenues by Location of Order Shipment(2)Europe

$
3,159


$
3,073


$
2,789North America(3)


1,176



1,232



1,281Asia Pacific(4)


1,874



2,084



1,860Greater China(4)


2,750



2,552



2,203Japan


475



400



307Emerging Markets(3)(5)


567



513



442Total

$
10,001


$
9,854


$
8,882Percentage of Net Revenues by Product SegmentApplication Specific Groups (ASG)


54.4
%


54.8
%


56.2
%Industrial and Multisegment Sector (IMS)


31.4



28.8



27.9Flash Memories Group (FMG)


13.6



15.9



15.2Others(1)


0.6



0.5



0.7Total


100
%


100.0
%


100.0
%Percentage of Net Revenues by Location of Order
    Shipment(2)Europe


31.6
%


31.2
%


31.4
%North America(3)


11.8



12.5



14.4Asia Pacific(4)


18.7



21.1



20.9Greater China(4)


27.5



25.9



24.8Japan


4.7



4.1



3.5Emerging Markets(3)(5)


5.7



5.2



5.0Total


100.0
%


100.0
%


100.0
%     (1)
    
    Includes revenues from sales of Subsystems and other revenues
    not allocated to product segments.(2)
    
    Net revenues by location of order shipment are classified by
    location of customer invoiced. For example, products ordered by
    U.S.-based
    companies to be invoiced to Asia Pacific affiliates are
    classified as Asia Pacific revenues.(3)
    
    As of July 2, 2006, the region North America
    includes Mexico which was part of Emerging Markets in prior
    periods. Amounts have been reclassified to reflect this change.(4)
    
    As of January 1, 2006, we created a new region,
    Greater China to focus exclusively on our operations
    in China, Hong Kong and Taiwan. Net revenues for Asia Pacific
    for prior periods were restated according to the new perimeter.(5)
    
    Emerging Markets includes markets such as India, Latin America
    (excluding Mexico), the Middle East and Africa, Europe (non-EU
    excluding Bulgaria and Romania and non-EFTA) and Russia. 22




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##### Table of Contents



Strategy
    
    the changing long-term structural growth of the overall market
    for semiconductor products, which has moved from double-digit
    average growth rate to single-digit average growth rate over the
    last several years;
    the strong development of new emerging applications in areas
    such as wireless communications, solid-state storage, digital TV
    and video products and games;
    the increasing importance of the Asia Pacific region,
    particularly in China, and other emerging countries, which
    represents the fastest growing regional markets;
    the importance of convergence between wireless, consumer and
    computer applications, which drives customer demand to seek new
    system-level, turnkey solutions from semiconductor suppliers;
    the evolution of the customer base from original equipment
    manufacturers (OEM) to a mix of OEM, electronic
    manufacturing service providers (EMS) and original
    design manufacturers (ODM);
    the expansion of available manufacturing capacity through
    third-party providers; and
    the recent consolidation process and increased participation of
    private equity firms, which may lead to further strategic
    repositionings and reorganization amongst industry players.    Broad, balanced market exposure.
  Product innovation.
      Customer-based initiatives.
 23




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##### Table of Contents



Global integrated manufacturing
    infrastructure.
  Reduced asset intensity.
  Research and development partnerships.
  Integrated presence in key regional
    markets.
  Product quality excellence.
  Sustainable Excellence and Compliance.
  Return on capital employed.
 24




---



##### Table of Contents



Products
    and Technology
      
    ASG;
    IMS; and
    FMG.    Application
    Specific Product Groups
        Mobile,
    Multimedia and Communications Group
    Wireless Multimedia Division.
  Imaging Division. low-and-high
 25




---



##### Table of Contents



Connectivity Division.
  Communications Infrastructure
    Division.
  Home
    Entertainment and Displays Group
    Home Video Division.
      Interactive System Solutions
    Division. best-in-class
  Home Display Division.
 26




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##### Table of Contents



Audio Division.
  Computer
    Peripherals Group
  Data Storage Division.
    Printer Division.
  Microfluidics Division. Lab-on-Chip
  Automotive
    Products Group
    Powertrain and Safety Division.
  Car Body Division.
  Car Radio and Multimedia
    Division.
 27




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##### Table of Contents



Digital Broadcast Radio
    Division.
  Industrial
    and Multisegment Sector
    APM
  Power MOSFET Division.
  Power Bipolar, IGBT and RF
    Division.
  ASD and IPAD Division. tm
  Linear and Interface Division.
  Industrial and Power Conversion
    Division.
  Advanced Analog and Logic
    Division.
  Micro-electronic-mechanical systems
    (MEMS).
 28




---



##### Table of Contents



MMS
  (i) Microcontroller Division. TM
  Memory Division. 1-Kb 1-Mb
  Smartcard IC Division. pay-TV
  Incard Division.
  Flash
    Memories Group
  and/or
      Wireless Flash Memories
    Division.
  Imbedded Nor Division.
  NAND Flash and Storage Media
    Division.
   29




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##### Table of Contents



Strategic
    Alliances with Customers and Industry Partnerships
  Alcatel-Lucent,
  300-mm 300-mm
        Customers
    and Applications
   30




---



##### Table of Contents



TelecommunicationsCustomers:

2Wire

Huawei

Nortel Networks

SharpAlcatel-Lucent

LG Electronics

Research in Motion

SiemensCisco

Motorola

Safran

SIRFFinisar

Nokia

Samsung

Sony EricssonApplications:

Camera modules/mobile imaging
    Central office switching systems
    Data transport (routing, switching for electronic and optical
    networks)
    Cellular telephones
    Internet access (XDSL)
    Imaging



Portable multimedia Telephone terminals (wireline and wireless)
    Wireless connectivity (Bluetooth, WLAN, FM radio)
    Wireless infrastructureComputer PeripheralsCustomers:

Agilent

Delta

Intel

SeagateApple

Eastman Kodak

Lexmark

Taiwan-LiteonBenQ

Epson

Microsoft

Western DigitalDell

Hewlett-Packard

Samsung

XilinxApplications:

Data storage



Power managementMonitors and displays



Printers
    WebcamsAutomotiveCustomers:

Bosch

Harman

Lear

TRWContinental

Hella

Marelli

ValeoDelphi

Hitachi

Pioneer

VisteonDenso

Kostal

Continental AG

Sirius Satellite RadioApplications:

Airbags
    Anti-lock braking systems
    Body and chassis electronics
    Engine management systems
    (ignition and injection)

Global positioning systems Multimedia
    Radio/satellite radio
    Telematics
    Vehicle stability
    controlConsumerCustomers:

ADB

Echostar

Philips

SkyworthAOC

Hyundai

Safran

SonyBose Corporation

LG Electronics

Samsung

ThomsonChangHong

Nintendo

Scientific Atlanta

VestelApplications:

Audio processing (CD,



DVDsDVD, Hi-Fi)



ImagingAnalog/digital TVs



Set-top boxesDigital cameras



VCRsDigital music players



DisplaysIndustrial/Other ApplicationsCustomers:

American Power Conversion

Delta

Giesecke & Devrient

SiemensArtesyn

Enel

Nagra

Taiwan-LiteonAstec

Gemalto

NDS

UPEKAutostrade

General Electric

Philips

VodafoneApplications:

Battery chargers



MEMSSmartcard ICs



Motor controllersIntelligent power switches



Power suppliesIndustrial automation/control systems



Switch mode power suppliesLighting systems(lamp ballasts)    31




---



##### Table of Contents



Sales,
    Marketing and Distribution
      just-in-time
           32




---



##### Table of Contents



and/or
    Research
    and Development
            Year Ended December 31,2007

2006

2005(In millions, except percentages)Expenditures

$
1,802


$
1,667


$
1,630As a percentage of net revenues


18.0
%


16.9
%


18.3
%    33




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##### Table of Contents



300-mm 300-mm
  Groupement dintérêt
    économique
        
    Soft Computing, in which a variety of problem-solving techniques
    such as fuzzy logic, neural networks and genetic algorithms are
    applied to situations where the knowledge is inexact or the
    computational resources required to obtain a complete solution
    would be excessive using traditional computing architectures.
    Potential applications include more effective automotive engine
    control, emerging fuel-cell technology and future
    quantum-computing techniques that will offer much greater
    computational speeds than are currently achievable;
    Nano-Organics, which encompasses a variety of emerging
    technologies that deal with structures smaller than the deep
    sub-micron scale containing as little as a few hundred or
    thousand atoms. Examples include carbon nanotubes, which have
    potential applications in displays and memories, and all
    applications that involve electronic properties of large
    molecules such as proteins; and
    Micro-Machining, in which the ability to precisely control the
    mechanical attributes of silicon structures is exploited. There
    are many potential applications, including highly sensitive
    pressure and acceleration sensors, miniature microphones,
    microfluidic devices and optical devices. In addition, along
    with its optical 34




---



##### Table of Contents



properties, the mechanical properties of silicon represent one
    of the most important links between conventional SoC technology
    and all the new technologies such as bioelectronics that can
    benefit from our semiconductor expertise.        tm
  tm tm
         35




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##### Table of Contents



Property,
    Plants and Equipment
    Location

Products

TechnologiesFront-end facilitiesCrolles1, France

Application-specific products, image sensors

Fab: 200-mm CMOS and BiCMOS, Analog/RF, imagingCrolles2, France(1)

Application-specific products and leading edge logic products

Fab: 300-mm research and development on deep sub-micron
    (90-nm and
    below) CMOS and differentiated SoC technology development, TSV
    pilot linePhoenix, Arizona
    (identified for closure)

Application-specific products and microcontrollers

Fab: 200-mm CMOS, BiCMOS, BCD, microcontrollersAgrate, Italy

Nonvolatile memories, microcontrollers and application- specific
    products MEMS Smart power

Fab 1: 200-mm BCD, nonvolatile memories, MEMS
    Fab 2: 200-mm Flash, embedded Flash, research and development on
    nonvolatile memories and BCD technologiesRousset, France

Microcontrollers, nonvolatile memories and Smartcard ICs,
    application-specific products and image sensors

Fab 1: 150-mm CMOS, Smartcard (shut down March 2007)
    Fab 2: 200-mm CMOS, Smartcard, embedded Flash, imagingCatania, Italy

Power transistors, Smart Power ICs and nonvolatile memories

Fab 1: 150-mm Power metal-on silicon oxide semiconductor process
    technology(MOS),VIPpowertm
and Pilot Line RF
Fab 2: 200-mm Flash, Smartcard, EEPROM BCD
Fab 4: 300-mm building constructed but not fully facilitized and
equippedTours, France

Protection thyristors, diodes and ASD power transistors, IPAD

Fab: 125-mm, 150-mm and 200-mm pilot line discreteAng Mo Kio, Singapore

Analog, microcontrollers, power transistors, commodity products,
    nonvolatile memories, and application-specific products

Fab 1: 125-mm, power MOS, bipolar, power
    Fab 2: 150-mm bipolar, power MOS and BCD, EEPROM, Smartcard,
    Micros, CMOS logic
    Fab 3: 200-mm, Flash memories
    Fab 4: 150 mm Microfluidic, MEMS, BCD, BiCMOS, CMOSCarrollton, Texas
    (identified for closure)

Application-specific products, MEMS, Microfluidics

Fab: 150-mm BiCMOS, BCD and CMOSBack-end facilitiesMuar, Malaysia

Application-specific and standard products, microcontrollers,
    FlashKirkop, Malta

Application-specific productsToa Payoh, Singapore

Nonvolatile memories and power ICs under reconversion into an
    EWS centerAin Sebaa, Morocco
    (identified for closure)

Discrete and standard productsBouskoura, Morocco

Nonvolatile memories, discrete and standard products,
    micromodules, RF and subsystemsShenzhen, China(2)

Nonvolatile memories, discrete and standard products     (1)
    
    Operated jointly with NXP Semiconductors and Freescale
    Semiconductor. The agreement terminated at the end of 2007.(2)
    
    Jointly operated with SHIC, a subsidiary of Shenzhen Electronics
    Group. 36




---



##### Table of Contents



200-mm 200-mm
  300-mm
      300-mm
       37




---



##### Table of Contents



Intellectual
    Property
    and/or
      Backlog
  and/or and/or
     38




---



##### Table of Contents



just-in-time build-ups.
      Competition
        Organizational
    Structure and History
     39




---



##### Table of Contents



Percentage OwnershipLegal Seat

Name

(Direct or Indirect)Australia  Sydney

STMicroelectronics PTY Ltd


100Belgium  Zaventem

STMicroelectronics Belgium N.V.


100Belgium  Zaventem

Proton World International N.V.


100Brazil  Sao Paolo

STMicroelectronics Ltda


100Brazil  Sao Paulo

Incard do Brazil Ltda


50Canada  Ottawa

STMicroelectronics (Canada), Inc.


100China  Jiangsu(1)

Hynix-ST Semiconductor Ltd


17China  Shenzhen

Shenzhen STS Microelectronics Co. Ltd


60China  Shenzhen

STMicroelectronics (Shenzhen) Co. Ltd


100China  Shenzhen

STMicroelectronics (Shenzhen) Manufacturing Co. Ltd


100China  Shenzhen

STMicroelectronics (Shenzhen) R&D Co. Ltd


100China  Shanghai

STMicroelectronics (Shanghai) Co. Ltd


100China  Shanghai

STMicroelectronics (Shanghai) R&D Co. Ltd


100China  Shanghai

Shanghai Blue Media Co. Ltd


65China  Shanghai

STMicroelectronics (China) Investment Co. Ltd


100China  Beijing

STMicroelectronics (Beijing) R&D Co. Ltd


100Czech Republic  Prague

STMicroelectronics Design and Application s.r.o.


100Finland  Lohja

STMicroelectronics OY


100Finland  Helsinki

STMicroelectronics R&D OY


100France  Crolles

STMicroelectronics (Crolles 2) SAS


100France  Montrouge

STMicroelectronics S.A.


100France  Rousset

STMicroelectronics (Rousset) SAS


100France  Tours

STMicroelectronics (Tours) SAS


100France  Grenoble

STMicroelectronics (Grenoble) SAS


100Germany  Grasbrunn

STMicroelectronics GmbH


100Germany  Grasbrunn

STMicroelectronics Design and Application GmbH


100Holland  Amsterdam

STMicroelectronics Finance B.V.


100Hong Kong  Hong Kong

STMicroelectronics LTD


100India  Noida

STMicroelectronics Pvt Ltd


100India  New Delhi

STMicroelectronics Marketing Pvt Ltd


100Israel  Netanya

STMicroelectronics Ltd


100Italy  Caivano(1)

INGAM S.r.l.


20Italy  Catania

CO.RI.M.ME.


100Italy  Aosta

DORA S.p.a.


100Italy  Agrate Brianza

ST Incard S.r.l.


100Italy  Naples

STMicroelectronics Services S.r.l.


100Italy  Agrate Brianza

STMicroelectronics S.r.l.


100Italy  Agrate Brianza

STMicroelectronics (Memory) S.r.l.


100Japan  Tokyo

STMicroelectronics KK


100Malaysia  Kuala Lumpur

STMicroelectronics Marketing SDN BHD


100Malaysia  Muar

STMicroelectronics SDN BHD


100Malaysia  Muar

STMicroelectronics (Memory) Sdn Bhd


100Malta  Kirkop

STMicroelectronics Ltd


100Mexico  Guadalajara

STMicroelectronics Marketing, S. de R.L. de C.V.


100Mexico  Guadalajara

STMicroelectronics Design and Applications, S. de R.L. de C.V.


100Morocco  Rabat

Electronic Holding S.A.


100Morocco  Casablanca

STMicroelectronics S.A.


100Singapore  Ang Mo Kio

STMicroelectronics ASIA PACIFIC Pte Ltd


100Singapore  Ang Mo Kio

STMicroelectronics Pte Ltd


100Singapore  Ang Mo Kio

STMicroelectronics (Memory) Pte Ltd


100Singapore  Ang Mo Kio

STMicroelectronics ASIA PACIFIC (Memory) Pte Ltd


100Spain  Madrid

STMicroelectronics S.A.


100Sweden  Kista

STMicroelectronics A.B.


100Switzerland  Geneva

STMicroelectronics S.A.


100Switzerland  Geneva

INCARD S.A.


100Switzerland  Geneva

INCARD Sales and Marketing S.A.


100Turkey  Istanbul

STMicroelectronics Elektronik Arastirma ve Gelistirme Anonim
    Sirketi


100United Kingdom  Marlow

STMicroelecrtonics Limited


100United Kingdom  Marlow

STMicroelectronics (Research & Development) Limited


100United Kingdom  Bristol

Inmos Limited


100United Kingdom  Reading

Synad Technologies Limited


100United States  Carrollton

STMicroelectronics Inc.


100United States  Wilmington

STMicroelectronics (North America) Holding, Inc.


100United States  Wilsonville

The Portland Group, Inc.


100     (1)
    
    Equity Investments 40




---



##### Table of Contents



Public
    Funding
          2001-2008
  Fondo per gli Investimenti nella Ricerca
    Scientifica e Tecnologica Fondo per gli Investimenti della Ricerca
    di Base, Fondo per le Agevolazioni alla Ricerca, Fondo per la
    Competitivita e lo Sviluppo Fondo per lInnovazione Tecnologica,
  300-mm
 41




---



##### Table of Contents



inter alia
    Revenue Recognition
      Elements of Financial Statements
  300-mm 300-mm
 42




---



##### Table of Contents



and/or
  Suppliers
      just-in-time
    Environmental
    Matters
     43




---



##### Table of Contents



2005-2007. 2 2008-2012. (2003-2006), 1998-2001 (2008-2010), 2
      Industry
    Background
  The
    Semiconductor Market
     44




---



##### Table of Contents



quarter-by-quarter
    Worldwide Semiconductor Sales(1)


Compound Annual Growth Rates(2)2007


2006


2005


2004


1998


1988


06-07


05-06


04-05


88-07


88-98


98-07(In billions)


(Expressed as percentages)Integrated Circuits and Sensors

$
222.9


$
214.8


$
197.3


$
183.5


$
109.1


$
35.9



3.8
%


8.9
%


7.5
%


10.1
%


11.8
%


8.3
%Analog, Sensors and Actuators


41.6



42.3



36.5



36.1



19.1



7.2



(1.7
)


16.0



0.9



9.6



10.2



9.0Digital Logic


123.5



114.1



112.4



100.3



67.0



17.8



8.2



1.5



12.1



10.7



14.2



7.0Memory:DRAM


31.3



33.8



25.6



26.8



14.0



6.3



(7.4
)


32.0



(4.7
)


8.8



8.3



9.3Others


26.6



24.7



22.9



20.3



9.0



4.6



7.7



7.7



13.0



9.7



6.9



12.8Total Memory


57.9



58.5



48.5



47.1



23.0



10.9



(1.1
)


20.5



2.9



9.2



7.7



10.8Total Digital


181.4



172.6



160.9



147.4



90.0



28.7



5.1



7.3



9.1



10.2



12.1



8.1Discrete


16.8



16.6



15.2



15.8



11.9



7.0



1.3



8.8



(3.3
)


4.7



5.5



3.9Optoelectronics


15.9



16.3



14.9



13.7



4.6



2.1



(2.3
)


9.3



8.6



11.2



8.1



14.7TAM

$
255.6


$
247.7


$
227.5


$
213.0


$
125.6


$
45.0



3.2
%


8.9
%


6.8
%


9.6
%(3)


10.8
%


8.2
%(3)Europe


41.0



39.9



39.3



39.4



29.4



8.1



2.7



1.6



(0.4
)


8.9



13.8



3.8Americas


42.3



44.9



40.7



39.1



41.4



13.4



(5.7
)


10.3



4.3



6.2



11.9



0.2Asia Pacific


123.5



116.5



103.4



88.8



28.9



5.4



6.0



12.7



16.5



17.9



18.3



17.5Japan


48.8



46.4



44.1



45.8



25.9



18.1



5.2



5.3



(3.7
)


5.4



3.7



7.3TAM

$
255.6


$
247.7


$
227.5


$
213.0


$
125.6


$
45.0



3.2
%


8.9
%


6.8
%


9.6
%(3)


10.8
%


8.2
%(3)     (1)
    
    Source: WSTS.(2)
    
    Calculated using end points of the periods specified.(3)
    
    Calculated on a comparable basis, without information with
    respect to actuators as they were not included in the indicator
    before 2003.    Semiconductor
    Classifications
     45




---



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46




---



##### Table of Contents



Item 5.
    Operating
    and Financial Review and Prospects  Overview
  The following discussion should be read in conjunction with
    our Consolidated Financial Statements and Notes thereto included
    elsewhere in this
    Form 20-F.
    The following discussion contains statements of future
    expectations and other forward-looking statements within the
    meaning of Section 27A of the Securities Act of 1933, or
    Section 21E of the Securities Exchange Act of 1934, each as
    amended, particularly in the sections  Critical
    Accounting Policies Using Significant Estimates,
     Business Outlook and
     Liquidity and Capital Resources 
    Financial Outlook. Our actual results may differ
    significantly from those projected in the forward-looking
    statements. For a discussion of factors that might cause future
    actual results to differ materially from our recent results or
    those projected in the forward-looking statements in addition to
    the factors set forth below, see Cautionary Note Regarding
    Forward-Looking Statements and Item 3, Key
    Information  Risk Factors. We assume no
    obligation to update the forward-looking statements or such risk
    factors.
  Critical
    Accounting Policies Using Significant Estimates
      
    Revenue recognition.  Our policy is to
    recognize revenues from sales of products to our customers when
    all of the following conditions have been met:
    (a) persuasive evidence of an arrangement exists;
    (b) delivery has occurred; (c) the selling price is
    fixed or determinable; and (d) collectibility is reasonably
    assured. This usually occurs at the time of shipment.   47




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##### Table of Contents



No. 00-21, (EITF 00-21).
  
