As filed with the Securities and Exchange Commission on June 30, 1999

--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 20-F
    |_| REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
        SECURITIES EXCHANGE ACT OF 1934
                                     OR
    |X|     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
            ACT OF 1934
                For the fiscal year ended: December 31, 1998
                                     OR
    |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
        SECURITIES ACT OF 1934
                      For the transition period from          to

                         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 incorporation
            name into English)                        or organization)

   Technoparc du Pays de Gex -- B.P. 112               Route de Pre-Bois
         165, rue Edouard Branly                           ICC Bloc A
        01637 Saint Genis Pouilly                        1215 Geneva 15
                  France                                   Switzerland
                   (Addresses of principal executive offices)

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

                                                        Name of each exchange on
             Title of each class:                           which registered:
  Common Shares, nominal value Euro 3.12 per share       New York Stock Exchange
  Liquid Yield OptionTM Notes due June 10, 2008          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

  Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report:

                            142,478,106 Common Shares

    Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                  Yes |X| No __

    Indicate by check mark which financial statement item the registrant has
elected to follow:

                              Item 17 __ Item 18 |X|


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<PAGE>



                                TABLE OF CONTENTS

                                     PART I


Cautionary Statement Regarding Forward-Looking Statements..................... 3

Presentation of Financial Information......................................... 3
Item 1.   Description of Business............................................. 4
Item 2.   Description of Property.............................................31
Item 3.   Legal Proceedings...................................................34
Item 4.   Control of Registrant...............................................36
Item 5.   Nature of Trading Market............................................40
Item 6.   Exchange Controls and Other Limitations Affecting Security Holders..44
Item 7.   Taxation............................................................44
Item 8.   Selected Consolidated Financial Data................................48
Item 9.   Management's Discussion and Analysis of Financial Condition and
            Results of Operations.............................................48
Item 9A.  Quantitative and Qualitative Disclosures About Market Risk..........48
Item 10.  Directors and Officers of Registrant................................51
Item 11.  Compensation of Directors and Officers..............................59
Item 12.  Options to Purchase Securities from Registrant or Subsidiaries......60
Item 13.  Interest of Management in Certain Transactions......................61

                                     PART II


Item 14.  Description of Securities to be Registered *........................62

                                    PART III


Item 15.  Defaults Upon Senior Securities *...................................62
Item 16.  Changes in Securities and Changes in Security for
            Registered Securities *

                                     PART IV


Item 17.  Financial Statements *..............................................62
Item 18.  Financial Statements................................................62
Item 19.  Financial Statements and Exhibits...................................62

Certain Terms ................................................................64


*   Omitted because item is not applicable.




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            CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

       Certain of the statements contained in this annual report that are not
historical facts, including without limitation, certain statements made in the
sections hereof entitled "Item 1: Description of Business" and "Item 9:
Management's Discussion and Analysis of Financial Condition and Results of
Operations," are statements of future expectations and other forward-looking
statements (within the meaning of Section 27A of the Securities Act of 1933, as
amended) that are based on management's current views and assumptions and
involve known and unknown risks and uncertainties that could cause actual
results, performance or events to differ materially from those in such
statements due to, among other factors, (i) the highly cyclical nature of the
semiconductor industry, (ii) competition, (iii) increased industry capacity,
(iv) variability of operating results, (v) capital requirements, (vi) new
product developments and technological change, (vii) manufacturing risks, (viii)
the loss of key personnel, (ix) economic downturn in any of our major markets,
(x) possible acquisitions, (xi) control of the Company and potential conflicts
of interest, (xii) key customers and strategic relationships, (xiii)
intellectual property issues, (xiv) certain legal proceedings, (xv) the
uncertainties of state support for research and development and other funding,
(xvi) international operations, (xvii) currency fluctuations, (xviii) dependence
on certain sources of supply, (xix) environmental regulations and (xx) year 2000
compliance. See "Risk Factors" included in the Company's Prospectuses dated June
5, 1998.


                 PRESENTATION OF FINANCIAL AND OTHER INFORMATION

       References in this annual report to published industry data are
references to data published by Dataquest, Inc. ("Dataquest") and references to
trade association data are references to World Semiconductor Trade Statistics
("WSTS"). Except as otherwise disclosed herein, all references to the Company's
market positions in this annual report are based on 1998 revenues according to
published industry data. Certain terms used in this annual report are defined in
"Certain Terms."