    Goodwill and purchased intangible assets.  The
    purchase method of accounting for acquisitions requires
    extensive use of estimates and judgments to allocate the
    purchase price to the fair value of the net tangible and
    intangible assets acquired, including in-process research and
    development, which is expensed immediately. Goodwill and
    intangible assets deemed to have indefinite lives are not
    amortized but are instead subject to annual impairment tests.
    The amounts and useful lives assigned to other intangible assets
    impact future amortization. If the assumptions and estimates
    used to allocate the purchase price are not correct or if
    business conditions change, purchase price adjustments or future
    asset impairment charges could be required. At December 31,
    2007, the value of goodwill amounted to $290 million.
    Impairment of goodwill.  Goodwill recognized in
    business combinations is not amortized and is instead subject to
    an impairment test to be performed on an annual basis, or more
    frequently if indicators of impairment exist, in order to assess
    the recoverability of its carrying value. Goodwill subject to
    potential impairment is tested at a reporting unit level, which
    represents a component of an operating segment for which
    discrete financial information is available and is subject to
    regular review by segment management. This impairment test
    determines whether the fair value of each reporting unit for
    which goodwill is allocated is lower than the total carrying
    amount of relevant net assets allocated to such reporting unit,
    including its allocated goodwill. If lower, the implied fair
    value of the reporting unit goodwill is then compared to the
    carrying value of the goodwill and an impairment charge is
    recognized for any excess. In determining the fair value of a
    reporting unit, we usually estimate the expected discounted
    future cash flows associated with the reporting unit.
    Significant management judgments and estimates are used in
    forecasting the future discounted cash flows including: the
    applicable industrys sales volume forecast and selling
    price evolution; the reporting units market penetration;
    the market acceptance of certain new technologies and relevant
    cost 48




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##### Table of Contents



structure; the discount rates applied using a weighted average
    cost of capital; and the perpetuity rates used in calculating
    cash flow terminal values. Our evaluations are based on
    financial plans updated with the latest available projections of
    the semiconductor market evolution, our sales expectations and
    our costs evaluation and are consistent with the plans and
    estimates that we use to manage our business. It is possible,
    however, that the plans and estimates used may be incorrect, and
    future adverse changes in market conditions or operating results
    of acquired businesses not in line with our estimates may
    require impairment of certain goodwill. During 2007, we
    performed our annual review of impairment of goodwill and based
    on this test no impairment charges were required to be recorded.  
    Intangible assets subject to
    amortization.  Intangible assets subject to
    amortization include the cost of technologies and licenses
    purchased from third parties, internally developed software that
    is capitalized and purchased software. Intangible assets subject
    to amortization are reflected net of any impairment losses.
    These are amortized over a period ranging from three to seven
    years. The carrying value of intangible assets subject to
    amortization is evaluated whenever changes in circumstances
    indicate that the carrying amount may not be recoverable. In
    determining recoverability, we initially assess whether the
    carrying value exceeds the undiscounted cash flows associated
    with the intangible assets. If exceeded, we then evaluate
    whether an impairment charge is required by determining if the
    assets carrying value also exceeds its fair value. An
    impairment loss is recognized for the excess of the carrying
    amount over the fair value. We normally estimate the fair value
    based on the projected discounted future cash flows associated
    with the intangible assets. Significant management judgments and
    estimates are required and used in the forecasts of future
    operating results that are used in the discounted cash flow
    method of valuation, including: the applicable industrys
    sales volume forecast and selling price evolution; our market
    penetration; the market acceptance of certain new technologies;
    and costs evaluation. Our evaluations are based on financial
    plans updated with the latest available projections of the
    semiconductor market evolution and our sales expectations and
    are consistent with the plans and estimates that we use to
    manage our business. It is possible, however, that the plans and
    estimates used may be incorrect and that future adverse changes
    in market conditions or operating results of businesses acquired
    may not be in line with our estimates and may therefore require
    impairment of certain intangible assets. We recorded
    $2 million of impairment charges in 2007 on certain
    technologies following our decision to discontinue our
    activities using those technologies. At December 31, 2007,
    the value of intangible assets in our Consolidated Financial
    Statements subject to amortization amounted to $238 million.
    Property, plant and equipment.  Our business
    requires substantial investments in technologically advanced
    manufacturing facilities, which may become significantly
    underutilized or obsolete as a result of rapid changes in demand
    and ongoing technological evolution. We estimate the useful life
    for the majority of our manufacturing equipment, which is the
    largest component of our long-lived assets, to be six years.
    This estimate is based on our experience with using equipment
    over time. Depreciation expense is a major element of our
    manufacturing cost structure. We begin to depreciate new
    equipment when it is placed into service.     49




---



##### Table of Contents




    Inventory.  Inventory is stated at the lower of
    cost or net realizable value. Cost is based on the weighted
    average cost by adjusting standard cost to approximate actual
    manufacturing costs on a quarterly basis; the cost is therefore
    dependent on our manufacturing performance. In the case of
    underutilization of our manufacturing facilities, we estimate
    the costs associated with the excess capacity; these costs are
    not included in the valuation of inventories but are charged
    directly to cost of sales. Net realizable value is the estimated
    selling price in the ordinary course of business less applicable
    variable selling expenses.    
    Asset disposal.  On May 22, 2007, we
    entered into a definitive agreement with Intel Corporation and
    Francisco Partners L.P. to create a new independent
    semiconductor company from the key assets of businesses which
    for our Company had been included in our Flash Memories Group
    (FMG). Upon signature of this agreement, the
    conditions were met for Assets held for sale
    treatment in our Consolidated Financial Statements for the
    assets to be contributed to the new company. Upon movement of
    the assets to be contributed, which consisted primarily of fixed
    and intangible assets to Assets held for sale, the
    relevant depreciation and amortization charges were stopped
    under Statement of Financial Standards No. 144, Accounting
    for the Impairment or Disposal of Long-Lived Assets
    (FAS 144). Furthermore, FAS 144 requires
    an impairment analysis when assets are moved to Assets
    held for sale based on the difference between the Net Book
    Value and the Fair Value, less costs to sell, of the group of
    assets (and liabilities) to be sold. As a result of this review,
    we have registered a pre-tax loss in 2007 of
    $1,106 million, an additional pre-tax $1 million
    impairment charge on certain specific equipment that could not
    be transferred and for which no alternative future use could be
    found in the Company (as disclosed above in the paragraph
    related to property, plant and equipment) and an additional
    pre-tax $5 million of other related disposal costs. Fair
    value less costs to sell was based on the net consideration of
    the agreement and significant estimates about the valuation of
    our associated equity ownership. The final amount could be
    different subject to adjustments due to business evolution
    before closing of the transaction.
    Restructuring charges.  We have undertaken, and
    we may continue to undertake, significant restructuring
    initiatives, which have required us, or may require us in the
    future, to develop formalized plans for exiting any of our
    existing activities. We recognize the fair value of a liability
    for costs associated with exiting an activity when a probable
    liability exists and it can be reasonably estimated. We record
    estimated charges for non-voluntary termination benefit
    arrangements such as severance and outplacement costs meeting
    the criteria for a liability as described above. Given the
    significance of and the timing of the execution of such
    activities, the process is complex and involves periodic reviews
    of estimates made at the time the original decisions were taken.
    As we operate in a highly cyclical industry, we monitor and
    evaluate business conditions on a regular basis. If broader or
    newer initiatives, which could include production curtailment or
    closure of other manufacturing facilities, were to be taken, we
    may be required to incur additional charges as well as to change
    estimates of amounts previously recorded. The potential impact
    of these changes could be material and could have a material
    adverse effect on our results of operations or financial
    condition. In 2007, the net amount of restructuring charges and
    other related closure costs amounted to $105 million before
    taxes (including the $5 million related to the FMG
    deconsolidation as mentioned above). As of December 31,
    2007, we had incurred $62 million of restructuring charges
    (excluding any impairment charges that are mentioned above) of
    the total expected approximate $270 million to
    $300 million in pre-tax charges associated with the new
    2007 manufacturing restructuring plan of our manufacturing
    activities. The plan was defined on July 10, 2007 and is
    expected to take two to three years to complete. See
    Note 21 to our Unaudited Interim Consolidated Financial
    Statements.
    Share-based compensation.  We are required to
    expense our employees share-based compensation awards for
    financial reporting purposes. We measure our share-based
    compensation cost based on the fair value on 50




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##### Table of Contents



the grant date of each award. This cost is recognized over the
    period during which an employee is required to provide service
    in exchange for the award or the requisite service period,
    usually the vesting period, and is adjusted for actual
    forfeitures that occur before vesting. Our share-based
    compensation plans may award shares contingent on the
    achievement of certain financial objectives, including market
    performance and financial results. In order to assess the fair
    value of this share-based compensation, we are required to
    estimate certain items, including the probability of meeting the
    market performance and financial results targets, the
    forfeitures and the service period of our employees. As a
    result, in 2007 we recorded a total pre-tax expense of
    $73 million out of which $9 million are related to the
    2005 Unvested Stock Award Plan, $44 million to the 2006
    Unvested Stock Award Plan and $20 million to the 2007
    Unvested Stock Award Plan.  
    Income taxes.  We are required to make
    estimates and judgments in determining income tax expense for
    financial statement purposes. These estimates and judgments also
    occur in the calculation of certain tax assets and liabilities
    and provisions. Furthermore, the adoption of the Financial
    Accounting Standards Board (FASB) interpretation
    No. 48, Accounting for Uncertainty in Income
    Taxes  an Interpretation of FASB Statement
    No. 109 (FIN 48) requires an evaluation of
    the probability of any tax uncertainties and the booking of the
    relevant charges.    
    Patent and other intellectual property litigation or
    claims.  As is the case with many companies in the
    semiconductor industry, we have from time to time received, and
    may in the future receive, communications alleging possible
    infringement of patents and other intellectual property rights
    of others. Furthermore, we may become involved in costly
    litigation brought against us regarding patents, mask works,
    copyrights, trademarks or trade secrets. In the event that the
    outcome of any litigation would be unfavorable to us, we may be
    required to take a license to the underlying intellectual
    property right upon economically unfavorable terms and
    conditions, and possibly pay damages for prior use,
    and/or face
    an injunction, all of which singly or in the aggregate could
    have a material adverse effect on our results of operations and
    ability to compete. See Item 3. Key
    Information  Risk Factors  Risks Related
    to Our Operations  We depend on patents to protect
    our rights to our technology.      
    Pension and Post Retirement Benefits.  Our
    results of operations and our consolidated balance sheet include
    the impact of pension and post retirement benefits that are
    measured using actuarial valuations. At December 31, 2007,
    our pension obligations amounted to $323 million based on
    the assumption that our employees will work with us until they
    reach the age of retirement. These valuations are based on key
    assumptions, including discount rates, expected long-term rates
    of return on funds and salary increase rates. These assumptions
    are updated on an annual basis at the beginning of each fiscal
    year or more frequently 51




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##### Table of Contents



upon the occurrence of significant events. Any changes in the
    pension schemes or in the above assumptions can have an impact
    on our valuations.  
    Other claims.  We are subject to the
    possibility of loss contingencies arising in the ordinary course
    of business. These include, but are not limited to: warranty
    costs on our products not covered by insurance, breach of
    contract claims, tax claims and provisions for specifically
    identified income tax exposures as well as claims for
    environmental damages. In determining loss contingencies, we
    consider the likelihood of a loss of an asset or the incurrence
    of a liability, as well as our ability to reasonably estimate
    the amount of such loss or liability. An estimated loss is
    recorded when we believe that it is probable that a liability
    has been incurred and the amount of the loss can be reasonably
    estimated. We regularly reevaluate any losses and claims and
    determine whether our provisions need to be adjusted based on
    the current information available to us. In the event we are
    unable to estimate in a correct and timely manner the amount of
    such loss this could have a material adverse effect on our
    results of operations or financial condition at the time such
    loss were to materialize.  Fiscal
    Year 2007
    2007
    Business Overview
               52




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##### Table of Contents




    continuous improvement of our manufacturing performances;
    the suspension of depreciation on the FMG assets held for sale;
    higher sales volume and a more favorable products mix; and
    benefit of increased funding to our research and development
    activities.    
    the provision for the upcoming disposal of the FMG assets held
    for sale and other impairment and restructuring charges;
    the weakening of the U.S. dollar exchange rate; and
    negative pricing trends.   53




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##### Table of Contents



Business
    Outlook
      These are forward-looking statements that are subject to
    known and unknown risks and uncertainties that could cause
    actual results to differ materially; in particular, refer to
    those known risks and uncertainties described in
    Cautionary Note Regarding Forward-Looking Statements
    and Item 3, Key Information  Risk
    Factors in this
    Form 20-F.
  Other
    Developments
     54




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##### Table of Contents




    a cash dividend of $0.30 per share (representing, an
    approximately 150% increase to last years cash dividend
    distribution.) The cash dividend distribution took place in May
    2007. On May 21, 2007, our common shares traded ex-dividend
    on the three stock exchanges on which they are listed;
    the appointment of Mr. Ray Bingham and Mr. Alessandro
    Ovi for three-year terms until the 2010 annual general meeting
    of shareholders as new Supervisory Board members in replacement
    of Mr. Robert White whose mandate was up at such annual
    shareholders meeting and Mr. Antonio Turicchi who
    resigned from his position effective as of such annual
    shareholders meeting;
    the approval of the main principles of the 2007 share-based
    compensation plan for our employees and CEO. As part of such
    plan and specifically as approved by the general meeting of
    shareholders, our President and CEO will be entitled to receive
    a maximum of 100,000 ordinary shares;
    the adoption of a share-based compensation plan, for members and
    professionals of our Supervisory Board;
    the designation of our Supervisory Board as the corporate body
    authorized to resolve upon (i) issuance of any number of
    shares as comprised in the authorized share capital of our
    Company as this shall read from time to time, (ii) upon the
    terms and conditions of an issuance of shares, (iii) upon
    limitation
    and/or
    exclusion of pre-emptive rights of existing shareholders upon
    issuance of shares, and (iv) upon the granting of rights to
    subscribe for shares, all for a five-year period as of the date
    of our 2007 annual shareholders meeting;
    the authorization of our Managing Board to acquire for a
    consideration on a stock exchange or otherwise up to such a
    number of fully
    paid-up
    ordinary shares
    and/or
    preference shares in our share capital as is permitted by law
    and our Articles of Association as per the moment of such
    acquisition  other than acquisition of shares
    pursuant to article 5, paragraph 2 of our Articles of
    Association  for a price (i) per ordinary share
    which at such moment is within a range between the par value of
    an ordinary share and 110% of the share price per ordinary share
    on Eurolist by
    Euronexttm
    Paris, the New York Stock Exchange or Borsa Italiana, whichever
    at such moment is the highest, and (ii) per preference
    share which is calculated in accordance with article 5,
    paragraph 5 of our Articles of Association, taking into
    account the amendment to our Articles of Association, for a
    period of eighteen months as of the date of our 2007 annual
    shareholders meeting; and
    amendments to our Articles of Association. 55




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##### Table of Contents



200-mm 200-mm 300-mm
  200-mm 150-mm
  300-mm
   56




---



##### Table of Contents



Results
    of Operations
  Segment
    Information
        
    Application Specific Groups (ASG), comprised of
    three product lines: Home Entertainment & Displays
    Group (HED), Mobile, Multimedia &
    Communications Group (MMC) and Automotive Products
    (APG);
    Flash Memories Group (FMG), which will be
    disposed; and
    Industrial and Multisegment Sector (IMS), comprised
    of the former Micro, Power, Analog (MPA) segment,
    non-Flash memory products and Micro-Electro-Mechanical Systems
    (MEMS).     57




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##### Table of Contents



Disclosures about Segments of an Enterprise and
    Related Information
  start-up start-up
  Year Ended December 31,2007


2006


2005(In millions)Net revenues by product segment:Application Specific Groups (ASG)

$
5,439


$
5,395


$
4,991Industrial and Multisegment Sector (IMS)


3,138



2,842



2,482Flash Memories Group (FMG)


1,364



1,570



1,351Others(1)


60



47



58Total consolidated net revenues

$
10,001


$
9,854


$
8,882     (1)
    
    Net revenues of Others include revenues from sales
    of Subsystems mainly and other products not allocated to product
    segments.  Year Ended December 31,2007


2006


2005(In millions)Operating income (loss) by product segment:Application Specific Groups (ASG)

$
303


$
439


$
355Industrial and Multisegment Sector (IMS)


469



441



336Flash Memories Group (FMG)


(51
)


(53
)


(199
)Total operating income (loss) of product segments


721



827



492Others(1)


(1,266
)


(150
)


(248
)Total consolidated operating income (loss)

$
(545
)

$
677


$
244     (1)
    
    Operating income (loss) of Others includes items or
    parts of them, which are not allocated to product segments such
    as impairment, restructuring charges and other related closure
    costs,
    start-up
    costs, and other unallocated expenses, such as: strategic or
    special research and development programs, certain
    corporate-level operating expenses, certain patent claims and
    litigations, and other costs that are not allocated to the
    product segments, as well as operating earnings or losses of the
    Subsystems and Other Products segment. Certain costs, mainly
    R&D, formerly in the Others category, have been
    allocated to the product segments; comparable amounts reported
    in this category have been reclassified accordingly in the above
    table.  58




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##### Table of Contents



Year Ended December 31,2007


2006


2005(As a percentage of total net revenues)Operating income (loss) by product segment:Application Specific Groups (ASG)(1)


5.6
%


8.1
%


7.1
%Industrial and Multisegment Sector (IMS)(1)


14.9



15.5



13.5Flash Memories Group (FMG)(1)


(3.7
)


(3.4
)


(14.7
)Others(2)










Total consolidated operating income (loss)(3)


(5.4
)%


6.9
%


2.7
%     (1)
    
    As a percentage of net revenues per product segment.(2)
    
    As a percentage of total net revenues, Operating income
    (loss) of Others includes items or parts of
    them, which are not allocated to product segments such as
    impairment, restructuring charges and other related closure
    costs,
    start-up
    costs, and other unallocated expenses, such as: strategic or
    special research and development programs, certain
    corporate-level operating expenses, certain patent claims and
    litigations, and other costs that are not allocated to the
    product segments, as well as operating earnings or losses of the
    Subsystems and Other Products segment. Certain costs, mainly
    R&D, formerly in the Others category, have been
    allocated to the product segments; comparable amounts reported
    in this category have been reclassified accordingly in the above
    table.(3)
    
    As a percentage of total net revenues.  Year Ended December 31,2007


2006


2005(In millions)Reconciliation to consolidated operating income (loss):Total operating income of product segments

$
721


$
827


$
492Operating income (loss) of others(1)Strategic and other research and development programs


(20
)


(12
)


(28
)Start-up
    costs


(24
)


(57
)


(56
)Impairment, restructuring charges and other related closure costs


(1,228
)


(77
)


(128
)Subsystems and Other Products Group


6



(1
)


1One-time compensation and special contributions(2)










(22
)Seniority awards


(21
)






Other non-allocated provisions(3)


21



(3
)


(15
)Total operating income (loss) of others


(1,266
)


(150
)


(248
)Total consolidated operating income (loss)

$
(545
)

$
677


$
244     (1)
    
    Operating income (loss) of Others includes items or
    parts of them, which are not allocated to product segments such
    as impairment, restructuring charges and other related closure
    costs,
    start-up
    costs, and other unallocated expenses, such as: strategic or
    special research and development programs, certain
    corporate-level operating expenses, certain patent claims and
    litigations, and other costs that are not allocated to the
    product segments, as well as operating earnings or losses of the
    Subsystems and Other Products segment. Certain costs, mainly
    R&D, formerly in the Others category, have been
    allocated to the product segments; comparable amounts reported
    in this category have been reclassified accordingly in the above
    table.(2)
    
    One-time compensation and special contributions to our former
    CEO and other executives not allocated to product group segments.(3)
    
    Includes unallocated expenses such as certain corporate level
    operating expenses and other costs. 59




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##### Table of Contents



Net
    Revenues by Location of Order Shipment
    Year Ended December 31,2007


2006


2005(In millions)Net Revenues by Location of Order Shipment:(1)Europe

$
3,159


$
3,073


$
2,789North America(2)


1,176



1,232



1,281Asia Pacific(3)


1,874



2,084



1,860Greater China(3)


2,750



2,552



2,203Japan


475



400



307Emerging Markets(2)(4)


567



513



442Total

$
10,001


$
9,854


$
8,882Net Revenues by Location of Order Shipment:(1)Europe


31.6
%


31.2
%


31.4
%North America(2)


11.8



12.5



14.4Asia Pacific(3)


18.7



21.1



20.9Greater China(3)


27.5



25.9



24.8Japan


4.7



4.1



3.5Emerging Markets(2)(4)


5.7



5.2



5.0Total


100.0
%


100.0
%


100.0
%     (1)
    
    Net revenues by location of order shipment region are classified
    by location of customer invoiced. For example, products ordered
    by
    U.S.-based
    companies to be invoiced to Asia Pacific affiliates are
    classified as Asia Pacific revenues.(2)
    
    As of July 2, 2006, the region North America
    includes Mexico which was part of Emerging Markets in prior
    periods. Amounts have been reclassified to reflect this change.(3)
    
    As of January 1, 2006, we created a new region
    Greater China to focus exclusively on our operations
    in China, Hong Kong and Taiwan. Net revenues for Asia Pacific
    for prior periods were restated according to the new perimeter.(4)
    
    Emerging Markets include markets such as India, Latin America
    (excluding Mexico), the Middle East and Africa, Europe (non-EU
    and non-EFTA) and Russia.  Net
    Revenues by Market Segment
    Year Ended December 31,2007


2006


2005(As a percentage ofnet revenues)Net Revenues by Market Segment:Automotive


15
%


15
%


16
%Consumer


17



16



18Computer


16



17



17Telecom


37



38



35Industrial and Other


15



14



14Total


100
%


100
%


100
%  60




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##### Table of Contents



Year Ended December 31,2007


2006


2005(As a percentage of net revenues)Net sales


99.7
%


99.8
%


99.9
%Other revenues


0.3



0.2



0.1Net revenues


100.0



100.0



100.0Cost of sales


(64.6
)


(64.2
)


(65.8
)Gross profit


35.4



35.8



34.2Selling, general and administrative


(11.0
)


(10.8
)


(11.6
)Research and development


(18.0
)


(16.9
)


(18.3
)Other income and expenses, net


0.5



(0.4
)


(0.1
)Impairment, restructuring charges and other related closure costs


(12.3
)


(0.8
)


(1.5
)Total operating expenses


(40.8
)


(28.9
)


(31.5
)Operating income (loss)


(5.4
)


6.9



2.7Other than temporary impairment charge on financial asset


(0.4
)






Interest income (expense), net


0.8



0.9



0.4Earnings (loss) on equity investment


0.1



(0.1
)


Income (loss) before income taxes and minority interests


(4.9
)


7.7



3.1Income tax benefit (expense)


0.2



0.2



(0.1
)Income (loss) before minority interests


(4.7
)


7.9



3.0Minority interests


(0.1
)






Net income (loss)


(4.8
)%


7.9
%


3.0
%   2007 vs.
    2006
      Net
    revenues
  Year Ended December 31,2007


2006


% Variation(In millions)Net sales

$
9,966


$
9,838



1.3
%Other revenues


35



16



Net revenues

$
10,001


$
9,854



1.5
%      61




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##### Table of Contents



Gross
    profit
  Year Ended December 31,2007


2006


% Variation(In millions)Cost of sales

$
(6,465
)

$
(6,331
)


(2.1
)%Gross profit

$
3,536


$
3,523



0.4
%Gross margin (as a percentage of net revenues)


35.4
%


35.8
%


     Selling,
    general and administrative expenses
  Year Ended December 31,2007

2006

% Variation(In millions)Selling, general and administrative expenses

$
(1,099
)

$
(1,067
)


(3.0
)%As a percentage of net revenues


(11.0
)%


(10.8
)%


     Research
    and development expenses
  Year Ended December 31,2007

2006

% Variation(In millions)Research and development expenses

$
(1,802
)

$
(1,667
)


(8.1
)%As a percentage of net revenues


(18.0
)%


(16.9
)%


    62




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##### Table of Contents



Other
    income and expenses, net
  Year Ended December 31,2007


2006(In millions)Research and development funding

$
97


$
54Start-up
    costs


(24
)


(57
)Exchange gain (loss), net


1



(9
)Patent litigation costs


(18
)


(22
)Patent pre-litigation costs


(10
)


(7
)Gain on sale of Accent subsidiary






6Gain on sale of non-current assets, net


2



2Other, net






(2
)Other income and expenses, net

$
48


$
(35
)As a percentage of net revenues


0.5
%


(0.4
)%   start-up Start-up 150-mm 200-mm build-up 300-mm 300-mm
  Impairment,
    restructuring charges and other related closure
    costs
  Year Ended December 31,2007


2006(In millions)Impairment, restructuring charges and other related closure costs

$
(1,228
)

$
(77
)     
    a pre-tax impairment loss estimated at $1,106 million
    booked for the planned disposal of the FMG assets held for sale,
    an additional pre-tax $1 million impairment charge on
    certain specific equipment that could not be transferred as part
    of FMG deconsolidation and for which no alternative future use
    could be found in the Company and an additional pre-tax
    $5 million of other related disposal costs;
    an amount of $73 million related to the severance costs and
    impairment charge booked in relation to the 2007 manufacturing
    restructuring plan of our manufacturing activities which is
    on-going;
    a charge of $29 million generated by our
    150-mm
    restructuring plan which has been completed;
    a charge of approximately $9 million for employee benefits
    relating to our headcount restructuring plan;
    an impairment charge of $3 million related to an equity
    investment carried at cost; and
    an impairment charge of $2 million related to certain
    technologies without alternative future use.
    In 2006, we incurred $77 million of impairment,
    restructuring charges and other related closure costs, including
    $45 million relating to our headcount restructuring plan,
    $22 million relating to our
    150-mm
    restructuring plan, and an impairment charge of approximately
    $10 million recorded pursuant to subsequent decisions to
    discontinue adoption of Tioga related technologies in certain
    products. 63




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##### Table of Contents



Operating
    income (loss)
  Year Ended December 31,2007


2006


% Variation(In millions)Operating income (loss)

$
(545
)

$
677



As a percentage of net revenues


(5.4
)%


6.9
%       Interest
    income (expense), net
  Year Ended December 31,2007


2006(In millions)Interest income (expense), net

$
83


$
93     Other-than-temporary
    impairment charges on marketable securities
  Year Ended December 31,2007


2006(In millions)Other-than-temporary impairment charges on marketable securities

$
(46
)

$
0     Earning
    (loss) on equity investments
  Year Ended December 31,2007


2006(In millions)Earning (loss) on equity investments

$
14


$
(6
)   ramp-up
 64




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##### Table of Contents



Income
    tax benefit (expense)
  Year Ended December 31,2007


2006(In millions)Income tax benefit (expense)

$
23


$
20       Net
    income (loss)
  Year Ended December 31,2007


2006(In millions)Net income (loss)

$
(477
)

$
782     2006 vs.
    2005
    Net
    revenues
  Year Ended December 31,2006


2005


% Variation(In millions)Net sales

$
9,838


$
8,876



10.8
%Other revenues


16



6



Net revenues

$
9,854


$
8,882



11.0
%        65




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##### Table of Contents



Gross
    profit
  Year Ended December 31,2006


2005


% Variation(In millions)Cost of sales

$
(6,331
)

$
(5,845
)


(8.3
)%Gross profit

$
3,523


$
3,037



16.0Gross margin (as a percentage of net revenues)


35.8
%


34.2
%


   150-mm
  Selling,
    general and administrative expenses
  Year Ended December 31,2006


2005


% Variation(In millions)Selling, general and administrative expenses

$
(1,067
)

$
(1,026
)


(4.0
)%As a percentage of net revenues


(10.8
)%


(11.6
)%


     Research
    and development expenses
  Year Ended December 31,2006


2005


% Variation(In millions)Research and development expenses

$
(1,667
)

$
(1,630
)


(2.3
)%As a percentage of net revenues


(16.9
)%


(18.3
)%


    66




---



##### Table of Contents



Other
    income and expenses, net
  Year Ended December 31,2006


2005(In millions)Research and development funding

$
54


$
76Start-up
    costs


(57
)


(56
)Exchange gain (loss), net


(9
)


(16
)Patent litigation costs


(22
)


(14
)Patent pre-litigation costs


(7
)


(8
)Gain on sale of Accent subsidiary


6



Gain on sale of non-current assets, net


2



12Other, net


(2
)


(3
)Other income and expenses, net

$
(35
)

$
(9
)As a percentage of net revenues


(0.4
)%


(0.1
)%   start-up Start-up 150-mm 200-mm build-up 300-mm
  Impairment,
    restructuring charges and other related closure
    costs
  Year Ended December 31,2006


2005(In millions)Impairment, restructuring charges and other related closure costs

$
(77
)

$
(128
)As a percentage of net revenues


(0.8
)%


(1.5
)%     
    Our headcount restructuring plan resulted in total charges of
    $45 million mainly for employee termination benefits; the
    total cost of this restructuring plan was estimated to be
    approximately $100 million and was substantially complete
    at the end of 2006, with total charges of $86 million
    incurred through December 31, 2006;
    An impairment charge of approximately $10 million was
    recorded pursuant to subsequent decisions to discontinue
    adoption of Tioga related technologies in certain products, of
    which $6 million corresponded to the write-off of Tioga
    goodwill and $4 million to impairment charges on
    technologies purchased as part of the Tioga business acquisition
    which were determined to be without any alternative use;
    Our ongoing
    150-mm
    restructuring plan and related manufacturing initiatives
    generated restructuring charges of approximately
    $22 million. As of December 31, 2006, we have incurred
    $316 million of the total expected of approximately
    $330 million to $350 million in pre-tax charges in
    connection with this restructuring plan, which was announced in
    October 2003.  150-mm
 67




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##### Table of Contents



Operating
    income
  Year Ended December 31,2006


2005


% Variation(In millions)Operating income

$
677


$
244



178.0
%As a percentage of net revenues


6.9
%


2.7
%


       Interest
    income (expense), net
  Year Ended December 31,2006


2005(In millions)Interest income (expense), net

$
93


$
34     Loss
    on equity investments
  Year Ended December 31,2006


2005(In millions)Loss on equity investments

$
(6
)

$
(3
)   start-up
  Income
    tax benefit (expense)
  Year Ended December 31,2006


2005(In millions)Income tax benefit (expense)

$
20


$
(8
)     Net
    income
  Year Ended December 31,2006


2005


% Variation(In millions)Net income

$
782


$
266



193.9
%As a percentage of net revenues


7.9
%


3.0
%


  68




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##### Table of Contents



Quarterly
    Results of Operations
          Net
    revenues
  Quarter Ended


% VariationDec 31, 2007


Sept 29, 2007


Dec 31, 2006


Sequential


Year-Over-Year(Unaudited)


(Unaudited)


(Unaudited)(In millions)Net sales

$
2,733


$
2,555


$
2,482



6.9
%


10.1
%Other revenues


9



10



1



(2.0
)%


Net revenues

$
2,742


$
2,565


$
2,483



6.9
%


10.4
%   Year-over-year
    comparison
     69




---



##### Table of Contents



Sequential
    comparison
        Gross
    profit
  Quarter Ended


% VariationDec 31, 2007


Sept 29, 2007


Dec 31, 2006


Sequential


Year-Over-Year(Unaudited)


(Unaudited)


(Unaudited)(In millions)Cost of sales

$
(1,731
)

$
(1,663
)

$
(1,582
)


(4.1
)%


(9.4
)%Gross profit

$
1,011


$
902


$
901



12.1
%


12.2
%Gross margin (as a percentage of net revenues)


36.9
%


35.2
%


36.3
%






      70




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##### Table of Contents



Selling,
    general and administrative expenses
  Quarter Ended


% VariationDec 31, 2007


Sept 29, 2007


Dec 31, 2006


Sequential


Year-Over-Year(Unaudited)


(Unaudited)


(Unaudited)(In millions)Selling, general and administrative expenses

$
(295
)

$
(272
)

$
(281
)


(8.6
)%


(5.3
)%As percentage of net revenues


(10.8
)%


(10.6
)%


(11.3
)%






       Research
    and development expenses
  Quarter Ended


% VariationDec 31, 2007


Sept 29, 2007


Dec 31, 2006


Sequential


Year-Over-Year(Unaudited)


(Unaudited)


(Unaudited)(In millions)Research and development expenses

$
(480
)

$
(442
)

$
(430
)


(8.7
)%


(11.7
)%As percentage of net revenues


(17.5
)%


(17.2
)%


(17.3
)%






     Other
    income and expenses, net
  Quarter EndedDec 31, 2007


Sept 29, 2007


Dec 31, 2006(Unaudited)


(Unaudited)


(Unaudited)(In millions)Research and development funding

$
36


$
35


$
21Start-up
    costs


(5
)


(4
)


(16
)Exchange gain (loss) net


5







1Patent litigation costs


(3
)


(3
)


(8
)Patent pre-litigation costs


(3
)


(3
)


(3
)Gain on sale of other non-current assets


2



1



Other, net


(4
)


(2
)


(2
)Other income and expenses, net


28



24



(7
)As a percentage of net revenues


(1.0
)%


(0.9
)%


(0.3
)%   start-up start-up
 71




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##### Table of Contents



Impairment,
    restructuring charges and other related closure
    costs
  Quarter EndedDec 31, 2007


Sept 29, 2007


Dec 31, 2006(Unaudited)


(Unaudited)


(Unaudited)(In millions)Impairment, restructuring charges and other related closure costs

$
(279
)

$
(31
)

$
(10
)As a percentage of net revenues


(10.2
)%


(1.2
)%


(0.4
)%     
    an additional $249 million loss related to the ongoing
    disposal of FMG assets and $3 million of other related
    disposal costs, primarily originated by the revised terms of the
    transaction and by an updated calculation of our expected equity
    value at closing;
    an amount of $17 million related to the severance costs and
    other charges booked in relation to the 2007 restructuring plan
    of our manufacturing activities;
    a charge of $9 million generated by our
    150-mm
    restructuring plan; and
    a charge of $1 million for employee benefits relating to
    other headcount restructuring plans  150-mm
  150-mm
  Operating
    income (loss)
  Quarter EndedDec 31, 2007


Sept 29, 2007


Dec 31, 2006(Unaudited)


(Unaudited)


(Unaudited)(In millions)Operating income (loss)

$
(15
)

$
181


$
173In percentage of net revenues


(0.6
)%


7.0
%


7.0
%   Year-over-year
    basis
    Sequentially
     72




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##### Table of Contents



Interest
    income, net
  Quarter EndedDec 31, 2007


Sept 29, 2007


Dec 31, 2006(Unaudited)


(Unaudited)


(Unaudited)(In millions)Interest income, net

$
25


$
22


$
25     Other-than-temporary
    impairment charges on marketable securities
  Quarter EndedDec 31, 2007


Sept 29, 2007


Dec 31, 2006(Unaudited)


(Unaudited)


(Unaudited)(In millions)Other-than-temporary impairment charges on marketable securities

$
(46
)

$
0


$
0     Earning
    (loss) on equity investments
  Quarter EndedDec 31, 2007


Sept 29, 2007


Dec 31, 2006(Unaudited)


(Unaudited)


(Unaudited)(In millions)Earning (loss) on equity investments

$
2


$
3


$
(1
)     Income
    tax benefit (expense)
  Quarter EndedDec 31, 2007


Sept 29, 2007


Dec 31, 2006(Unaudited)


(Unaudited)


(Unaudited)(In millions)Income tax benefit (expense)

$
55


$
(18
)

$
80    73




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##### Table of Contents



Net
    income
  Quarter EndedDec 31, 2007


Sept 29, 2007


Dec 31, 2006(Unaudited)


(Unaudited)


(Unaudited)(In millions)Net income

$
20


$
187


$
276As percentage of net revenues


0.7
%


7.3
%


11.1
%     Impact of
    Changes in Exchange Rates
    non-U.S. dollar
       74




---



##### Table of Contents



Impact of
    Changes in Interest Rates
      9-year
 75




---



##### Table of Contents



Liquidity
    and Capital Resources
             76




---



##### Table of Contents



and/or
  Liquidity
        Year Ended December 31,2007


2006


2005(In millions)Net cash from operating activities

$
2,188


$
2,491


$
1,798Net cash used in investing activities


(1,737
)


(3,057
)


(1,528
)Net cash from (used in) financing activities


(296
)


132



(178
)Effect of change in exchange rates


41



66



(15
)Net cash increase (decrease)


196



(368
)


77Cash and cash equivalent at the beginning of the period


1,659



2,027



1,950Cash and cash equivalent at the end of the period


1,855



1,659



2,027   Net cash from operating activities.
    Net cash used in investing activities.
    
    the completion of capacity
    ramp-up as
    per our Crolles2 alliance program with Freescale Semiconductor
    and NXP Semiconductors in our
    300-mm fab
    in Crolles (France) and the acquisition of a portion of the
    tools from our former partners;
    the upgrading and expansion of our
    200-mm fab
    in Agrate (Italy) for BCD technology and MEMS;
    the completion of the program of capacity expansion and the
    upgrading to finer geometry technologies of our
    200-mm
    front-end facility in Rousset (France);
    the capacity
    ramp-up for
    one of our discrete process families and upgrading of our
    150-mm fabs
    in Singapore;
    the upgrading to leading edge technologies, down to 45 nm, of
    our 200-mm
    R&D fab in Agrate (Italy);
    the capacity expansion for 65 nm, NAND and NOR Flash Memories,
    of our
    200-mm fab
    in Singapore; and 77




---



##### Table of Contents




    the capacity expansion of our back-end plants in Muar (Malaysia)
    and Shenzhen (China).    
    the expansion of the
    300-mm
    front-end joint project with NXP Semiconductors and Freescale
    Semiconductor in Crolles2 (France);
    the capacity expansion and the upgrading to finer geometry
    technologies for our
    200-mm plant
    in Rousset (France);
    the capacity expansion and the upgrading of our
    150-mm and
    200-mm plant
    in Singapore;
    the upgrading of our
    200-mm fab
    and pilot line in Agrate (Italy); and
    the capacity expansion for our back-end facilities in Malta,
    Shenzhen (China), Bouskoura (Morocco) and Muar (Malaysia).    
    the capacity expansion of our
    200-mm and
    150-mm
    front-end facilities in Singapore;
    the conversion to
    200-mm of
    our front-end facility in Agrate (Italy);
    the capacity expansion of our back-end plants in Muar
    (Malaysia), Shenzhen (China), Toa Payoh (Singapore) and Malta;
    the expansion of our
    200-mm
    front-end facility in Phoenix (Arizona);
    the capacity expansion of our
    200-mm
    front-end facility in Rousset (France);
    the completion of building and continuation of facilities for
    our 300-mm
    front-end plant in Catania (Italy);
    the expansion of a
    150-mm
    front-end and a
    200-mm pilot
    line in Tours (France); and
    the expansion of the
    300-mm
    front-end joint project with NXP Semiconductors and Freescale
    Semiconductor in Crolles2 (France).  Net operating cash flow.
  Year Ended December 31,2007


2006


2005(In millions)Net cash from operating activities

$
2,188


$
2,491


$
1,798Net cash used in investing activities


(1,737
)


(3,057
)


(1,528
)Payment for purchase and proceeds from sale of marketable
    securities (current and non-current), short-term deposits and
    restricted cash, net


389



1,232



Net operating cash flow

$
840


$
666


$
270     Net cash used in financing activities.
 78




---



##### Table of Contents



Capital
    Resources
  Net
    financial position
    Year Ended December 31,2007


2006


2005(In millions)Cash and cash equivalents

$
1,855


$
1,659


$
2,027Marketable securities, current


1,014



764



Short-term deposits






250



Restricted cash


250



218



Marketable securities, non-current


369







Total cash position


3,488



2,891



2,027Bank overdrafts










(11
)Current portion of long-term debt


(103
)


(136
)


(1,522
)Long-term debt


(2,117
)


(1,994
)


(269
)Total financial debt


(2,220
)


(2,130
)


(1,802
)Net financial position

$
1,268


$
761


$
225         Payments Due by PeriodTotal


2008


2009


2010


2011


2012


Thereafter(In millions)Long-term debt (including current portion)

$
2,220


$
103


$
114


$
60


$
1,053


$
41


$
849  79




---



##### Table of Contents



Moodys Investors


Standard &Service


PoorsZero Coupon Senior Convertible Bonds due 2013


WR(1
)


A-Zero Coupon Senior Convertible Bonds due 2016


A3



A-Floating Rate Senior Bonds due 2013


A3



A-     (1)
    
    Rating withdrawn since the redemption in August 2006 of
    $1.4 billion of our 2013 Convertible Bonds, which left only
    $2 million of our 2013 Convertible Bonds outstanding.      Contractual
    Obligations, Commercial Commitments and Contingencies
    Total


2008


2009


2010


2011


2012


ThereafterOperating leases(1)

$
300


$
57


$
41


$
30


$
25


$
18


$
129Purchase obligations(1)


1,200



1,100



65



30



5







of which:Equipment and other asset purchase


683



683



















Foundry purchase


266



266



















Software, technology licenses and design


251



151



65



30



5Other obligations(1)


622



463



92



37



9



8



13Long-term debt obligations (including current
    portion)(2)(3)(4) of which:


2,220



103



114



60



1,053



41



849Capital leases(2)


22



6



6



6



2







2Pension obligations(2)


323



34



25



22



24



24



194Other non-current liabilities(2)


115



17



37



15



2



2



42Total

$
4,780


$
1,774


$
374


$
194


$
1,118


$
93


$
1,227     (1)
    
    Contingent liabilities which cannot be quantified are excluded
    from the table above.(2)
    
    Items not reflected on the Consolidated Balance Sheet at
    December 31, 2007.(3)
    
    Items reflected on the Consolidated Balance Sheet at
    December 31, 2007.(4)
    
    See Note 17 to our Consolidated Financial Statements at
    December 31, 2007 for additional information related to
    long-term debt and redeemable convertible securities.(5)
    
    Year of payment is based on maturity before taking into account
    any potential acceleration that could result from a triggering
    of the change of control provisions of the 2016 Convertible
    Bonds and the 2013 Senior Bonds.   80




---



##### Table of Contents



300-mm
                Off-Balance
    Sheet Arrangements
   81




---



##### Table of Contents



Financial
    Outlook
  300-mm
      Impact of
    Recently Issued U.S. Accounting Standards
  (a) Accounting pronouncements effective in 2007 and
    expected to impact the Companys operations
  Accounting for Certain Hybrid Financial
    Instruments  an amendment of FASB Statements
    No. 133 and 140 Accounting for Derivative Instruments and
    Hedging Activities Accounting
    for Transfers and Servicing of Financial Assets and
    Extinguishments of Liabilities
  Accounting for Uncertainty in Income Taxes  an
    interpretation of FASB Statement No. 109 Accounting for Income
    Taxes
 82




---



##### Table of Contents



(b) Accounting pronouncements effective in 2007 and not
    expected to impact the Companys operations
  Accounting for Servicing of Financial Assets  an
    amendment of FASB Statement No. 140
  (c) Accounting pronouncements expected to impact the
    Companys operations that are not yet effective and have
    not been early adopted by the Company
  Fair Value Measurements
 83