       In this annual report, references to the "EU" are to the European Union,
references to the "Euro" and the "euro" are to the euro currency of the EU,
references to the "United States" are to the United States of America and
references to "$" or to "U.S. dollars" are to United States dollars.






                                        3

<PAGE>



                                     PART I

                         Item 1: Description of Business

The Company

       STMicroelectronics N.V. (the "Company") is a global independent limited
liability semiconductor company that designs, develops, manufactures and markets
a broad range of semiconductor integrated circuits and discrete devices used in
a wide variety of microelectronic applications, including automotive products,
computer peripherals, telecommunications systems, consumer products, industrial
automation and control systems. According to published industry data, in 1998
STMicroelectronics ranked ninth among worldwide suppliers of semiconductor
devices. On the basis of 1998 revenues, STMicroelectronics was the world's
leading supplier of MPEG 2 decoder ICs, smartcard MCUs, special automotive ICs
and EPROM memories, the second leading supplier of EEPROM memories and the third
leading supplier of analog monolithic and mixed-signal ICs and EEPROM memories.
The Company currently offers more than 3,000 main types of products to
approximately 800 direct customers. Major customers include Alcatel, Bosch,
Chrysler, Ericsson, Ford, Gemplus, Hewlett-Packard, IBM, Matsushita, Motorola,
Nokia, Nortel Networks, Philips, Pioneer, Samsung, Schlumberger, Seagate
Technology, Siemens, Sony, Thomson Multimedia and Western Digital. The Company
also sells its products through distributors.

       The Company offers a diversified product portfolio and develops products
for a wide range of market applications to reduce its dependence on any single
product, industry or application market. Within its diversified portfolio, the
Company has focused on developing products that exploit its technological
strengths in creating customized, system-level solutions with substantial analog
and mixed-signal content. Products include differentiated ICs (which the Company
defines as being its dedicated products, semicustom devices and
microcontrollers) and analog ICs (including mixed-signal ICs), the majority of
which are also differentiated ICs. As a leading provider of differentiated ICs,
the Company has developed close relationships with customers, resulting in early
knowledge of their evolving requirements and opportunities to access their
markets for other products. Differentiated ICs, which are less vulnerable to
competitive pressures than standard commodity products, accounted for
approximately 62% of the Company's net revenues in 1998 compared to
approximately 57% in 1997. The Company also targets applications that require
substantial analog and mixed-signal content and can exploit the Company's system
level expertise. Analog ICs accounted for approximately 51% of the Company's
1998 net revenues compared to approximately 49% in 1997, while discrete devices
accounted for approximately 13% of the Company's net revenues in 1998 compared
to approximately 14% in 1997. In recent years differentiated ICs, in particular
analog ICs, have experienced less volatility in sales growth rates and average
selling prices than the overall semiconductor industry.

       STMicroelectronics' products are manufactured and designed using a broad
range of manufacturing processes and proprietary design methods.
STMicroelectronics uses all of the prevalent function-oriented process
technologies, including CMOS, bipolar and nonvolatile memory technologies. In
addition, by combining basic processes, the Company has developed advanced
systems-oriented technologies that enable it to produce differentiated and
application- specific products, including BiCMOS technologies (bipolar and CMOS)
for mixed-signal applications, BCD technologies (bipolar, CMOS and DMOS) for
intelligent power applications and embedded memory technologies. This broad
technology portfolio, a cornerstone of the Company's strategy for many years,
enables the Company to meet the increasing demand for "system-on-a-chip"
solutions. To complement this depth and diversity of process and design
technology, the Company also possesses a broad intellectual property portfolio
that it has used to enter into cross-licensing agreements with many major
semiconductor manufacturers.

       In September 1997, STMicroelectronics was awarded the 1997 European
Quality Award for Business Excellence in the category of large businesses by the
European Foundation for Quality Management (the "EFQM"). In presenting
STMicroelectronics with the award, the EFQM committee cited the Company's
commitment to the principles


                                        4

<PAGE>



of Total Quality Management ("TQM") in its business practices. TQM defines a
common set of objectives and performance measurements for employees in all
geographic regions, at every stage of product design development and production
for all product lines. See "Item 2: Description of Property--Manufacturing."