---



##### Table of Contents



The Fair Value Option for Financial Assets and Financial
    Liabilities- Including an amendment of FASB Statement
    No. 115
  Business Combinations Noncontrolling Interests in Consolidated Financial
    Statements, an amendment of ARB No. 51
  (d) Accounting pronouncements that are not yet effective
    and are not expected to impact the Companys operations
  No. 06-11, Accounting for Income Tax Benefits of Dividends on
    Share-Based Payment Awards (EITF 06-11).
 84




---



##### Table of Contents



Share-Based
    Payment EITF 06-11 states paid-in-capital. EITF 06-11 EITF 06-11 EITF 06-11
  No. 07-3, Accounting for Advance Payments for Goods or Services to Be
    Used in Future Research and Development Activities (EITF 07-3). EITF 07-3 EITF 07-3 states EITF 07-3 EITF 07-3 EITF 07-3 EITF 07-3
  No. 07-1, Accounting for Collaborative arrangements (EITF 07-1). , The Equity Method of Accounting
    for Investments in Common Stock EITF 07-1 EITF 07-1 EITF 07-1
  No. 07-6, Accounting for the Sale of Real Estate When the Agreement
    Includes a Buy-Sell Clause (EITF 07-6). Accounting for Sales of
    Real Estate EITF 07-6 EITF 07-6 EITF 07-6
  Written Loan Commitments Recorded
    at Fair Value Through Earnings Application
    of Accounting Principles to Loan Commitments
 85




---



##### Table of Contents



Year-End Help for Expensing
    Employee Stock Options
  Impairment,
    Restructuring Charges and Other Related Closure Costs
  150-mm
  200-mm 200-mm 300-mm
  200-mm 150-mm
 86




---



##### Table of Contents



150-mm 150-mm U.S. 150-mm 200-mm 150-mm 150-mm 150-mm 200-mm ramp-ups
  150-mm 200-mm,
      Year Ended December 31, 2007Total Impairment,RestructuringCharges andRestructuring


Other Related


Other RelatedImpairment


Charges


Closure Costs


Closure Costs(In millions)Disposal of FMG assets

$
1,107


$



$
5


$
1,1122007 restructuring plan


11



62







73150-mm fab
    plan






2



27



29Headcount restructuring plan






6



3



9Other


5











5Total

$
1,123


$
70


$
35


$
1,228   150-mm
  Equity
    Method Investment
  UPEK
    Inc.
     87




---



##### Table of Contents



Hynix
    Semiconductor-ST Joint Venture
            Backlog
    and Customers
     88




---



##### Table of Contents



Item 6.
    Directors,
    Senior Management and Employees  Directors
    and Senior Management
    Supervisory
    Board
      Name(1)

Position

Year Appointed(2)


Term Expires


AgeGérald Arbola

Chairman


2004



2008



59Bruno Steve

Vice Chairman


1989



2008



66Raymond Bingham

Member


2007



2010



62Matteo del Fante

Member


2005



2008



40Tom de Waard

Member


1998



2008



61Douglas Dunn

Member


2001



2009



63Didier Lamouche

Member


2006



2009



48Didier Lombard

Member


2004



2008



66Alessandro Ovi

Member


2007



2010



64     (1)
    
    Messrs. Antonino Turicchi and Robert M. White were
    Supervisory Board members until our 2007 annual
    shareholders meeting, at which time they were succeeded by
    Messrs. Raymond Bingham and Alessandro Ovi.(2)
    
    As a member of the Supervisory Board.       89




---



##### Table of Contents



http://www.st.com/stonline/company/governance/index.htm.
    Biographies
         90




---



##### Table of Contents



91




---



##### Table of Contents



Corporate
    Governance at ST
    
    our corporate organization under Dutch law that entrusts our
    management to a Managing Board acting under the supervision and
    control of a Supervisory Board totally independent from the
    Managing Board. Members of our Managing Board and of our
    Supervisory Board are appointed and dismissed by our
    shareholders;
    our early adoption of policies on important issues such as
    business ethics and conflicts of
    interest and strict policies to comply with applicable
    regulatory requirements concerning financial reporting, insider
    trading and public disclosures;
    our compliance with Dutch securities laws, because we are a
    company incorporated under the laws of the Netherlands, as well
    as our compliance with American, French and Italian securities
    laws, because our shares are listed in these jurisdictions, in
    addition to our compliance with the corporate, social and
    financial laws applicable to our subsidiaries in the countries
    in which we do business;
    our broad-based activities in the field of corporate social
    responsibility, encompassing environmental, social, health,
    safety, educational and other related issues;
    our implementation of a non-compliance reporting channel
    (managed by a third party) for issues regarding accounting,
    internal controls or auditing. A special ombudsperson has been
    appointed by the ST Supervisory Board, following the proposal of
    its Audit Committee, to collect all complaints, whatever their
    source, regarding accounting, internal accounting controls or
    auditing matters, as well as the confidential, anonymous
    submission by ST employees of concerns regarding questionable
    accounting or auditing matters;
    our Principles for Sustainable Excellence, which we distributed
    to all employees in 2007 and which require us to integrate and
    execute all of our business activities, focusing on our
    employees, customers, shareholders and global business partners;
    our Ethics Committee, also set up in 2007, whose mandate is to
    provide advice to management and employees about our Principles
    of Sustainable Excellence and other ethical issues; and
    our recent appointment of a Chief Compliance Officer, who
    reports directly to the Managing Board, acts as Executive
    Secretary to our Supervisory Board and chairs our Ethics
    Committee.    and/or
 92




---



##### Table of Contents



non-U.S. companies
  Form 20-F, Form 20-F and/or Form 20-F.
   93




---



##### Table of Contents



Supervisory
    Board Committees
  Membership and Attendance.
  NominationandCorporateAudit


Compensation


Strategic


Governance


Ad HocNumber of Meetings Attended in 2007(1)

Full Board


Committee


Committee


Committee


Committee


CommitteeGérald Arbola


12



1
(2)


6



9



6



1Raymond Bingham(3)


6



6















Tom de Waard


11



11



6







6



2Matteo del Fante(4)


12



11



3







3



1Douglas Dunn


11



9







5







1Didier Lamouche(4)


11



11















Didier Lombard


12



1
(2)


6



9



3



Alessandro Ovi(3)


7











6







Bruno Steve


12







5



9



5



1Antonino Turicchi(3)


5







1



3



3



Robert M. White(3)


5



5







3







     (1)
    
    Includes meetings attended by way of conference call.(2)
    
    Messrs. Arbola and Lombard attended an extraordinary Audit
    Committee by way of conference call.(3)
    
    Messrs. Turicchi and White were Supervisory Board members
    until our 2007 annual shareholders meeting, at which time
    they were succeeded by Messrs. Bingham and Ovi.(4)
    
    Appointed as non-voting observers to Audit Committee.  Audit Committee.
     94




---



##### Table of Contents



Form 20-F,
            Compensation Committee.
 95




---



##### Table of Contents



Strategic Committee.
    st
     96




---



##### Table of Contents



Nominating and Corporate Governance
    Committee.
      Secretariat and Controllers.
      Managing
    Board
     97




---



##### Table of Contents



98




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##### Table of Contents



Executive
    Officers
    Years inSemi-Years with


ConductorName

Position

Company


Industry


AgeExecutive CommitteeCarlo Bozotti

President and Chief Executive Officer


30



30



55Alain Dutheil

Chief Operating Officer


24



37



62Laurent Bosson(2)

Executive Vice President, Front-end Technology and Manufacturing


24



24



65Andrea Cuomo

Executive Vice President, Advanced System Technology and General
    Manager


24



24



53Carlo Ferro

Executive Vice President, Chief Financial Officer (and for
    Infrastructure and Services organization)


7



7



47Carmelo Papa

Executive Vice President, IMS


24



24



58Tommi Uhari

Executive Vice President, MMC


1



13



36Enrico Villa(2)

Executive Vice President, Europe Region (and for Sales and
    Marketing organizations)


40



40



66Executive StaffGeorges Auguste

Corporate Vice President, Total Quality and Environmental
    Management


20



33



58Gian Luca Bertino

Corporate Vice President, CPG


10



21



48Ugo Carena

Corporate Vice President, APG


10



29



64Marco Luciano Cassis

Corporate Vice President, Japan Region


19



19



44Patrice Chastagner

Corporate Vice President, Human Resources


21



21



60Claude Dardanne

Corporate Vice President, General Manager, Microcontrollers,
    Memories & Smartcards


25



28



55François Guibert

Corporate Vice President, Asia Pacific Region


26



29



54Reza Kazerounian

Corporate Vice President, North America Region


7



22



50Otto Kosgalwies

Corporate Vice President, Infrastructure and Services


23



23



52Robert Krysiak

Corporate Vice President and General Manager, Greater China
    Region


18



24



53Christos Lagomichos(1)

Corporate Vice President, General Manager, Home Entertainment
    & Displays Group


23



26



51Philippe Lambinet

Corporate Vice President, General Manager, Home Entertainment
    & Displays Group


14



27



50Mario Licciardello

Corporate Vice President, MPG


42



42



66Carlo Ottaviani

Corporate Vice President, Communications


42



42



64Jeffrey See Ah Bah

Corporate Vice President, Central Back-End General Manager


37



37



62Thierry Tingaud

Corporate Vice President, Emerging Markets Region


23



23



48     (1)
    
    Christos Lagomichos resigned in June 2007.(2)
    
    Retiring in 2008.   99




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##### Table of Contents



Years inSemi-Years with


ConductorName

Position

Company


Industry


AgeExecutive CommitteeCarlo Bozotti

President and Chief Executive Officer


30



30



55Alain Dutheil

Chief Operating Officer


24



37



62Georges Auguste

Executive Vice President, Total Quality and Environmental
    Management


20



33



58Orio Bellezza

Executive Vice President and General Manager, Front-End
    Manufacturing


23



23



48Laurent Bosson(1)

Executive Vice President, Front-end Technology and Manufacturing


24



24



65Jean-Marc Chery

Executive Vice President and Chief Technology Officer


23



23



47Andrea Cuomo

Executive Vice President, Advanced System Technology and General
    Manager, Europe Region


24



24



53Carlo Ferro

Executive Vice President, Chief Financial Officer


7



7



47Otto Kosgalwies

Executive Vice President, Infrastructure and Services


23



23



52Philippe Lambinet

Executive Vice President, General Manager, Home Entertainment
    & Displays Group


14



21



50Carmelo Papa

Executive Vice President, IMS


24



24



58Jeffrey See Ah Bah

Executive Vice President, Central Back-End General Manager


37



37



62Tommi Uhari

Executive Vice President, MMC


1



13



36Enrico Villa(1)

Executive Vice President, Europe Region (and for Sales and
    Marketing organizations)


40



40



66Executive StaffGian Luca Bertino

Corporate Vice President, CPG


10



21



48Ugo Carena

Corporate Vice President, APG


10



29



64Marco Luciano Cassis

Corporate Vice President, Japan Region


19



19



44Patrice Chastagner

Corporate Vice President, Human Resources


21



21



60Claude Dardanne

Corporate Vice President, General Manager, Microcontrollers,
    Memories & Smartcards


25



28



55Alisia Grenville

Corporate Vice President, Chief Compliance Officer


0



0



40François Guibert

Corporate Vice President, Asia Pacific Region


26



29



54Reza Kazerounian

Corporate Vice President, North America Region


7



22



50Robert Krysiak

Corporate Vice President and General Manager, Greater China
    Region


18



24



53Mario Licciardello

Corporate Vice President, MPG


42



42



66Loïc Lietar

Corporate Vice President, Corporate Business Development


22



22



45Pierre Ollivier

Corporate Vice President and General Counsel


23



23



52Carlo Ottaviani

Corporate Vice President, Communications


42



42



64Thierry Tingaud

Corporate Vice President, Emerging Markets Region


22



22



48     (1)
    
    Retiring in 2008. 100




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##### Table of Contents



Biographies
          200-mm 200-mm 150-mm
 101




---



##### Table of Contents



102




---



##### Table of Contents



103




---



##### Table of Contents



16/32/64
         104




---



##### Table of Contents



start-up (125-mm)
      Compensation
   105




---



##### Table of Contents



Supervisory Board Member

Directors FeesGérald Arbola

$
228,500Raymond Bingham(1)


101,500Tom de Waard(2)


223,500Matteo del Fante


147,500Douglas Dunn


133,500Didier Lamouche


123,000Didier Lombard


156,500Alessandro Ovi(1)


113,000Bruno Steve


227,000Antonino Turicchi(1)


18,000Robert M. White(1)


24,000Total

$
1,496,000     (1)
    
    Messrs. Antonino Turicchi and Robert M. White were
    Supervisory Board members until our 2007 annual
    shareholders meeting, at which time they were succeeded by
    Messrs. Raymond Bingham and Alessandro Ovi.(2)
    
    Compensation, including attendance fees of $2,000 per meeting of
    the Supervisory Board or committee thereof, was paid to Clifford
    Chance LLP.    inter alia
  Sole Member of Our Managing Board and President and CEO

Salary(2)


Bonus(1)


Non-cash Benefits(3)


TotalCarlo Bozotti

$
714,089


$
643,082


$
377,881


$
1,735,052     (1)
    
    The bonus paid to the sole member of our Managing Board and
    President and CEO during the 2007 financial year was approved by
    the Compensation Committee, and approved by the Supervisory
    Board in respect of the 2006 financial year, based on
    fulfillment of a number of pre-defined objectives for 2006.(2)
    
    Our Supervisory Board, upon the recommendation of our
    Compensation Committee, approved an annual salary for 2007 for
    our Managing Board and President and CEO of $700,000. The
    difference between the amount approved and the amount actually
    received by Mr. Bozotti resulted because the salary was
    paid partially in euros using an exchange rate of approximately
    1.00 to $1.20 and partially in Swiss francs using an
    exchange rate of approximately CHF 1.00 to $0.80.(3)
    
    Including employer social contributions, company car allowance
    and miscellaneous allowances.     106




---



##### Table of Contents



2006 2007
        Share
    Ownership
    Stock
    Awards and Options
  and/or and/or
 107




---



##### Table of Contents




    approved the terms and conditions of the 2005 Supervisory Board
    Stock-Based Compensation Plan for members and professionals
    valid for a three year period;
    amended our 2001 Employee Stock Option Plan which expired at the
    end of 2005 with the aim of enhancing our ability to retain key
    employees and motivate them to shareholder value creation, by
    replacing stock options to be granted in the last year of such
    Plan by unvested stock awards and in addition, approved the
    vesting conditions, linked to our future performance and
    continued service with us;
    approved grants pursuant to the 2005 stock-based compensation
    plan for Supervisory Board members and professionals approved by
    our 2005 annual shareholders meeting and amended by our
    2007 annual shareholders meeting;
    adopted our 2006 Unvested Stock Award Plan for Executives and
    Key Employees (the Employee USA Plan) with the aim
    of enhancing our ability to retain key employees and motivate
    them to shareholder value creation and in addition approved
    vesting conditions linked to our future performance and
    continued service with us;
    adopted our 2007 Unvested Stock Award Plan for Executives and
    Key Employees (the Employee USA Plan) with the goal
    of enhancing our ability to retain key employees and motivate
    them to work to create shareholder value and, in addition,
    approved vesting conditions linked to our future performance and
    continued service with us; and
    reviewed preliminary information regarding our 2008 Unvested
    Stock Award Plan for Executives and Key Employees to be
    presented to our 2008 annual shareholders meeting.    inter alia,
  Employee
    and Managing Board Stock-Based Compensation Plans
  1995 Stock Option Plan.
      2001 Stock Option Plan.
 108




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##### Table of Contents



1995 Plan
    (Employees)
    October 20, 1995
    (outstanding grants)
  Special Grant

Tranche 5

Special Grant

Tranche 6

Special Grant

Tranche 7Date of Supervisory Board Meeting

Jan 24, 2000

June 16, 2000

Sept 18, 2000

Dec 11, 2000

Dec 18, 2000

March 1, 2001Total Number of Shares which may be purchased

150,000

5,331,250

70,000

2,019,640

26,501

113,350Vesting Date

Jan 24, 2003

June 16, 2002

Sept 18, 2002

Dec 11, 2002

Dec 18, 2002

March 1, 2003Expiration Date

Jan 24, 2008

June 16, 2008

Sept 18, 2008

Dec 11, 2008

Dec 18, 2008

March 1, 2009Exercise Price

$55.25

$62.01

$52.88

$50.69

$44.00

$31.65Terms of Exercise

50% on

32% on

32% on

32% on

32% on

32% onJan 24, 2003

June 16, 2002

Sept 18, 2002

Dec 11, 2002

Dec 18, 2002

March 1, 200350% on

32% on

32% on

32% on

32% on

32% onJan 24, 2004

June 16, 2003

Sept 18, 2003

Dec 11, 2003

Dec 18, 2003

March 1, 200436% on

36% on

36% on

36% on

36% onJune 16, 2004

Sept 18, 2004

Dec 11, 2004

Dec 18, 2004

March 1, 2005Number of Shares to be acquired with Outstanding Options as of
    Dec 31, 2007

1,980

4,337,930

25,765

1,515,680

20,527

44,850Held by Managing Board/Executive Officers

0

310,200

7,650

0

0

0  109




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##### Table of Contents



2001 Plan
    (Employees)
 April 25, 2001
    (outstanding grants)
  Tranche 1

Tranche 2

Tranche 3

Tranche 4

Tranche 5

Tranche 6

Tranche 7Date of the grant

April 27, 2001

Sept 4, 2001

Nov 1, 2001

Jan 2, 2002

Jan 25, 2002

April 25, 2002

June 26, 2002Total Number of Shares which may be purchased

9,521,100

16,000

61,900

29,400

3,656,103

9,708,390

318,600Vesting Date

April 27, 2003

Sept 4, 2003

Nov 1, 2003

Jan 2, 2004

Jan 25, 2003

April 25, 2004

June 26, 2004Expiration Date

April 27, 2011

Sept 4, 2011

Nov 1, 2011

Jan 2, 2012

Jan 25, 2012

April 25, 2012

June 26, 2012Exercise Price

$39.00

$29.70

$29.61

$33.70

$31.09

$31.11

$22.30Terms of Exercise

32% on

32% on

32% on

32% on

50% on

32% on

32% onApril 27, 2003

Sept 4, 2003

Nov 1, 2003

Jan 2, 2004

Jan 25, 2003

April 25, 2004

June 26, 200432% on

32% on

32% on

32% on

50% on

32% on

32% onApril 27, 2004

Sept 4, 2004

Nov 1, 2004

Jan 2, 2005

Jan 25, 2004

April 25, 2005

June 26, 200536% on

36% on

36% on

36% on



36% on

36% onApril 27, 2005

Sept 4, 2005

Nov 1, 2005

Jan 2, 2006



April 25, 2006

June 26, 2006Number of Shares to be acquired with Outstanding Options as of
    December 31, 2007

7,867,140

16,000

47,010

24,300

2,924,247

8,278,324

140,906Held by Managing Board/Executive Officers

410,000

0

0

0

158,925

424,500

0   2001 Plan
    (Employees) (continued)
    April 25, 2001
    (outstanding grants)
  Tranche 8

Tranche 9

Tranche 10

Tranche 11

Tranche 12

Tranche 13

Tranche 14

Tranche 15

Tranche 16

Tranche 17Date of the grant

Aug 1, 2002

Dec 17, 2002

Mar 14, 2003

June 3, 2003

Oct 24, 2003

Jan 2, 2004

Apr 26, 2004

Sept 1, 2004

Jan 31, 2005

Mar 17, 2005Total Number of Shares which may be purchased

24,500

14,400

11,533,960

306,850

135,500

86,400

12,103,490

175,390

29,200

13,000Vesting Date

Aug 1, 2004

Dec 17, 2004

Mar 14, 2005

June 3, 2005

Oct 24, 2005

Jan 2, 2006

Apr 26, 2006

Sept 1, 2006

Jan 31, 2007

Mar 17, 2007Expiration Date

Aug 1, 2012

Dec 17, 2012

Mar 14, 2013

June 3, 2013

Oct 24, 2013

Jan 2, 2014

Apr 26, 2014

Sept 1, 2014

Jan 31, 2015

Mar 17, 2015Exercise Price

$20.02

$21.59

$19.18

$22.83

$25.90

$27.21

$22.71

$17.08

$16.73

$17.31Terms of Exercise

32% on

32% on

32% on

32% on

32% on

32% on

32% on

32% on

32% on

32% onAug 1, 2004

Dec 17, 2004

Mar 14, 2005

June 3, 2005

Oct 24, 2005

Jan 2, 2006

Apr 26, 2006

Sept 1, 2006

Jan 31, 2007

Mar 17, 200732% on

32% on

32% on

32% on

32% on

32% on

32% on

32% on

32% on

32% onAug 1, 2005

Dec 17, 2005

Mar 14, 2006

June 3, 2006

Oct 24, 2006

Jan 2, 2007

Apr 26, 2007

Sept 1, 2007

Jan 31, 2008

Mar 17, 200836% on

36% on

36% on

36% on

36% on

36% on

36% on

36% on

36% on

36% onAug 1, 2006

Dec 17, 2006

Mar 14, 2007

June 3, 2007

Oct 24, 2007

Jan 2, 2008

Mar 14, 2008

Sept 1, 2008

Jan 31, 2009

Mar 17, 2009Number of Shares to be acquired with Outstanding Options as of
    Dec 31, 2007

13,800

14,400

9,909,670

193,650

121,550

17,500

10,582,215

118,291

17,900

13,000Held by Managing Board/ Executive Officers

0

0

507,800

0

31,000

0

595,100

0

0

0   2006
    Unvested Stock Award Plan
    2007
    Unvested Stock Award Plan
     110




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##### Table of Contents



Supervisory
    Board Stock Option Plans
  1999 Stock Option Plan for members and professionals of the
    Supervisory Board.
  2002 Stock Option Plan for members and professionals of the
    Supervisory Board. 2002-2005),
  1999 and
    2002 Plans
    (for Supervisory Board Members and Professionals)
    (outstanding grants)
  Date of Annual

May 31, 1999

March 27, 2002Shareholders Meeting

Tranche 2

Tranche 3

Tranche 1

Tranche 2

Tranche 3Date of the grant

June 16, 2000

April 27, 2001

April 25, 2002

March 14, 2003

April 26, 2004Total Number of Shares which may be purchased

103,500

112,500

132,000

132,000

132,000Vesting Date

June 16, 2001

April 27, 2002

May 25,2002

April 14, 2003

April 26, 2004Expiration Date

June 16, 2008

April 27, 2011

April 25,2012

March 14, 2013

April 26, 2014Exercise Price

$62.01

$39.00

$31.11

$19.18

$22.71All exercisable

All exercisable

All exercisable

All exercisable

All exercisableTerms of Exercise

after 1 year

after 1 year

after 1 year

after 1 year

after 1 yearNumber of Shares to be acquired with Outstanding Options as of
    December 31, 2007

81,000

90,000

108,000

108,000

132,000     2005, 2006 and 2007 Stock-based Compensation for members and
    professionals of the Supervisory Board.
  
    A maximum number of 6,000 newly issued shares per year for each
    member of the Supervisory Board and 3,000 newly issued shares
    per year for each professional of the Supervisory Board and a
    subscription price of 1.04 per share, corresponding to the
    nominal value of our share.
    Our 2006 Annual Shareholders meeting approved the adoption
    of a three year stock based compensation plan for Supervisory
    Board members and Professionals. The Plan provided for the grant
    of a maximum number of 6,000 newly issued shares per year for
    each member of the Supervisory Board and 3,000 newly issued
    shares for each of the Professionals of the Supervisory Board at
    a price of 1.04 per share, corresponding to the nominal
    value of our share. Pursuant to our 2007 annual shareholders
    meeting, the 2006 plan was modified as the maximum number was
    increased to 15,000 newly issued shares per year for 111




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##### Table of Contents



each member of the Supervisory Board and 7,500 newly issued
    shares per year for each professional of the Supervisory Board
    for the remaining year of the plan.          2005


2006


2007Total number of shares outstanding


17,000



34,000



142,500Expiration date


October 25, 2015



April 29, 2016



April 28, 2017   Employees
    At December 31,2007


2006


2005France


10,560



10,660



10,330Italy


10,090



10,320



10,500Rest of Europe


1,730



1,580



1,550United States


3,120



3,280



3,120Malta and Morocco


6,990



7,330



6,900Asia


19,690



18,600



17,600Total


52,180



51,770



50,000   At December 31,2007


2006


2005Research and Development


10,570



10,300



9,700Marketing and Sales


2,870



2,850



2,880Manufacturing


33,520



33,420



32,400Administration and General Services


2,570



2,600



2,550Divisional Functions


2,650



2,600



2,470Total


52,180



51,770



50,000      112




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##### Table of Contents



Item 7.
    Major
    Shareholders and Related-Party Transactions  Major
    Shareholders
    Common Shares OwnedShareholders

Number


%STMicroelectronics Holding II B.V. (ST Holding
    II)


250,704,754



27.5Public


568,492,104



62.5Brandes Investment Partners


80,563,681



8.8Treasury shares


10,532,881



1.2     Ministero dellEconomia e delle
    Finanze
    Common Shares OwnedNumber


%December 31, 2007


250,704,754



27.5December 31, 2006


250,704,754



27.5December 31, 2005


250,704,754



27.6    113




---



##### Table of Contents



(1)
    
    FT1CI owns 50% of ST Holding and indirectly holds 99,318,236 of
    our common shares.(2)
    
    Not a legal entity, purely for illustrative purposes.(3)
    
    CDP and Finmeccanica own 50% of ST Holding and indirectly hold
    91,644,941 and 59,741,577 of our common shares, respectively.(4)
    
    CDP owns 30% of ST Holding, while Finmeccanica owns 20% of ST
    Holding.(5)
    
    The 71.4% owned by the public includes the 8.9% shareholding of
    Brandes Investment Partners.(6)
    
    ST Holding II owns 27.5% of our shares, the Public owns
    71.4% of our shares and we hold the remaining 1.2% as treasury
    shares.         114




---



##### Table of Contents



Shareholders
    Agreements
  STH
    Shareholders Agreement
      
    the decision of our French and Italian shareholders to equally
    align their respective equity participation in our Company, held
    through STH, through an agreed sale by Finmeccanica to FT1CI of
    26,034,141 of our common shares or approximately 2.85% of our
    share capital;
    the fact that CEA, a company owned and controlled by the French
    State and the controlling shareholder or Areva will finance the
    acquisition of the shares being purchased by FT1CI from
    Finmeccanica and, upon such acquisition, will also become a
    party to the STH Shareholders Agreement;
    the decision to extend for a further three year period until
    March 17, 2011 the balancing period as defined under the
    STH Shareholders Agreement (see below under
    Corporate Governance); and
    the decision to increase from 9.5% to 10.5% the minimum voting
    stakes to be held respectively by our French and Italian
    shareholders (see below under Corporate Governance).    Restructuring
    of the Holding Companies
   115




---



##### Table of Contents



Standstill
    Corporate
    Governance
         116




---



##### Table of Contents



and/or and/or
        and/or
       117




---



##### Table of Contents



Disposals
    of our Common Shares
      Re-adjusting
    and Re-balancing options
      Change of
    Control Provision
    Non-competition
    Deadlock
   118




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##### Table of Contents



Preference
    Shares
        Other
    Shareholders Agreements
  Italian
    Shareholders Pact
      French
    Shareholders Pact
   119




---



##### Table of Contents



Statutory
    Considerations
  Commissaire
    du Gouvernement Contrôleur dEtat No. 94-214,
    (società per azioni).
  Related-Party
    Transactions
    Item 8.
    Financial
    Information  Financial
    Statements
  Form 20-F.
  Legal
    Proceedings
  and/or
 120




---



##### Table of Contents



04-04379JF). 04-04379JF.
  and/or
         121




---



##### Table of Contents



No. 337-TA-605.
      Risk
    Management and Insurance
        
    Property damage and business interruption;
    General liability and product liability;
    Directors and officers liability; and
    Transportation risks.      Reporting
    Obligations in International Financial Reporting Standards
    (IFRS)
   122




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##### Table of Contents



Dividend
    Policy
            
    On April 26, 2007, our Shareholders approved the payment of
    a cash dividend with respect to the year ended December 31,
    2007 of $0.30 payable to Dutch Registry Shareholders of record
    on May 21, 2007 and New York Registry Shareholders of
    record on May 23, 2007. This dividend was approximately 34%
    of our earnings in 2006.
    On April 27, 2006, our shareholders approved the payment of
    a cash dividend with respect to the year ended December 31,
    2005 of $0.12 per share payable to Dutch Registry Shareholders
    of record on May 22, 2006 and New York Registry
    Shareholders of record on May 24, 2006. This dividend was
    approximately 40% of our earnings in 2005.
    On March 18, 2005, our shareholders approved the payment of
    a cash dividend with respect to the year ended December 31,
    2004 of $0.12 per share payable to Dutch Registry Shareholders
    of record on May 23, 2005 and New York registry
    shareholders of record on May 25, 2005. This dividend was
    approximately 18% of our earnings in 2004.
    On April 23, 2004, our shareholders approved the payment of
    a cash dividend with respect to the year ended December 31,
    2003 of $0.12 per share payable to Dutch Registry shareholders
    of record on May 21, 2004 and New York registry
    shareholders of record on May 26, 2004. This dividend was
    approximately 42% of our earnings for 2003.
    In 2003, we paid a cash dividend with respect to the year ended
    December 31, 2002 of $0.08 per share. This dividend was
    approximately 17% of our earnings for 2002.   123




---



##### Table of Contents



Item 9.
    Listing  Trading
    History of the Companys Shares
             124




---



##### Table of Contents



Euronext
    Paris(1)
  Average Daily TradingVolumesNumber of





Price RangesCalendar Period

Shares


Capital


High


Low()





()Annual Information for the Past Five Years2003










24.74



15.202004










23.81



13.252005










15.81



10.832006










16.56



11.342007


5,430,551







15.61



9.70Quarterly Information for the Past Two Years2006First quarter










16.56



13.98Second quarter










15.97



11.82Third quarter










13.91



11.34Fourth quarter










14.45



13.032007First quarter


5,449,082







15.31



13.57Second quarter


5,431,749







15.61



13.82Third quarter


5,350,203







14.64



11.58Fourth quarter


5,492,462







12.19



9.70Monthly Information for the Past 18 Months2006September


6,107,356



79,814,418



13.91



12.35October


5,944,635



80,676,802



14.24



13.03November


5,187,519



71,998,052



14.45



13.20December


4,750,629



66,096,256



14.36



13.382007January


6,022,753



86,746,809



15.00



13.57February


5,135,836



75,080,782



15.31



14.13March


5,160,180



74,086,108



14.75



14.02April


5,555,233



82,354,867



15.40



14.28May


6,047,522



87,851,254



15.61



14.24June


4,674,931



66,646,707



14.61



13.82July


5,474,539



76,257,845



14.64



12.32August


5.565,957



69,395,386



13.15



11.85September


4,965,317



60,445,282



13.10



11.58October


6,027,143



70,415,373



12.19



11.10November


5,800,434



63,978,792



11.94



10.03December


4,488,617



46,194,961



10.83



9.702008January


8,385,124



71,620,389



9.89



7.55February


7,788,533



64,644,823



8.73



7.74      125




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##### Table of Contents



Borsa
    Italiana (Milan)(1)
  Average Daily TradingVolumesNumber of





Price RangesCalendar Period

Shares


Capital


High


Low()


()


()Annual Information for the past five years2003










24.75



15.212004










23.81



13.252005










15.82



10.822006










16.55



11.332007










15.60



9.80Quarterly Information for the past two years2006First quarter










16.55



13.99Second quarter










15.94



11.81Third quarter










13.92



11.33Fourth quarter










14.46



13.072007First quarter










15.32



13.63Second quarter










15.60



13.82Third quarter










14.64



11.57Fourth quarter










12.16



9.80Monthly Information for the past 18 months2006September


11,221,327



146,557,480



13.92



12.35October


12,183,594



165,369,033



14.25



13.07November


11,129,232



154,443,388



14.46



13.19December


8,004,114



111,322,904



14.36



13.372007January


10,773,375



155,258,040



15.00



13.63February


9,767,322



142,907,639



15.32



14.13March


8,623,576



124,007,021



14.76



14.02April


9,225,128



136,842,636



15.40



14.29May


8,634,820



125,562,443



15.60



14.23June


5,873361



83,732,310



14.61



13.82July


6,361,012



88,695,350



14.64



12.30August


7,254,127



90,597,108



13.13



11.83September


5,758,327



70,194,586



13.10



11.57October


6,709,056



78,489,824



12.16



11.08November


5,512,953



60,869,514



11.92



10.06December


4,887,232



50,380,846



10.81



9.802008January


10,071,980



86,256,895



9.90



7.65February


6,982,043



57,925,024



8.73



7.75      126




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##### Table of Contents



New York
    Stock Exchange
  Average Daily TradingVolumesNumber of





Price RangesCalendar Period

Shares


Capital


High


Low(U.S.$)


(U.S.$)


(U.S.$)Annual Information for the past five years2003










28.67



16.672004










29.90



16.362005










19.47



13.962006










19.90



14.552007










20.84



14.22Quarterly Information for the past two years2006First quarter










19.90



16.67Second quarter










19.60



14.83Third quarter










17.79



14.55Fourth quarter










18.82



16.502007First quarter










20.18



17.97Second quarter










20.84



18.55Third quarter










20.17



15.85Fourth quarter










17.36



14.22Monthly Information for the past 18 months2006September


1,215,410



20,286,408



17.79



15.75October


1,363,027



23,423,624



17.82



16.50November


1,753,133



31,380,252



18.66



16.91December


1,453,165



26,690,282



18.82



17.852007January 2007


1,611,140



30,090,456



19.40



17.97February


1,901,586



36,437,396



20.18



18.40March


1,751,946



33,330,764



19.54



18.41April


1,984,663



39,793,481



20.84



19.15May


2,299,235



45,178,923



20.72



19.15June


2,103,313



40,156,252



19.49



18.55July


2,203,551



41,951,414



20.17



16.94August


2,224,766



37,742,679



18.14



15.85September


1,351,409



22,843,080



17.87



16.05October


1,534,802



25,551,120



17.36



15.72November


1,524,103



24,640,399



17.25



14.91December


1,314,994



19,640,756



15.78



14.222008January


2,171,989



27,444,626



14.35



11.42February


2,773,272



33,843,628



12.97



11.39        127




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##### Table of Contents



Market
    Information
  Euronext
  General
  (SBF) tm
    Euronext
    Paris
  TM Premier Marché,
    Second Marché Nouveau Marché.
  Premier Marché
  
    compartment A comprises the companies with market
    capitalizations above 1 billion;
    compartment B comprises the companies with market
    capitalizations from 150 million and up to and
    including 1 billion; and
    compartment C comprises the companies with capitalizations below
    150 million.    (Continu Fixing) Continu, Continu
   128




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##### Table of Contents



Continu Continu Autorité des marchés financiers
  Service à Réglement
    Différé (date de liquidation)
          Securities
    Trading in Italy
   129




---



##### Table of Contents



three-day
    vis-à-vis
        Item 10.
    Additional
    Information  Memorandum
    and Articles of Association
  Applicable
    non-U.S.
    Regulations
  Applicable
    Dutch Legislation
      (Wet op het financieel
    toezicht)
 130




---



##### Table of Contents



(Autoriteit Financiële
    Martken)
        Applicable
    French Legislation
    Article 222-8 Article 222-9 Article 223-20
  Article 223-14
  Articles 241-1 241-6 Articles 611-1 632-1
   131




---



##### Table of Contents



Premier, Second Nouveau Marché
    articles 231-1 237-13
  Applicable
    Italian Legislation
        Articles
    of Association
  Purposes
    of the Company (Article 2)
    Company
    and Trade Registry
  (Kamer van Koophandel en Fabrieken voor Amsterdam)
  Supervisory
    Board and Managing Board
    
    power to vote on proposals, arrangements or contracts in which
    such member is directly interested;
    power, in the absence of an independent quorum, to vote on
    compensation to themselves or any members of the Supervisory
    Board; or
    borrowing powers exercisable by the directors and how such
    borrowing powers can be varied. 132




---



##### Table of Contents



Compensation
    of our Managing Board (Article 12)
    Compensation
    of our Supervisory Board (Article 23)
  and/or
  Information
    from our Managing Board to our Supervisory Board
    (Article 18)
      
    our operational and financial objectives;
    our strategy designed to achieve the objectives; and
    the parameters to be applied in relation to our strategy,
    inter alia,regarding financial ratios.    Adoption
    of Annual Accounts and Discharge of Management and Supervision
    Liability (Article 25)
      Distribution
    of Profits (Articles 37, 38, 39 and 40)
   133




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##### Table of Contents



Shareholders
    Meetings, Attendance at Shareholders Meetings and Voting
    Rights
  Notice
    Convening the Shareholders Meeting (Articles 25, 26,
    27, 28 and 29)
          Attendance
    at Shareholders Meetings and Voting Rights
    (Articles 30, 31, 32, 33 and 34)
     134




---



##### Table of Contents



inter alia,
    and/or
         135




---



##### Table of Contents



Authority
    of the Shareholders Meeting (Articles 12, 16, 19, 25,
    28 and 41)
    (dochtermaatschappij) (dochtermaatschappij)
    Quorum
    and Majority (Articles 4, 13 and 32)
      Disclosure
    of Holdings
         136




---



##### Table of Contents



Share
    Capital as of December 31, 2007
            Non-issued
    Authorized Share Capital as of December 31, 2007
   137




---



##### Table of Contents



Other
    Securities Giving Access to Our Share Capital as of
    December 31, 2007
    Securities
    Not Representing Our Share Capital
    Issuance
    of Shares, Preemptive Rights and Preference Shares
    (Article 4)
        and/or and/or
         138




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##### Table of Contents



Changes
    to Our Share Capital and Stock Option Grants
  Cumulative





Nominal Value


Amount ofNominal


Amount of


Cumulative


of Increase/


Issue


Cumulative Number of


Value


Capital


Number of


Reduction in


Premium


Issue PremiumYear

Transaction

Shares


(Euro)


(Euro)


Shares


Capital


(Euro)


(Euro)March 29, 2003

Exercise of options
    Exercise of options
    and employee stock


91,146



1.04



937,055,288



901,014,700



94,792



404,011



1,676,187,762June 28, 2003

purchases


217,490



1.04



937,281,478



901,232,190



226,190



2,075,922



1,678,263,684September 27, 2003

Exercise of options


903,283



1.04



938,220,892



902,135,473



939,414



10,857,587



1,689,121,271December 31, 2003

Exercise of options


634,261



1.04



938,880,523



902,769,734



659,631



4,458,391



1,693,579,662March 27, 2004

Exercise of options


1,964,551



1.04



940,923,656



904,734,285



2,043,133



9,048,811



1,702,628,473June 26, 2004

Exercise of options


84,740



1.04



941,011,786



904,819,025



88,130



1,640,712



1,704,269,185September 25, 2004

Exercise of options


65,990



1.04



941,080,416



904,885,015



68,630



605,542



1,704,874,727September 25, 2004

Bonds conversion


101



1.04



941,080,521



904,885,116



105



7,006



1,704,881,733December 31, 2004

Exercise of options


422,120



1.04



941,519,525



905,307,236



439,005



4,021,536



1,708,903,269December 31, 2004

LYONs conversion


1,761



1.04



941,521,357



905,308,997



1,831



46,225



1,708,949,494April 2, 2005

Exercise of options


63,270



1.04



941,587,158



905,372,267



65,801



571,525



1,709,521,019April 2, 2005

LYONs conversion


59



1.04



941,587,219



905,372,326



61



1,448



1,709,522,467June 2, 2005

Exercise of options


145,454



1.04



941,738,491



905,517,780



151,272



1,436,236



1,710,958,703October 1, 2005

Exercise of options


2,079,369



1.04



943,901,035



907,597,149



2,162,544



21,629,617



1,732,651,320December 31, 2005

Exercise of options


227,130



1.04



944,137,250



907,824,279



236,215



2,062,234



1,734,713,554April 1, 2006

Exercise of options


201,340



1.04



944,346,644



908,025,619



209,394



2,360,525



1,737,074,079July 1, 2006

Exercise of options


1,398,210



1.04



945,800,782



909,423,829



1,454,138



9,009,053



1,746,083,132September 30, 2006

Exercise of options


731,904



1.04



946,561,962



910,155,733



761,180



8,447,102



1,754,530,234December 31, 2006

Exercise of options


2,200



1.04



946,564,250



910,157,933



2,288



2,420



1,754,532,654March 31, 2007

Exercise of options


26,050



1.04



946,591,342



910,183,983



27,092



352,478



1,754,885,132June 30, 2007

Exercise of options


105,117



1.04



946,700,664



910,289,100



109,322



1,315,306



1,756,200,438September 29, 2007

Exercise of options


4,320



1.04



946,705,157



910,293,420



4,493



54,544



1,756,254,982December 31, 2007

Exercise of options


0



1.04



946,705,157



910,293,420



0



0



1,756,254,982   Liquidation
    Rights (Articles 42 and 43)
    Acquisition
    of Shares in Our Own Share Capital (Article 5)
  paid-up called-up
 139




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##### Table of Contents



paid-up and/or tm
  Changes
    to Our Share Capital, Stock Option Grants and Other
    Matters
    NominalCumulative





Value of


Amount ofNominal


Amount of


Cumulative


Increase/


Issue


CumulativeNumber of


Value


Capital


Number of


Reduction


Premium


Issue PremiumYear

Transaction


Shares


(Euro)


(Euro)


Shares


in Capital


(Euro)


(Euro)December 31, 2005


Conversion of bonds



59



1.04



941,521,418



905,309,056



61



1,448



1,708,950,942December 31, 2005


Exercise of options



2,515,223



1.04



944,137,250



907,824,279



2,615,832



25,762,612



1,734,713,554December 31, 2006


Exercise of options



2,333,654



1.04



946,564,250



910,157,933



2,427,000



19,819,100



1,754,532,654December 31, 2007


Exercise of options



135,487



1.04



946,705,147



910,293,420



140,907



1,722,328



1,756,254,982     Employees
    Stock Options
  1995 Plan


2001 Plan


TotalRemaining amount authorized to be granted


0



0



0Amount exercised (stock options) or vested (stock awards)


14,523,601



141,537



14,665,138Amount cancelled and expired


11,091,608



7,292,743



18,384,351Amount outstanding


5,946,732



40,299,903



46,246,635   Employees
    Unvested Share Awards
  2005 Plan


2006 Plan


2007 Plan


TotalRemaining amount authorized to be granted


0



0



323,710



323,710Amount vested


1,676,653



1,190,466



0



2,867,119Amount cancelled


1,571,981



238,725



73,490



1,884,196Amount outstanding


911,281



3,702,449



5,702,800



10,316,530  140




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##### Table of Contents



Supervisory
    Board and Professionals Stock Options
  Supervisory Board and Professionals1999


2002


TotalRemaining amount authorized to be granted


0



0



0Amount exercised


18,000



0



18,000Amount cancelled and expired


234,000



48,000



282,000Amount outstanding


171,000



348,000



519,000   Supervisory
    Board and Professionals Unvested Share Awards
  Supervisory Board and Professionals2005


2006


2007


TotalRemaining amount authorized to be granted


0



0



0



0Amount vested


34,000



17,000



0



51,000Amount cancelled


15,000



15,000



22,500



52,500Amount outstanding


17,000



34,000



142,500



193,500           Limitations
    on Right to Hold or Vote Shares
    Material
    Contracts
    Exchange
    Controls
    Taxation
  Dutch
    Taxation
  This is a general summary and the tax consequences as
    described here may not apply to a holder of common shares. Any
    potential investor should consult his own tax adviser for more
    information about the tax consequences of acquiring, owning and
    disposing of common shares in his particular circumstances.
 141




---



##### Table of Contents



Form 20-F.
  Form 20-F.
  Taxes
    on income and capital gains
        (bestuurder) (commissaris)
  Wet Inkomstenbelasting 2001)
  Wet op de Vennootschapsbelasting
    1969)
      partner, Wet Inkomstenbelasting
    2001 (winstbewijzen)
        Form 20-F.
 142




---



##### Table of Contents



(ondernemer)
  inter alia (voorkennis)
  Attribution
    rule
    Dividend
    withholding tax
      
    distributions in cash or in kind, deemed and constructive
    distributions and repayments of capital not recognized as
    paid-in for Dutch dividend withholding tax purposes;
    liquidation proceeds and proceeds of repurchase or redemption of
    shares in excess of the average capital recognized as paid-in
    for Dutch dividend withholding tax purposes;
    the par value of shares issued by us to a holder of common
    shares or an increase of the par value of shares, as the case
    may be, to the extent that it does not appear that a
    contribution, recognized for Dutch dividend withholding tax
    purposes, has been made or will be made; and
    partial repayment of capital, recognized as paid-in for Dutch
    dividend withholding tax purposes, if and to the extent that
    there are net profits (zuivere winst), unless
    (a) the general meeting of our shareholders has resolved in
    advance to make such repayment and (b) the par value of the
    shares concerned has been reduced by an equal amount by way of
    an amendment to our articles of association.  Belastingregeling voor het
    Koninkrijk kortlopende
    genotsrechten op aandelen
 143




---



##### Table of Contents



Reduction.
  