       The Company introduced in 1998 several new products and plans to further
develop and produce superintegrated, system-level silicon solutions for a set of
targeted applications such as computer peripherals (including hard disk drives,
inkjet printers and monitors), digital consumer devices (including set-top
boxes, DVDs and digital television), wireless telecommunications products
(digital cellular handsets, digital cordless and pagers), digital networks
(ADSL, already in high volume production, and ATM, currently under development)
as well as automotive electronics (including injection control, safety, and car
multimedia navigation).

       In addition to the many dedicated and semicustom ICs developed using
power analog, digital and mixed signal technologies, the Company has focused its
research and manufacturing efforts on developing an advanced range of the key
technological building blocks required by the targeted applications. These
building blocks include (i) MPEG 2 ICs, (ii) a family of 16 bit (ST10) and 32
bit (ST20) microcontrollers, (iii) a family of DSP cores for embedded
applications based on the current D950 solution and the ST100 (currently under
development), (iv) microprocessor architecture (x86 equivalent) aimed at
integrated applications and (v) the ability to integrate nonvolatile memory
(particularly EEPROM and flash) functionality.

       Applying its broad range of technologies and its expertise in diverse
application domains, the Company is currently embedding dedicated, semicustom
circuits and these advanced building blocks on the same chip. Superintegrated
products developed to date include the STi5500 Omega chip (a platform for
digital consumer applications such as set-top boxes), which has achieved
significant design wins.

       At the beginning of 1999, the Company implemented organizational changes
to better orient its product groups to end use applications. As a result, the
former Dedicated Products Group ("DPG") has become the Telecommunications,
Peripherals and Automotive Groups ("TPA"), while the former Programmable
Products Group has become the Consumer and Microcontroller Groups ("CMG").
Consequently, the Company's products are now organized into the following
principal groups:

       o      Telecommunications, Peripherals and Automotive,
       o      Consumer and Microcontroller,
       o      Memory Products,
       o      Discrete and Standard ICs.

       As part of its activities outside the above principal product groups, the
Company also has a New Ventures Group, which identifies and develops new
business opportunities to complement the Company's existing businesses, and a
Subsystems Product Group, which produces subsystems for industrial and other
applications.

      The Telecommunications, Peripherals and Automotive Groups (formerly the
Dedicated Products Group) produce application-specific semiconductor products
using advanced bipolar, CMOS, BiCMOS, mixed-signal and power technologies. The
Groups' products are used in all major end-user applications, including emerging
applications such as mobile communications networks, asynchronous transfer mode
communications systems, global positioning systems, flat panel displays, hard
disk drives and printers. The breadth of the Groups' customer and application
base provides it with a source of stability in the cyclical semiconductor
market, while their position as a strategic supplier of application-specific
products provides it with opportunities to supply customers' requirements for
other products, including discrete devices, microcontrollers and memories.




                                        5

<PAGE>



      The Consumer and Microcontroller Groups (formerly the Programmable
Products Group) produce microcontrollers, graphic controllers and MPEG decoder
ICs and image processing semicustom devices for digital set-top boxes, DVDs,
digital cameras, TVs, monitors and other products particularly targeted at high
growth digital applications.

      The Memory Products Group produces a broad range of memory products,
including EPROMs, chips for smartcards, EEPROMs, flash memories and specialty
nonvolatile SRAMs. According to published industry data, the Company was the
leading supplier of EPROMs in 1998, accounting for approximately 38% of
worldwide EPROM sales, as well as the leading supplier of microcontroller-based
smartcard ICs and the second leading supplier of EEPROMs. The Company has
developed proprietary know-how for flash memory devices and has started mass
production for this market. The Group does not produce DRAMs, a commodity memory
product.

      The Discrete and Standard ICs Group produces discrete power devices, power
transistors, standard linear and logic ICs and radio frequency ("RF") products.
The Group's discrete and standard products are manufactured using mature
technological processes that are less capital intensive than the Company's other
principal products. The Group has a diverse customer base and broad product
portfolio.