    3% of the dividends paid by us in respect of which Dutch
    dividend withholding tax is withheld; and
    3% of the qualifying profit distributions grossed up by the
    foreign tax withheld on such distributions received from foreign
    subsidiaries and branches prior to the distribution of the
    dividend by us during the current calendar year and the two
    preceding calendar years (to the extent such distributions have
    not been taken into account previously when applying this test).     144




---



##### Table of Contents



Gift
    and inheritance taxes
    
    the donor is, or the deceased was, resident or deemed to be
    resident in the Netherlands for purposes of gift or inheritance
    tax (as the case may be); or
    the common shares are or were attributable to an enterprise or
    part of an enterprise that the donor or deceased carried on
    through a permanent establishment or a permanent representative
    in the Netherlands at the time of the gift or of the death of
    the deceased; or
    the donor made a gift of common shares, then became a resident
    or deemed resident of the Netherlands, and died as a resident or
    deemed resident of the Netherlands within 180 days of the
    date of the gift.  Other
    taxes and duties
  and/or
  United
    States Federal Income Taxation
    
    that is, for U.S. federal income tax purposes, (a) a
    citizen or individual resident of the United States, (b) a
    U.S. domestic corporation or a domestic entity taxable as a
    corporation, (c) an estate the income of which is subject
    to U.S. federal income taxation regardless of its source,
    or (d) a trust if a court within the United States can
    exercise primary supervision over the administration of the
    trust and one or more U.S. persons are authorized to
    control all substantial decisions of the trust;
    that owns, directly, indirectly or by attribution, less than 10%
    of our voting power or outstanding share capital;
    that holds the common shares as capital assets;
    whose functional currency for U.S. federal income tax
    purposes is the U.S. dollar;
    that is a resident of the United States and not also a resident
    of the Netherlands for purposes of the U.S./NL Income Tax Treaty;
    that is entitled, under the limitation on benefits
    provisions contained in the U.S./NL Income Tax Treaty, to the
    benefits of the U.S./NL Income Tax Treaty; and
    that does not have a permanent establishment or fixed base in
    the Netherlands.     145




---



##### Table of Contents



Form 20-F,
  Dividends
  U.S.-source
    non-U.S. corporation non-U.S. corporation non-U.S. corporation non-U.S. corporation
  Sale,
    Exchange or Other Disposition of Common Shares
  U.S.-source
 146




---



##### Table of Contents



Passive
    Foreign Investment Company Status
    U.S.
    Information Reporting and Backup Withholding
  Form W-9. Non-U.S. holders non-U.S. status Form W-8BEN) U.S.-related
  Documents
    on Display
  Form 20-F Form 20-F Form 20-F.
    1-800-SEC-0330 http://www.sec.gov
     147




---



##### Table of Contents



Item 11.
    Quantitative
    and Qualitative Disclosures About Market Risk        and/or
 148




---



##### Table of Contents



Fair Value atDecember 31,Total


2008


2009


2010


2011


2012


Thereafter


2007Assets:Cash and cash equivalents


1,855



























1,855Average interest rate


4.75
%Current marketable securities


1,014



























1,014Average interest rate


4.96
%Non current marketable securities


369



























369Average interest rate


5.81
%Short-term depositsAverage interest rateRestricted Cash


250



























250Average interest rate


6.06
%Long-term debt:Fixed rate


2,220



103



114



60



1,053



41



849



2,220Average interest rate


3.35
%


3.93
%


4.40
%


3.69
%


1.62
%


4.37
%


5.21
%   Amounts in Millionsof U.S. DollarsLong-term debt by currency as of December 31, 2007:U.S. dollar


1,313Euro


907Total in U.S. dollars


2,220   Amounts in Millionsof U.S. DollarsLong-term debt by currency as of December 31, 2006:U.S. dollar


1,242Euro


818Singapore dollar


65Other currencies


5Total in U.S. dollars


2,130  149




---



##### Table of Contents



FORWARD
    CONTRACTS AND CURRENCY OPTIONS AS AT DECEMBER 31, 2007
  Notional Amount


Average Rate


Fair ValueBuy

EUR

Sell

USD


483



1.4



12Buy

USD

Sell

CAD


8



1.0



0Buy

JPY

Sell

EUR


9



163.0



0Buy

INR

Sell

USD


28



39.7



0Buy

USD

Sell

JPY


19



112.7



0Buy

JPY

Sell

USD


1



112.5



0Buy

SGD

Sell

USD


108



1.4



0Buy

MYR

Sell

USD


30



3.3



0Buy

GBP

Sell

USD


41



2.0



0Buy

SEK

Sell

USD


8



6.4



0Buy

CZK

Sell

USD


1



18



0Buy

TND

Sell

USD


1



1.2



0737







12     FORWARD
    CONTRACTS AND CURRENCY OPTIONS AS AT DECEMBER 31, 2006
  Notional Amount


Average Rate


Fair ValueBuy

EUR

Sell

USD


594



1.3



12Buy

USD

Sell

CAD


8



1.2



0Buy

JPY

Sell

EUR


11



153.1



0Buy

INR

Sell

USD


27



45.2



0Buy

USD

Sell

JPY


20



117.5



0Buy

JPY

Sell

USD


1



117.4



0Buy

SGD

Sell

USD


74



1.5



1Buy

MYR

Sell

USD


27



3.5



0Buy

GBP

Sell

USD


43



2.0



0Buy

CHF

Sell

USD


9



1.2



0Buy

SEK

Sell

USD


11



6.7



0825







13   Item 12.
    Description
    of Securities Other Than Equity Securities   150




---



##### Table of Contents



PART II  Item 13.
    Defaults,
    Dividend Arrearages and Delinquencies    Item 14.
    Material
    Modifications to the Rights of Security Holders and Use of
    Proceeds    Item 15.
    Controls
    and Procedures  Disclosure
    Controls and Procedures
  Form 20-F. Form 20-F,
  Form 20-F. Form 6-K Form 20-F.
  Form 20-F,
  Managements
    Report on Internal Control over Financial Reporting
       151




---



##### Table of Contents



Internal Control  Integrated Framework
    Form 20-F.
  Attestation
    Report of the Registered Public Accounting Firm
    Changes
    in Internal Control over Financial Reporting
  Form 20-F
  Item 16A.
    Audit
    Committee Financial Expert  Form 20-F.
  Item 16B.
    Code
    of Ethics  Policy on
    Business Conduct and Ethics
      http://www.st.com.
  Item 16C.
    Principal
    Accountant Fees and Services   152




---



##### Table of Contents



Percentage of





Percentage of2007


Total Fees


2006


Total FeesAudit FeesStatutory audit, certification, audit of individual and
    Consolidated Financial Statements

$
5,758,230



97
%

$
4,866,174



92
%Audit-related fees

$
194,940



3
%


404,639



8
%Non-audit FeesTax compliance fees










Other fees










Total

$
5,953,170



100
%

$
5,270,813



100
%   carve-out
  agreed-upon
    Audit
    Committee Pre-approval Policies and Procedures
          Rule 2-01 Regulation S-X.
  Item 16D.
    Exemptions
    from the Listing Standards for Audit Committees   153




---



##### Table of Contents



Item 16E.
    Purchases
    of Equity Securities by the Issuer and Affiliated
    Purchasers  Maximum NumberTotal Number of


of Securities thatTotal Number of





Securities Purchased


May yet beSecurities


Average Price Paid


as Part of Publicly


Purchased UnderPeriod

Purchased


per Security


Announced Programs


the Programs2007-01-01
    to 2007-01-31














2007-02-01
    to 2007-02-28














2007-03-01
    to 2007-03-31














2007-04-01
    to 2007-04-30














2007-05-01
    to 2007-05-31














2007-06-01
    to 2007-06-30














2007-07-01
    to 2007-07-31














2007-08-01
    to 2007-08-31














2007-09-01
    to 2007-09-30














2007-10-01
    to 2007-10-31














2007-11-01
    to 2007-11-30














2007-12-01
    to 2007-12-31














      154




---



##### 



PART III  Item 17.
    Financial
    Statements    Item 18.
    Financial
    Statements   
 PageFinancial Statements:Report of Independent Registered Public
    Accounting Firm for Years Ended December 31, 2007, 2006 and
    2005


F-2Consolidated Statements of Income for the Years
    Ended December 31, 2007, 2006 and 2005


F-4Consolidated Balance Sheets as at
    December 31, 2007 and 2006


F-5Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2007, 2006 and 2005


F-6Consolidated Statements of Changes in
    Shareholders Equity for the Years Ended December 31,
    2007, 2006 and 2005


F-7Notes to Consolidated Financial Statements


F-8Financial Statement Schedule:For each of the three years in the period ended
    December 31, Schedule II Valuation and Qualifying
    Accounts


S-1    Item 19.
    Exhibits  1.1

Amended and Related Articles of Associations of
    STMicroelectronics N.V., dated May 15, 2007, as approved by
    the annual general meeting of Shareholders on April 26,
    2007.4.1

The master agreement by and between STMicroelectronics N.V.,
    Intel Corporation, Redwood Blocker S.A.R.L., and Francisco
    Partners II (Cayman) L.P. dated May 22, 2007
    (incorporated by reference to
    Form 6-K
    of STMicroelectronics N.V. filed on August 3, 2007).4.2

Form of ST Asset Contribution Agreement (incorporated by
    reference to
    Form 6-K
    of STMicroelectronics N.V. filed on August 3, 2007).8.1

Subsidiaries and Equity Investments of the
    Company.12.1

Certification of Carlo Bozotti, President and
    Chief Executive Officer of STMicroelectronics N.V., pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.12.2

Certification of Carlo Ferro, Executive Vice
    President and Chief Financial Officer of STMicroelectronics
    N.V., pursuant to Section 302 of the Sarbanes-Oxley Act of
    2002.13.1

Certification of Carlo Bozotti, President and
    Chief Executive Officer of STMicroelectronics N.V., and Carlo
    Ferro, Executive Vice President and Chief Financial Officer of
    STMicroelectronics N.V., pursuant to 18 U.S.C. §1350,
    as adopted by Section 906 of the Sarbanes-Oxley Act of
    2002.14(a)

Consent of Independent Registered Public Accounting Firm.  155




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##### Table of Contents



CERTAIN
    TERMS
  ADSL
    
    Assymmetrical digital subscriber lineASD
    
    application-specific discrete technologyASIC
    
    application-specific integrated circuitASSP
    
    application-specific standard productBCD
    
    bipolar, CMOS and DMOS process technologyBiCMOS
    
    bipolar and CMOS process technologyCAD
    
    computer aided designCMOS
    
    complementary metal-on silicon oxide semiconductorCODEC
    
    audio coding and decoding functionsCPE
    
    customer premises equipmentDMOS
    
    diffused metal-on silicon oxide semiconductorDRAM
    
    dynamic random access memoryDSL
    
    digital subscriber lineDSP
    
    digital signal processorEMAS
    
    Eco-Management and Audit Scheme, the voluntary European
    Community scheme for companies performing industrial activities
    for the evaluation and improvement of environmental performanceEEPROM
    
    electrically erasable programmable read-only memoryEPROM
    
    erasable programmable read-only memoryEWS
    
    electrical wafer sortingG-bit
    
    gigabitGPRS
    
    global packet radio serviceGPS
    
    global positioning systemGSM
    
    global system for mobile communicationsGSM/GPRS
    
    European standard for mobile phonesHCMOS
    
    high-speed complementary metal-on silicon oxide semiconductorIC
    
    integrated circuitIGBT
    
    insulated gate bipolar transistorsIPAD
    
    integrated passive and active devicesISO
    
    International Organization for StandardizationK-bit
    
    kilobitLAN
    
    local area networkM-bit
    
    megabitMEMS
    
    micro-electro-mechanical systemMOS
    
    metal-on silicon oxide semiconductor process technologyMOSFET
    
    metal-on silicon oxide semiconductor field effect transistorMPEG
    
    motion picture experts groupODM
    
    original design manufacturerOEM
    
    original equipment manufacturer 156




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##### Table of Contents



OTP
    
    one-time programmablePFC
    
    power factor correctorPROM
    
    programmable read-only memoryPSM
    
    programmable system memoriesRAM
    
    random access memoryRF
    
    radio frequencyRISC
    
    reduced instruction set computingROM
    
    read-only memorySAM
    
    serviceable available marketSCR
    
    silicon controlled rectifierSLIC
    
    subscriber line interface cardSMPS
    
    switch-mode power supplySoC
    
    system-on-chipSRAM
    
    static random access memorySNVM
    
    serial nonvolatile memoriesTAM
    
    total available marketUSB
    
    universal serial busVIPpowertm
    
    vertical integration powerVLSI
    
    very large scale integrationXDSL
    
    digital subscriber line 157




---



##### Table of Contents



SIGNATURES
  Form 20-F
    Date: March 3, 2008

By: /s/  Carlo
    BozottiCarlo
    Bozotti
    President and Chief Executive Officer  158




---



##### 



CONSOLIDATED
    FINANCIAL STATEMENTS



Index to Consolidated Financial Statements  
  PageFinancial Statements:Report of Independent Registered Public
    Accounting Firm for the Years Ended December 31, 2007, 2006
    and 2005


F-2Consolidated Statements of Income for the Years
    Ended December 31, 2007, 2006 and 2005


F-4Consolidated Balance Sheets as at
    December 31, 2007 and 2006


F-5Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2007, 2006 and 2005


F-6Consolidated Statements of Changes in
    Shareholders Equity for the Years Ended December 31,
    2007, 2006 and 2005


F-7Notes to Consolidated Financial Statements


F-8   F-1




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##### Table of Contents



Report of
    Independent Registered Public Accounting Firm  To the
    Supervisory Board and Shareholders of STMicroelectronics N.V.:
  Form 20-F Internal Control  Integrated Framework Form 20-F.
    
  With
    offices in Aarau, Basel, Berne, Chur, Geneva, Lausanne, Lugano,
    Lucerne, Neuchâtel, Sitten, St. Gallen, Thun, Winterthur,
    Zug and Zurich, PricewaterhouseCoopers AG is a provider of
    auditing services and tax, legal and business consultancy
    services. PricewaterhouseCoopers AG is a partner in a global
    network of companies that are legally independent of one another
    and is located in some 150 countries throughout the world.
 F-2




---



##### Table of Contents



-s- Michael Foley

-s- Felix RothMichael Foley

Felix Roth    F-3




---



##### Table of Contents



STMicroelectronics
    N.V.
  CONSOLIDATED
    STATEMENTS OF INCOME
 In million of U.S. dollars except per share amounts
  Twelve Months Ended(audited)


(audited)


(audited)December 31,


December 31,


December 31,2007


2006


2005Net sales


9,966



9,838



8,876Other revenues


35



16



6Net revenues


10,001



9,854



8,882Cost of sales


(6,465
)


(6,331
)


(5,845
)Gross profit


3,536



3,523



3,037Selling, general and administrative


(1,099
)


(1,067
)


(1,026
)Research and development


(1,802
)


(1,667
)


(1,630
)Other income and expenses, net


48



(35
)


(9
)Impairment, restructuring charges and other related closure costs


(1,228
)


(77
)


(128
)Operating income (loss)


(545
)


677



244Other -than-temporary impairment charge on financial assets


(46
)






Interest income, net


83



93



34Earnings (loss) on equity investments


14



(6
)


(3
)Income (loss) before income taxes and minority interests


(494
)


764



275Income tax benefit (expense)


23



20



(8
)Income (loss) before minority interests


(471
)


784



267Minority interests


(6
)


(2
)


(1
)Net income (loss)


(477
)


782



266Earnings (loss) per share (Basic)


(0,53
)


0,87



0,30Earnings (loss) per share (Diluted)


(0,53
)


0,83



0,29   The accompanying notes are an integral part of these audited
    consolidated financial statements
  
 F-4




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##### Table of Contents



STMicroelectronics
    N.V.
  CONSOLIDATED
    BALANCE SHEETS
 In
    million of U.S. dollars
  As atDecember 31,


December 31,2007


2006(Audited)


(Audited)AssetsCurrent assets:Cash and cash equivalents


1,855



1,659Marketable securities


1,014



764Short-term deposits






250Trade accounts receivable, net


1,605



1,589Inventories, net


1,354



1,639Deferred tax assets


205



187Assets held for sale


1,017



Other receivables and assets


612



498Total current assets


7,662



6,586Goodwill


290



223Other intangible assets, net


238



211Property, plant and equipment, net


5,044



6,426Long-term deferred tax assets


237



124Equity investments






261Restricted cash for equity investments


250



218Non-current marketable securities


369



Other investments and other non-current assets


182



1496,610



7,612Total assets


14,272



14,198Liabilities and shareholders equityCurrent liabilities:Bank overdrafts






Current portion of long-term debt


103



136Trade accounts payable


1,065



1,044Other payables and accrued liabilities


744



664Deferred tax liabilities


11



7Accrued income tax


154



112Total current liabilities


2,077



1,963Long-term debt


2,117



1,994Reserve for pension and termination indemnities


323



342Long-term deferred tax liabilities


14



57Other non-current liabilities


115



432,569



2,436Total liabilities


4,646



4,399Commitment and contingenciesMinority interests


53



52Common stock (preferred stock: 540,000,000 shares
    authorized, not issued; common stock: Euro 1.04 nominal value,
    1,200,000,000 shares authorized, 910,293,420 shares
    issued, 899,760,539 shares outstanding)


1,156



1,156Capital surplus


2,097



2,021Accumulated result


5,274



6,086Accumulated other comprehensive income


1,320



816Treasury stock


(274
)


(332
)Shareholders equity


9,573



9,747Total liabilities and shareholders equity


14,272



14,198   The accompanying notes are an integral part of these audited
    consolidated financial statements
  
 F-5




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##### Table of Contents



STMicroelectronics
    N.V.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
 In
    million of U.S. dollars
  Twelve Months EndedDecember 31,


December 31,


December 31,2007


2006


2005(Audited)


(Audited)


(Audited)Cash flows from operating activities:Net income (loss)


(477
)


782



266Items to reconcile net income and cash flows from operating
    activities:Depreciation and amortization


1,413



1,766



1,944Amortization of discount on convertible debt


18



18



5Other non-cash items


155



50



10Minority interest in net income of subsidiaries


6



2



1Deferred income tax


(148
)


(74
)


(31
)Earnings (loss) on equity investments


(14
)


6



3Impairment, restructuring charges and other related closure
    costs, net of cash payments


1,173



1



72Changes in assets and liabilities:Trade receivables, net


2



(104
)


(117
)Inventories, net


24



(161
)


(174
)Trade payables


19



36



(71
)Other assets and liabilities, net


17



169



(110
)Net cash from operating activities


2,188



2,491



1,798Cash flows from investing activities:Payment for purchase of tangible assets


(1,140
)


(1,533
)


(1,441
)Payment for purchase of marketable securities


(708
)


(864
)


Proceeds from sale of marketable securities


101



100



Investment in short-term deposits






(903
)


Proceeds from matured short-term deposits


250



653



Restricted cash for equity investments


(32
)


(218
)


Investment in intangible and financial assets


(208
)


(86
)


(49
)Proceeds from the sale of Accent subsidiary






7



Capital contributions to equity investments






(213
)


(38
)Net cash used in investing activities


(1,737
)


(3,057
)


(1,528
)Cash flows from financing activities:Proceeds from issuance of long-term debt


102



1,744



50Repayment of long-term debt


(125
)


(1,522
)


(110
)Decrease in short-term facilities






(12
)


(47
)Capital increase


2



28



35Dividends paid


(269
)


(107
)


(107
)Dividends paid to minority interests


(6
)Other financing activities






1



1Net cash from (used in) financing activities


(296
)


132



(178
)Effect of changes in exchange rates


41



66



(15
)Net cash increase (decrease)


196



(368
)


77Cash and cash equivalents at beginning of the period


1,659



2,027



1,950Cash and cash equivalents at end of the period


1,855



1,659



2,027Supplemental cash information:Interest paid


52



29



17Income tax paid


133



117



90   The accompanying notes are an integral part of these audited
    consolidated financial statements
  
 F-6




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##### Table of Contents



CONSOLIDATED
    STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
    In million of U.S. dollars, except per share amounts  AccumulatedOtherCommon


Capital


Treasury


Accumulated


Comprehensive


ShareholdersStock


Surplus


Stock


Result


income (loss)


EquityBalance as of December 31, 2004 (Audited)


1,150



1,924



(348
)


5,268



1,116



9,110Capital increase


3



32















35Stock-based compensation expense






11















11Comprehensive income (loss):Net Income














266







266Other comprehensive loss, net of tax


















(835
)


(835
)Comprehensive loss






















(569
)Dividends, $0.12 per share














(107
)






(107
)Balance as of December 31, 2005 (Audited)


1,153



1,967



(348
)


5,427



281



8,480Capital increase


3



25















28Stock-based compensation expense






29



16



(16
)






29Comprehensive income (loss):Net Income














782







782Other comprehensive income, net of tax


















535



535Comprehensive income






















1,317Dividends, $0.12 per share














(107
)






(107
)Balance as of December 31, 2006 (Audited)


1,156



2,021



(332
)


6,086



816



9,747Cumulative effect of FIN 48 adoption














(8
)






(8
)Capital increase






2















2Stock-based compensation expense






74



58



(58
)






74Comprehensive income (loss):Net Loss














(477
)






(477
)Other comprehensive income, net of tax


















504



504Comprehensive income






















27Dividends, $0.30 per share














(269
)






(269
)Balance as of December 31, 2007 (Audited)


1,156



2,097



(274
)


5,274



1,320



9,573   The accompanying notes are an integral part of these audited
    consolidated financial statements
 F-7




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS

(in millions of U.S. dollars, except per share
    amounts)



1 
    THE COMPANY



STMicroelectronics N.V. (the Company) is registered
    in The Netherlands with its statutory domicile in Amsterdam, and
    its corporate headquarters located in Geneva, Switzerland.



The Company is a global independent semiconductor company that
    designs, develops, manufactures and markets a broad range of
    semiconductor integrated circuits (ICs) and discrete
    devices. The Company offers a diversified product portfolio and
    develops products for a wide range of market applications,
    including automotive products, computer peripherals,
    telecommunications systems, consumer products, industrial
    automation and control systems. Within its diversified
    portfolio, the Company has focused on developing products that
    leverage its technological strengths in creating customized,
    system-level solutions with high-growth digital and
    mixed-signal
    content.



2 
    ACCOUNTING POLICIES



The accounting policies of the Company conform to accounting
    principles generally accepted in the United States of
    America (U.S. GAAP). All balances and values in
    the current and prior periods are in millions of dollars, except
    share and per-share amounts. Under Article 35 of the
    Companys Articles of Association, the financial year
    extends from January 1 to December 31, which is the
    period-end of each fiscal year.



2.1 
    Principles of consolidation



The consolidated financial statements of the Company have been
    prepared in conformity with U.S. GAAP. The Companys
    consolidated financial statements include the assets,
    liabilities, results of operations and cash flows of its
    majority-owned subsidiaries. The ownership of other interest
    holders is reflected as minority interests. Intercompany
    balances and transactions have been eliminated in consolidation.
    Since the adoption in 2003 of Financial Accounting Standards
    Board Interpretation No. 46 Consolidation of Variable
    Interest Entities, an Interpretation of ARB No. 51(revised 2003) and the related FASB Staff Positions
    (collectively FIN 46R), the Company assesses
    for consolidation any entity identified as a Variable Interest
    Entity (VIE) and consolidates VIEs, if any, for
    which the Company is determined to be the primary beneficiary,
    as described in Note 2.20.



2.2 
    Use of estimates



The preparation of financial statements in accordance with
    U.S. GAAP requires management to make estimates and
    assumptions that affect the reported amounts of assets and
    liabilities at the date of the financial statements and the
    reported amounts of net revenue and expenses during the
    reporting period. The primary areas that require significant
    estimates and judgments by management include, but are not
    limited to, sales returns and allowances, allowances for
    doubtful accounts, inventory reserves and normal manufacturing
    capacity thresholds to determine costs capitalized in inventory,
    accruals for warranty costs, litigation and claims, assumptions
    used to discount monetary assets expected to be recovered beyond
    one-year, valuation of acquired intangibles, goodwill,
    investments and tangible assets as well as the impairment of
    their related carrying values, estimated value of the
    consideration to be received and used as fair value for disposal
    asset group classified as assets to be disposed of by sale,
    measurement of the fair value of marketable securities
    classified as available-for-sale for which no observable market
    price is obtainable, restructuring charges, assumptions used in
    calculating pension obligations and share-based compensation
    including assessment of the number of awards expected to vest
    upon future performance condition achievement, assumptions used
    to measure and recognize a liability for the fair value of the
    obligation the Company assumes at the inception of a guarantee,
    measurement of hedge effectiveness of derivative instruments,
    deferred income tax assets including required valuation
    allowances and liabilities as well as provisions for
    specifically identified income tax exposures and income tax
    uncertainties. The Company bases the estimates and assumptions
    on historical experience and on various other factors such as
    market trends and business plans that it believes to be
    reasonable under the circumstances, the results of which form
    the basis for making judgments about the carrying values of
    assets and liabilities. While the Company regularly evaluates
    its estimates and assumptions, the actual results experienced by
    the Company could differ materially and adversely from
    managements estimates. To the extent there are material
    differences between the estimates and the actual results, future
    results of operations, cash flows and financial position could
    be significantly affected.

F-8




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
  2.3 
    Foreign currency
        2.4 
    Financial assets
    Held-for-trading
    financial assets
    Available-for-sale
    financial assets
       F-9




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
        2.5 
    Derivative financial instruments and hedging
    activities
          Derivative
    financial instruments classified as held for trading
  Accounting for Derivative Instruments
    and Hedging Activities
  Cash Flow
    Hedges
   F-10




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
        Fair
    Value Hedges
    2.6 
    Reclassifications
   F-11




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
  2.7 
    Revenue Recognition
    Net
    sales
  Revenue
    Recognition
        No. 00-21, Revenue Arrangements with Multiple Deliverables (EITF 00-21).
  Other
    revenues
    Funding
   F-12




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
          2.8 
    Advertising costs
    2.9 
    Research and development
    2.10 
    Start-up
    costs
  Start-up start-up 6-months Start-up
  2.11 
    Income taxes
   F-13




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
      Accounting for Uncertainty in Income Taxes  an
    interpretation of FASB Statement No. 109 Accounting for Contingencies
    2.12 
    Earnings per share
    2.13 
    Cash and cash equivalents
    2.14  Restricted
    cash
   F-14




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
  2.15 
    Trade accounts receivable
    2.16 
    Inventories
      2.17 
    Goodwill
    2.18 
    Intangible assets
   F-15




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
    Technologies & licenses


3-7 yearsPurchased software


3-4 yearsInternally developed software


4 years       2.19 
    Property, plant and equipment
      Buildings


33 yearsFacilities & leasehold improvements


5-10 yearsMachinery and equipment


3-6 yearsComputer and R&D equipment


3-6 yearsOther


2-5 years          F-16




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
      2.20 
    Investments
      Consolidation of Variable
    Interest Entities, an Interpretation of ARB No. 51
   F-17




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
  2.21 
    Employee benefits
  (a)
    Pension
    obligations  Employers Accounting for Defined Benefit Pension and
    Other Postretirement Plans  an amendment of FASB
    Statements No. 87, 88, 106 and 132(R)
    (b)
    Other
    post-employment obligations    (c)
    Termination
    benefits   F-18




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
      (d)
    Profit-sharing
    and bonus plans    (e)
    Other
    long term employee benefits    (f)
    Share-based
    compensation  Stock
    options
  Accounting
    for Stock Issued to Employees
   F-19




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
  Accounting for Stock-Based
    Compensation
  Year EndedDecember 31,2005Net income (loss), as reported


266of which compensation expense on nonvested shares, net of tax
    effect


(7
)Deduct: Total stock-option employee compensation expense
    determined under FAS 123, net of related tax effects


(244
)Net income, pro forma


22Earnings (loss) per share:Basic, as reported


0.30Basic, pro forma


0.02Diluted, as reported


0.29Diluted, pro forma


0.02         Year EndedDecember 31,2005Expected life (years)


6.1Historical Company share price volatility


52.9
%Risk-free interest rate


3.84
%Dividend yield


0.69
%     Nonvested
    shares
    Share-Based Payment
 F-20




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
      2.22 
    Long-term debt
  (a)
    Convertible
    debt        (b)
    Bank
    loans and senior bonds      2.23 
    Share capital
      2.24 
    Comprehensive income (loss)
   F-21




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
  2.25 
    Provisions
    Guarantors Accounting and Disclosure Requirements for
    Guarantees, Including Indirect Guarantees of Indebtedness of
    Others, an interpretation of FASB Statements No. 5, 57 and
    107 and Rescission of FASB Interpretation No. 34
  2.26 
    Recent accounting pronouncements
  (a)
    Accounting
    pronouncements effective in 2007 and expected to impact the
    Companys operations  Accounting for Certain Hybrid Financial
    Instruments  an amendment of FASB Statements
    No. 133 and 140 Accounting for Derivative Instruments and
    Hedging Activities Accounting
    for Transfers and Servicing of Financial Assets and
    Extinguishments of Liabilities
  Accounting for Uncertainty in Income Taxes  an
    interpretation of FASB Statement No. 109 Accounting for Income
    Taxes
  (b)
    Accounting
    pronouncements effective in 2007 and not expected to impact the
    Companys operations  Accounting for Servicing of Financial Assets  an
    amendment of FASB Statement No. 140
 F-22




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
  (c)
    Accounting
    pronouncements expected to impact the Companys operations
    that are not yet effective and have not been early adopted by
    the Company  Fair Value Measurements
  The Fair Value Option for Financial Assets and Financial
    Liabilities- Including an amendment of FASB Statement
    No. 115
 F-23




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
    Business Combinations Noncontrolling
    Interests in Consolidated Financial Statements, an amendment of
    ARB No. 51
  (d)
    Accounting
    pronouncements that are not yet effective and are not expected
    to impact the Companys operations  No. 06-11, Accounting for Income Tax Benefits of Dividends on
    Share-Based Payment Awards (EITF 06-11). Share-Based Payment EITF 06-11 states
 F-24




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
  paid-in-capital. EITF 06-11 EITF 06-11 EITF 06-11
  No. 07-3, Accounting for Advance Payments for Goods or Services to Be
    Used in Future Research and Development Activities (EITF 07-3). EITF 07-3 EITF 07-3 states EITF 07-3 EITF 07-3 EITF 07-3 EITF 07-3
  No. 07-1, Accounting for Collaborative arrangements (EITF 07-1). , The Equity Method of Accounting
    for Investments in Common Stock EITF 07-1 EITF 07-1 EITF 07-1
  No. 07-6, Accounting for the Sale of Real Estate When the Agreement
    Includes a Buy-Sell Clause (EITF 07-6). Accounting for Sales of
    Real Estate EITF 07-6 EITF 07-6 EITF 07-6
  Written Loan Commitments Recorded
    at Fair Value Through Earnings Application
    of Accounting Principles to Loan Commitments
 F-25




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
    Year-End Help for Expensing
    Employee Stock Options
  3 
    BUSINESS COMBINATIONS
      4 
    EQUITY INVESTMENTS
  UPEK
    Inc.
     F-26




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
    Hynix ST
    Joint Venture
           F-27




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
  5 
    TRADE ACCOUNTS RECEIVABLE, NET
    December 31,


December 31,2007


2006Trade accounts receivable


1,626



1,620Less valuation allowance


(21
)


(31
)Total


1,605



1,589     6 
    INVENTORIES, NET
    December 31,


December 31,2007


2006Raw materials


72



80Work-in-process


808



1,032Finished products


474



527Total


1,354



1,639     7 
    ASSETS HELD FOR SALE
       F-28




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
        December 31,


December 31,2007


2006Inventories, net


329



Other intangible assets, net


12



Property, plant and equipment, net


394Long term deferred tax assets


6



Equity investment


276Total


1,017



   held-for-sale
  8 
    OTHER RECEIVABLES AND ASSETS
    December 31,


December 31,2007


2006Receivables from government agencies


143



122Taxes and other government receivables


258



194Advances to suppliers


5



5Advances to employees


9



13Advances to State and government agencies


9



12Insurance prepayments


5



4Rental prepayments


3



3License and technology agreement prepayments


17



7Other prepaid expenses


17



23Loans and deposits


15



15Accrued income


11



9Interest receivable


28



27Long-lived assets held for sale


8



4Foreign exchange forward contracts


1



14Sundry debtors within cooperation agreements


30



31Receivables for payments on behalf of Numonyx


26Purchased currency options


12



1Other current assets


15



14Total


612



498   held-for-sale Accounting for the impairment or
    disposal of long-term assets
 F-29




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
      9 
    GOODWILL
    ApplicationSpecific


MemoryProducts


Products


Other


TotalDecember 31, 2005


134



85



2



221Tioga goodwill impairment


(6
)










(6
)Foreign currency translation






8







8December 31, 2006


128



93



2



223Business Combination


58











58Foreign currency translation






9







9December 31, 2007


186



102



2



290         10 
    OTHER INTANGIBLE ASSETS
    Gross


Accumulated


NetDecember 31, 2007

Cost


Amortization


CostTechnologies & licences


431



(303
)


128Purchased software


230



(179
)


51Internally developed software


128



(69
)


59Total


789



(551
)


238   Gross


Accumulated


NetDecember 31, 2006

Cost


Amortization


CostTechnologies & licences


353



(258
)


95Purchased software


193



(149
)


44Internally developed software


134



(62
)


72Total


680



(469
)


211  F-30




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
            Year2008


902009


662010


392011


252012


14Thereafter


4Total


238   11 
    PROPERTY, PLANT AND EQUIPMENT
    Gross


Accumulated


NetDecember 31, 2007

Cost


Depreciation


CostLand


91







91Buildings


1,036



(344
)


692Capital leases


71



(49
)


22Facilities & leasehold improvements


3,205



(1,975
)


1,230Machinery and equipment


13,938



(11,183
)


2,755Computer and R&D equipment


554



(458
)


96Other tangible assets


185



(128
)


57Construction in progress


101







101Total


19,181



(14,137
)


5,044   F-31




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
  Gross


Accumulated


NetDecember 31, 2006

Cost


Depreciation


CostLand


91







91Buildings


1,208



(319
)


889Capital leases


61



(39
)


22Facilities & leasehold improvements


3,135



(1,668
)


1,467Machinery and equipment


14,463



(10,940
)


3,523Computer and R&D equipment


551



(441
)


110Other tangible assets


156



(118
)


38Construction in progress


286







286Total


19,951



(13,525
)


6,426           12 
    AVAILABLE-FOR-SALE
    FINANCIAL ASSETS
  available-for-sale
  available-for-sale
     F-32




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
    available-for-sale other-than-temporary Other-than-temporary and/or
  13 
    SHORT-TERM DEPOSITS
     F-33




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
  14 
    OTHER INVESTMENTS AND OTHER NON-CURRENT ASSETS
    December 31,


December 31,2007


2006Investments carried at cost


34



34Available-for-sale
    equity securities


5



5Long-term receivables related to funding


46



36Long-term receivables related to tax refund


34



33Debt issuance costs, net


11



12Cancellable swaps designated as fair value hedge


8



4Deposits and other non-current assets


44



25Total


182



149            F-34




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
  15 
    OTHER PAYABLES AND ACCRUED LIABILITIES
    December 31,


December 31,2007


2006Taxes other than income taxes


91



78Salaries and wages


300



308Social charges


143



124Advances received on government funding


28



28Advances from customers


10



10Foreign exchange forward contracts


1



1Current portion of provision for restructuring


43



28Pension and termination benefits


23



10Warranty and product guarantee provisions


4



6Accrued interest


6



4Royalties


20



8Other


75



59Total


744



664     16 
    POST-RETIREMENT AND OTHER LONG-TERM EMPLOYEES BENEFITS
    No. 88-1, (EITF 88-1).
      Pension Benefits


Other Long-Term BenefitsDecember 31,


December 31,


December 31,


December 31,2007


2006


2007


2006Change in benefit obligation:Benefit obligation at beginning of year


572



503



3



2Service cost


19



38



3



1Interest cost


28



25



2



 F-35




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
  Pension Benefits


Other Long-Term BenefitsDecember 31,


December 31,


December 31,


December 31,2007


2006


2007


2006Employee contributions


3



3







Benefits paid


(26
)


(41
)


(1
)


Effect of settlement


(1
)


(6
)






Effect of curtailment


(7
)










Actuarial gain


(41
)


(14
)


(4
)


Foreign currency translation adjustment


38



48



8



Plan amendment


2



16



31



Other


3







Benefit obligation at end of year


590



572



42



3Change in plan assets:Plan assets at fair value at beginning of year


241



194







Expected return on plan assets


15



13







Employer contributions


16



28







Employee contributions


2



3







Benefits paid


(9
)


(11
)






Settlement


(1
)


(6
)






Actuarial gain


7



2







Foreign currency translation adjustments


7



16







Other






2







Plan assets at fair value at end of year


278



241











Funded status


(312
)


(331
)


(42
)


(3
)Net amount recognized in the balance sheet consisted of the
    following:Non current assets


4



3







Current liabilities


(6
)






(13
)


(3
)Non Current liabilities


(310
)


(334
)


(29
)


Prepaid benefit cost














Accrued benefit liability














Intangible asset














Accumulated other comprehensive income














Net amount recognized


(312
)


(331
)


(42
)


(3
)     Before tax





Foreign


Net of taxamount as at





currency


amount as atDecember 31,


Tax (expense or


translation


December 31,2007


benefit)


adjustment


2007Net actuarial gain generated in current year


48



(9
)


(2
)


37Amortization of actuarial gain


(3
)










(3
)Effect of curtailment, net


6











6Net prior service cost arising during period


(2
)










(2
)Amortization of prior service cost


2











2Changes in Other comprehensive income


51



(9
)


(2
)


40  F-36




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
    Pension Benefits


Other Long-term BenefitsYear Ended


Year Ended


Year Ended


Year Ended


Year Ended


Year EndedDecember 31,


December 31,


December 31,


December 31,


December 31,


December 31,2007


2006


2005


2007


2006


2005Service cost


19



38



41



3



1



1Interest cost


28



25



24



2







Expected return on plan assets


(15
)


(13
)


(11
)










Amortization of unrecognized transition obligation






















Amortization of actuarial net loss (gain)


(3
)


4



3



(4
)






Amortization of prior service cost


2



(4
)






31







Effect of settlement






6















Effect of curtailment


(1
)


















Net periodic benefit cost


30



56



57



32



1



1     December 31,


December 31,


December 31,Assumptions

2007


2006


2005Discount rate


5.43
%


4.86
%


4.54
%Salary increase rate


3.24
%


2.95
%


3.75
%Expected long-term rate of return on funds for the pension
    expense of the year


6.34
%


6.05
%


6.34
%       Percentage of Plan Assets atTarget allocation


DecemberAsset Category

2007


2007


2006Equity securities


51
%


54
%


55
%Fixed income securities


30
%


27
%


33
%Real estate


9
%


9
%


4
%Other


10
%


10
%


8
%Total


100
%


100
%


100
%    F-37




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
      Years

Pension Benefits


Other Long-term Benefits2008


32



12009


9



22010


11



22011


12



22012


17



2From 2013 to 2017


111



18     17 
    LONG-TERM DEBT
    December 31,


December 31,2007


2006Bank loans:2.54% (weighted average), due 2007, fixed interest rate






655.68% (weighted average rate), due 2007, variable interest rate






305.21% due 2008, floating interest rate at Libor + 0.40%


43



495.51% due 2009, floating interest rate at Libor + 0.40%


50



35Funding program loans:1.44% (weighted average), due 2009, fixed interest rate


13



180.88% (weighted average), due 2010, fixed interest rate


38



452.74% (weighted average), due 2012, fixed interest rate


12



120.49% (weighted average), due 2014, fixed interest rate


9



83.33% (weighted average), due 2017, fixed interest rate


80



534.98% due 2014, floating interest rate at Libor + 0.017%


205



140Capital leases:4,97% (weighted average), due 2011, fixed interest rate


22



23Senior Bonds:5.35%, due 2013, floating interest rate at Euribor + 0.40%


736



659Convertible debt:(0.50)% convertible bonds due 2013


2



21.5% convertible bonds due 2016


1,010



991Total long-term debt


2,220



2,130Less current portion


(103
)


(136
)Total long-term debt, less current portion


2,117



1,994  F-38




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
    December 31,


December 31,2007


2006U.S. dollar


1,313



1,242Euro


907



818Singapore dollar






65Other






5Total


2,220



2,130     December 31,20072008


1032009


1142010


602011


1,0532012


41Thereafter


849Total


2,220      F-39




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
     Credit
    facilities
    18 
    SHAREHOLDERS EQUITY
  18.1 
    Outstanding shares
      18.2 
    Preference shares
      18.3 
    Treasury stock
   F-40




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
      18.4 
    Stock option plans
    1996-1998,
  1999-2001,
     F-41




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
    Price Per ShareWeightedNumber of Shares


Range


AverageOutstanding at December 31, 2004


65,424,207


$
12.03 - $62.01


$
29.18Options granted:2001 Plan


42,200


$
16.73 - $17.31


$
16.91Supervisory Board Plan










Options forfeited


(2,364,862
)

$
12.03 - $62.01


$
29.65Options exercised


(2,542,978
)

$
12.03 - $14.23


$
13.88Outstanding at December 31, 2005


60,558,567


$
12.03 - $62.01


$
29.80Options granted:2001 Plan










Supervisory Board Plan










Options expired


(16,832
)

$
12.03


$
12.03Options forfeited


(1,912,584
)

$
12.03 - $62.01


$
30.66Options exercised


(2,303,899
)

$
12.03 - $17.08


$
12.03Outstanding at December 31, 2006


56,325,252


$
12.03 - $62.01


$
30.50Options granted:2001 Plan










Supervisory Board Plan










Options expired


(7,566,170
)

$
24.88


$
24.88Options forfeited


(1,861,960
)

$
16.73 - $62.01


$
31.19Options exercised


(131,487
)

$
17.08 - $19.18


$
18.90Outstanding at December 31, 2007


46,765,635


$
16.73 - $62.01


$
31.42     December 31,


December 31,


December 31,2007


2006


2005Options exercisable


46,765,635



56,325,252



60,558,567Weighted average exercise price

$
31,42


$
30.50


$
29.80       WeightedWeighted


averageOption price


average


remainingNumber of shares

range


exercise price


contractual life149,191


$
16.73 - $17.31


$
17.06



6.821,094,641


$
19.18 - $24.88


$
21.03



5.8202,060


$
25.90 - $29.70


$
27.18



5.219,357,388


$
31.09 - $44.00


$
34.37



3.95,962,355


$
50.69 - $62.01


$
59.09



0.6   18.5 
    Employee share purchase plans
   F-42




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
  18.6 
    Share Awards Plans
             F-43




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
               F-44




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
    Nonvested Shares

Number of Shares


Exercise priceOutstanding as at December 31, 2005


3,965,220


$
0-1.04Awards granted:2005 Employee Plan


219,850


$
02006 Employee Plan


4,916,640


$
02006 Supervisory Board Plan


66,000



1.04Awards forfeited:2005 Employee Plan


(138,615
)

$
02006 Employee Plan


(118,430
)

$
02006 Supervisory Board Plan


(15,000
)


1.04Awards cancelled on failed vesting conditions:2005 Employee Plan


(1,364,902
)

$
0Awards vested:2005 Employee Plan


(637,109
)

$
02005 Supervisory Board Plan


(17,000
)


1.04Outstanding as at December 31, 2006


6,876,654


$
0-1.04Awards granted:2006 Employee Plan


215,000


$
02007 Employee Plan


5,776,290


$
02007 Supervisory Board Plan


165,000



1.04Awards forfeited:2005 Employee Plan


(42,619
)

$
02006 Employee Plan


(120,295
)

$
02007 Employee Plan


(73,490
)

$
02007 Supervisory Board Plan


(22,500
)


1.04Awards vested:2005 Employee Plan


(1,039,544
)

$
02005 Supervisory Board Plan


(17,000
)


1.042006 Employee Plan


(1,190,466
)

$
02006 Supervisory Board Plan


(17,000
)


1.04Outstanding as at December 31, 2007


10,510,030


$
0-1.04       2005Employee PlanHistorical share price volatility

27.74%Historical volatility of reference index

25.5%Three-year average dividend yield

0.55%Risk-free interest rates used

4.21%-4.33%  F-45




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
    Share-Based
    Payment
          December 31,


December 31,


December 31,2007


2006


2005Cost of sales


14



6



2Selling, general and administrative


37



14



6Research and development


22



8



3Total compensation


73



28



11      F-46




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
  18.7 
    Accumulated other comprehensive income (loss)
    Unrealized





MinimumForeign


gain (loss) on


Unrealized


pension


FAS 158


Accumulatedcurrency


available-for-sale


gain (loss) on


liability


adoption


othertranslation


financial assets,


derivatives,


adjustment,


adjustment,


comprehensiveincome (loss)


net of tax


net of tax


net of tax


net of tax


income (loss)Balance as of December 31, 2004


1,098



0



59



(41
)






1,116Other comprehensive income (loss)


(770
)






(72
)


7







(835
)Balance as of December 31, 2005


328



0



(13
)


(34
)






281Other comprehensive income (loss)


532







26



34



(57
)


535Balance as of December 31, 2006


860



0



13







(57
)


816Other comprehensive income (loss)


467



(2
)


(1
)






40



504Balance as of December 31, 2007


1,327



(2
)


12







(17
)


1,320   18.8 
    Dividends
    19 
    EARNINGS (LOSS) PER SHARE
    Year Ended


Year Ended


Year EndedDecember 31,


December 31,


December 31,2007


2006


2005Basic EPSNet income (loss)


(477
)


782



266Weighted average shares outstanding


898,731,154



896,136,969



892,760,520Basic EPS


(0.53
)


0.87



0.30Diluted EPSNet income (loss)


(477
)


782



266Convertible debt interest, net of tax






17



5Net income (loss) adjusted


(477
)


799



271Weighted average shares outstanding


898,731,154



896,136,969



892,760,520Dilutive effect of stock options






211,770



854,523Dilutive effect of nonvested shares






1,252,996



116,233Dilutive effect of convertible debt






60,941,995



41,880,104Number of shares used in calculating diluted EPS


898,731,154



958,543,730



935,611,380Diluted EPS


(0.53
)


0.83



0.29    F-47




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
    20 
    OTHER INCOME AND EXPENSES, NET
    Year Ended


Year Ended


Year EndedDecember 31,


December 31,


December 31,2007


2006


2005Research and development funding


97



54



76Start-up
    costs


(24
)


(57
)


(56
)Exchange gain (loss), net


1



(9
)


(16
)Patent litigation costs


(18
)


(22
)


(14
)Patent pre-litigation costs


(10
)


(7
)


(8
)Gain on sale of investment in Accent






6



Gain on sale of other non-current assets, net


2



2



12Other, net






(2
)


(3
)Total


48



(35
)


(9
)         21 
    IMPAIRMENT, RESTRUCTURING CHARGES AND OTHER RELATED CLOSURE
    COSTS
     F-48




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
  ramp-ups
            Total impairment,restructuringcharges and otherRestructuring


Other related


related closureYear ended December 31, 2007

Impairment


charges


closure costs


costs150mm fab plan






(2
)


(27
)


(29
)2005 restructuring initiatives






(6
)


(3
)


(9
)2007 restructuring plan


(11
)


(62
)






(73
)FMG deconsolidation


(1,107
)






(5
)


(1,112
)Other


(5
)










(5
)Total


(1,123
)


(70
)


(35
)


(1,228
)   F-49




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
  Total impairment,restructuringcharges and otherRestructuring


Other related


related closureYear ended December 31, 2006

Impairment


charges


closure costs


costs150mm fab plan


(1
)


(7
)


(14
)


(22
)2005 restructuring initiatives


(1
)


(36
)


(8
)


(45
)Other


(10
)










(10
)Total


(12
)


(43
)


(22
)


(77
)   Total impairment,restructuringcharges and otherRestructuring


Other related


related closureYear ended December 31, 2005

Impairment


charges


closure costs


costs150mm fab plan






(4
)


(9
)


(13
)2005 restructuring initiatives


(66
)


(46
)


(2
)


(114
)Other


(1
)










(1
)Total


(67
)


(50
)


(11
)


(128
)       
    $1,106 million impairment as a result of the signing of the
    definitive agreement for the FMG deconsolidation and upon
    meeting FAS 144 criteria for assets held for sale, to adjust the
    value of the to-be-contributed assets to fair value less costs
    to sell. Fair value less costs to sell was based on the net
    consideration provided for in the agreement and significant
    estimates. The final impairment charge could be different
    subject to further adjustments due to business and market
    evolution prior to the closing of the transaction;
    $1 million impairment charge on certain specific equipment
    that could not be transferred as part of FMG deconsolidation and
    for which no alternative future use could be found in the
    Company;
    $11 million impairment on certain tangible assets, mainly
    equipment, that the Company identified without alternative
    future use following its commitment to the closure of two
    front-end sites and one back-end site as part of the 2007
    restructuring plan;
    $2 million impairment on technologies without any
    alternative future use based on the Companys
    products roadmap;
    $3 million other-than-temporary impairment charge on a
    minority equity investment carried at cost. The impairment loss
    was based on the valuation for the underlying investment of a
    new round of third party financing    
    $6 million impairment of goodwill pursuant to the decision
    of the Company to cease product development from technologies
    inherited from Tioga business acquisition. The Company reports
    Tioga business as part of the Application Specific Product
    Groups (ASG) product segment. Following this
    decision, the Company recorded the full write-off of Tioga
    goodwill carrying amount.
    $4 million impairment on technologies purchased as part of
    Tioga business acquisition, which were determined to be without
    any alternative use;
    $1 million impairment on equipment and machinery pursuant
    to the decision of the Company to discontinue a production line
    in one of its back-end sites;
    $1 million impairment on equipment and machinery identified
    without any alternative use in one of the Companys
    European 150 mm sites. F-50




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
     
    $39 million impairment of goodwill pursuant to the decision
    of the Company to reduce its Access technology products for
    Customer Premises Equipment (CPE) modem products.
    The Company reports CPE business as part of the Access reporting
    unit, included in the Application Specific Products Group
    (ASG). Following the decision to discontinue a
    portion of this reporting unit, the Company, in compliance with
    FAS 142 reassessed the allocation of goodwill between the
    Access reporting unit and the business to be disposed of
    according to their relative fair values using market comparables;
    $22 million of purchased technologies were identified
    without any alternative use following the discontinuation of CPE
    product lines;
    $6 million for technologies and other intangible assets
    pursuant to the decision of the Company to close its research
    and development design centre in Karlsruhe (Germany), the
    discontinuation of a development project in Singapore, the
    optimization of its EWS (wafer testing) in the United States and
    other intangibles determined to be obsolete.        150mm fab plan





2005


2007





Total restructuringOther related





restructuring


restructuring


FMG


& other relatedRestructuring


closure costs


Total


initiatives


plan


disposal


closure costsProvision as at December 31, 2004


36



1



37











3



40Charges incurred in 2005


10



9



19



48











67Reversal of provision


(6
)






(6
)














(6
)Amounts paid


(23
)


(10
)


(33
)


(21
)






(2
)


(56
)Currency translation effect


(4
)






(4
)














(4
)Provision as at December 31, 2005


13







13



27







1



41Charges incurred in 2006


7



14



21



44











65Amounts paid


7



14



21



54







1



76Currency translation effect


1







1



1











2Provision as at December 31, 2006


14







14



18











32Charges incurred in 2007


4



27



31



9



62



5



107Reversal of provision


(2
)






(2
)














(2
)Amounts paid


(4
)


(27
)


(31
)


(19
)


(2
)


(3
)


(55
)Provision as at December 31, 2007


12







12



8



60



2



82  F-51




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
          2005
    restructuring initiatives:
        
    Pursuant to the decision of reducing its Access technology
    products for Customer Premises Equipment (CPE) modem
    products, the Company committed to an exit plan in Zaventem
    (Belgium) and recorded in 2005 $4 million of workforce
    termination benefits.
    In order to streamline its research and development sites, the
    Company decided to cease its activities in two locations,
    Karlsruhe (Germany) and Malvern (U.S.A.). The Company incurred
    in 2005 $1 million restructuring charges corresponding to
    employee termination costs and of $1 million of unused
    lease charges related to the closure of these two sites.
    In addition, charges totalling $2 million were paid in 2005
    by the Company for voluntary termination benefits for certain
    employees. The Company also incurred a $2 million charge in
    2005 related to additional restructuring initiatives, mainly in
    the United States and Mexico.
    The Company recorded a total restructuring charge amounting to
    $38 million related to termination incentives for two of
    the Companys subsidiaries in Europe, who accepted special
    termination arrangements.  2007
    restructuring plan:
    FMG
    disposal:
   F-52




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
            22 
    INTEREST INCOME (EXPENSE), NET
    Year Ended


Year Ended


Year EndedDecember 31,


December 31,


December 31,2007


2006


2005Income


156



143



53Expense


(73
)


(50
)


(19
)Total


83



93



34       23 
    INCOME TAX
    Year Ended


Year Ended


Year EndedDecember 31,


December 31,


December 31,2007


2006


2005Income (loss) recorded in The Netherlands


(54
)


(12
)


(60
)Income from foreign operations


(440
)


776



335Income before income tax expense


(494
)


764



275    F-53




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
    Year Ended


Year Ended


Year EndedDecember 31,


December 31,


December 31,2007


2006


2005The Netherlands taxes  current


(4
)


(7
)


(6
)Foreign taxes  current


(121
)


(47
)


(33
)Current taxes


(125
)


(54
)


(39
)Foreign deferred taxes


148



74



31Income tax benefit (expense)


23



20



(8
)     Year Ended


Year Ended


Year EndedDecember 31,


December 31,


December 31,2007


2006


2005Income tax expense computed at statutory rate


126



(226
)


(95
)Permanent and other differences


(20
)


(27
)


(26
)Valuation allowance adjustments


(1
)


(8
)


Impact of prior years adjustments


(17
)


63



28Effects of change in enacted tax rate on deferred taxes


(21
)






Current year credits


63



49



20Other tax and credits


(3
)


(1
)


(2
)Benefits from tax holidays


122



134



48Impact of FMG deconsolidation


(113
)






Earnings of subsidiaries taxed at different rates


(113
)


36



19Income tax benefit (expense)


23



20



(8
)          F-54




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
    December 31,


December 31,2007


2006Tax loss carryforwards and investment credits


213



159Inventory valuation


38



25Impairment and restructuring charges


76



18Fixed asset depreciation in arrears


61



81Receivables for government funding


169



116Tax allowances granted on past capital investments


1,054



975Pension service costs


24



29Commercial accruals


10



11Other temporary differences


67



52Total deferred tax assets


1,712



1,466Valuation allowances


(1,123
)


(1,039
)Deferred tax assets, net


589



427Accelerated fixed asset depreciation


(110
)


(118
)Acquired intangible assets


(11
)


(8
)Advances of government funding


(24
)


(25
)Other temporary differences


(27
)


(30
)Deferred tax liabilities


(172
)


(181
)Net deferred income tax asset


417



246     Year2007


12008


102009


92010


21Thereafter


172Total


213        F-55




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
      Balance at January 1, 2007

$
82Additions based on tax positions related to the current year


4Additions for tax positions of prior years


72Reductions for tax positions of prior years


(25
)Settlements


(6
)Reductions for lapse of statute of limitations


(28
)Balance at December 31, 2007

$
99         24 
    COMMITMENTS
    Total


2008


2009


2010


2011


2012


ThereafterIn million U.S.$Operating leases


300



57



41



30



25



18



129Purchase obligations


1,200



1,100



65



30



5of which:Equipment and other asset purchase


683



683Foundry purchase


266



266Software, technology licenses and design


251



151



65



30



5Other obligations


622



463



92



37



9



8



13Total


2,122



1,620



198



97



39



26



142    F-56




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
      300-mm
    Other
    commitments
    25 
    CONTINGENCIES
    26 
    CLAIMS AND LEGAL PROCEEDINGS
  and/or
   F-57




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
      27 
    FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
  27.1
    Financial risk factors
      Market
    risk
  Foreign
    exchange risk
     F-58




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
      Derivative
    Instruments Not Designated as a Hedge
          Derivative
    Instruments Designated as a Hedge
         F-59




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
      Cash
    flow and fair value interest rate risk
        Credit
    risk
  and/or
     F-60




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
  Liquidity
    risk
      27.2
    Capital risk management
      27.3 
    Fair value estimation
    2007


2006Carrying


Estimated


Carrying


EstimatedAmount


Fair Value


Amount


Fair ValueLong-term debt Bank loans (including current portion)


472



465



478



466 Senior Bonds


736



734



659



655 Convertible debt


1,012



965



993



1,010Marketable securities Floating-rate notes


1,014



1,014



460



460 Auction rate securities


369



369



304



304Other receivables and assets Foreign exchange forward contracts and currency
    options


13



13



14



14Other investments and other non current assets Cancellable swaps designated as fair value hedge


8



8



4



4 Equity securities classified as available-for-sale


5



5



5



5Other payables and accrued liabilities Foreign exchange forward contracts and currency
    options


1



1



1



1     Cash and
    cash equivalents, accounts receivable, bank overdrafts,
    short-term borrowings, and accounts payable
   F-61




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
  Marketable
    securities
      Long-term
    debt and current portion of long-term debt
  borrowing-by-borrowing
  Foreign
    exchange forward contracts and currency options
    Cancellable
    swaps
    Equity
    securities classified as available-for-sale
    28 
    RELATED PARTY TRANSACTIONS
    December 31,


December 31,


December 31,2007


2006


2005Sales & other services


272



118



158Research and development expenses


(68
)


(43
)


(48
)Other purchases


(85
)


(70
)


(16
)Other income and expenses


(11
)


(21
)


(12
)Accounts receivable


44



20



29Accounts payable


40



20



12Other assets


2







11      F-62




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
        29 
    SEGMENT INFORMATION
        
    Application Specific Product Groups (ASG) segment,
    comprised of three product lines  Home, Personal and
    Communication (HPC), Computer Peripherals
    (CPG) and new Automotive Product (APG);  
    Memory Products Group (MPG) segment; and
    Micro, Power, Analog (MPA) segment.    
    Application Specific Product Groups (ASG) segment;
    Industrial and Multisegment Sector (IMS)
    segment; and
    Flash Memory Group (FMG) segment.     F-63




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
    Disclosures about Segments of an Enterprise and
    Related Information
  start-up
  Net
    revenues by product segment
  December 31,


December 31,


December 31,2007


2006


2005In million of U.S dollarsNet revenues by product segment:Application Specific Product Groups segment


5,439



5,395



4,991Industrial and Multisegment Sector segment


3,138



2,842



2,482Flash Memory Group segment


1,364



1,570



1,351Others(1)


60



47



58Total consolidated net revenues


10,001



9,854



8,882     (1)
    
    Includes revenues from sales of
    subsystems and other products not allocated to product segments.  Operating
    income (loss) by product segment
  December 31,


December 31,


December 31,2007


2006


2005Application Specific Product Groups segment


303



439



355Industrial and Multisegment Sector segment


469



441



336Flash Memory Group segment


(51
)


(53
)


(199
)Total operating income of product groups


721



827



492Others(1)


(1,266
)


(150
)


(248
)Total consolidated operating income (loss)


(545
)


677



244     (1)
    
    Operating income (loss) of
    Others includes items such as impairment,
    restructuring charges and other related closure costs,
    start-up
    costs, and other unallocated expenses, such as: strategic or
    special research and development programs, certain
    corporate-level operating expenses, certain patent claims and
    litigations, and other costs that are not allocated to the
    product segments, as well as operating earnings or losses of the
    Subsystems and Other Products Group. F-64




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
     December 31,


December 31,


December 31,2007


2006


2005Total operating income of product groups


721



827



492Strategic R&D and other R&D programs


(20
)


(12
)


(28
)Start-up
    costs


(24
)


(57
)


(56
)Impairment & restructuring charges


(1,228
)


(77
)


(128
)Subsystems and Other Products Group


6



(1
)


1One-time compensation and special
    contributions(1)










(22
)Seniority awards


(21
)Other non-allocated
    provisions(2)


21



(3
)


(15
)Total operating loss
    Others(3)


(1,266
)


(150
)


(248
)Total consolidated operating income (loss)


(545
)


677



244     (1)
    
    One-time compensation and special
    contributions to the Companys former CEO and other
    executives were not allocated to product groups.(2)
    
    Includes unallocated expenses such
    as certain corporate level operating expenses and other costs. .(3)
    
    Operating income (loss) of
    Others includes items such as impairment,
    restructuring charges and other related closure costs,
    start-up
    costs, and other unallocated expenses, such as: strategic or
    special research and development programs, certain
    corporate-level operating expenses, certain patent claims and
    litigations, and other costs that are not allocated to the
    product groups, as well as operating earnings or losses of the
    Subsystems and Other Products Group. Certain costs, mainly
    R&D, formerly in the Others category, have been
    allocated to the groups since 2005; comparable amounts reported
    in this category have been reclassified accordingly in the above
    table.    Net
    revenues
  December 31,


December 31,


December 31,2007


2006


2005The Netherlands


3,123



3,114



2,864France


223



240



268Italy


220



230



203USA


1,027



1,030



1,066Singapore


4,795



4,698



4,041Japan


483



400



306Other countries


130



142



134Total


10,001



9,854



8,882  F-65




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in millions of U.S. dollars, except per share
    amounts)
  Long-lived
    assets
  December 31,


December 31,


December 31,2007


2006


2005The Netherlands


413



318



333France


1,906



1,781



1,618Italy


1,265



1,745



1,698Other European countries


193



204



176USA


393



470



458Singapore


735



1,642



1,684Malaysia


288



356



321Other countries


379



344



332Total


5,572



6,860



6,620  F-66




---



##### Table of Contents



STMICROELECTRONICS
    N.V.
    VALUATION AND QUALIFYING ACCOUNTS  Balance at





Charged to





Balance atbeginning


Translation


costs and





end ofValuation and qualifying accounts deducted from the related
    asset accounts

of period


adjustment


expenses


Deductions


period(Currency  millions of U.S. dollars)2007Inventories


47







72



(80
)


39Accounts Receivable


31







1



(11
)


21Deferred Tax Assets


1,039



6



79



(1
)


1,1232006Inventories


51







78



(82
)


47Accounts Receivable


27



1



7



(4
)


31Deferred Tax Assets


854



101



135



(51
)


1,0392005Inventories


47







73



(69
)


51Accounts Receivable


21



(1
)


10



(3
)


27Deferred Tax Assets


855



(110
)


109







854  S-1