      One of the significant new product introductions of 1998 by the New
Ventures Group was the STPC Industrial, a superintegrated PC-on-a-chip that
offers full PC functionality for applications such as information kiosks,
point-of-sale terminals, Internet-surfing boxes, security access systems and
industrial PCs.

      The Company has substantially increased its front-end manufacturing
capacity in recent years through the addition of new 8-inch submicron
fabrication plants designed to meet the growing demand for its products. Volume
production of 8-inch wafers is now underway in Crolles, France which is already
operating at close to full capacity, and production is ramping up in Phoenix,
Arizona and Catania, Italy. The buildings for new 8-inch submicron fabrication
plants have been completed at existing sites in Rousset (France) and Agrate
(Italy) and construction of a new submicron facility is underway in Singapore.
An additional 8-inch submicron fabrication plant in Italy is planned to become
operational by the year 2001. The Company has decided to build a new 300
millimeter, 12-inch wafer research fabrication and pilot line at Crolles
(France) using 0.18 micron and below process technology. The pilot line will be
operated in partnership with LETI and CNET, which are already working with the
Company in Crolles. The Company has also announced plans for a new center for
advanced research and development and industrialization in the field of
nonvolatile memories in Agrate (Italy) to target 0.13 micron CMOS technology
generation by 2003.

      STMicroelectronics is international in scope. The Company operates
front-end and/or back-end manufacturing facilities in Europe, the United States,
the Mediterranean and Asia Pacific regions, and conducts research and
development primarily in France and Italy and design, marketing and sales
activities in each of the electronics industry's major economic regions: Europe,
the United States, the Asia Pacific region and Japan. In 1998, approximately
41.6% of the Company's net revenues originated in Europe (compared to 43.6% in
1997), approximately 22.1% in the Americas (compared to 22.4% in 1997),
approximately 29.4% in the Asia Pacific region (compared to 26.5% in 1997),
approximately 4.3% in Japan (compared to 5.3% in 1997) and approximately 2.6% in
Region Five (including emerging markets such as South America, Africa, Eastern
Europe and the Middle East) (compared to 2.2% in 1997). See "--Sales,
Marketing and Distribution." In 1998, more than 30% of the 6-inch equivalent
wafers manufactured by the Company were manufactured outside Europe and
approximately 56% of the Company's employees were located outside Europe.

      STMicroelectronics believes that strategic alliances are critical to
success in the semiconductor industry, and has entered into strategic alliances
with customers, other semiconductor manufacturers and major suppliers of design
software. The Company has entered into several strategic customer alliances,
including alliances with Alcatel, Bosch, Daewoo Electronics, Hewlett-Packard,
Marelli, Nokia, Nortel Networks, Pioneer, Seagate Technology, Thomson Multimedia
and Western Digital, among others. Customer alliances provide the Company with
valuable systems and


                                        6

<PAGE>



application know-how and access to markets for key products, while allowing the
Company's customers to share some of the risks of product development with the
Company and gain access to the Company's process technologies and manufacturing
infrastructure. Alliances with other semiconductor manufacturers, such as the
cooperation with Philips Semiconductors in Crolles, France, for the development
of advanced CMOS logic manufacturing processes, the agreement with Mitsubishi
for CMOS flash memory processes using 0.20 through 0.18 micron and the agreement
with Hitachi on SuperH microprocessors, permit costly research and development
and manufacturing resources to be shared to mutual advantage for joint
technology development. Other agreements include the cooperation with Nortel
Networks for the development of 0.5/0.35 micron BiCMOS technology. The Company
has established joint development programs with leading suppliers such as Air
Liquide, Applied Materials, ASM Lithography, Canon, Hewlett-Packard, KLA-
Tencor, LAM, MEMC, Schlumberger, Teradyne and Wacker and with CAD tool producers
including Cadence and Synopsys. It is a participant in Sematech I 300I for the
development of 300 millimeter wafer manufacturing processes. STMicroelectronics
is active in joint European research efforts such as the new MEDEA program
(which succeeded JESSI in 1997), and also cooperates with major research
institutions and universities.

      In March 1998, STMicroelectronics with its partners Philips Semiconductors
and CNET completed the first phase of the development of HCMOS-8, the next
generation CMOS process, at Crolles, France. This process is targeted at
high-performance and low-power applications and will have a 0.15 micron
effective gate length (equivalent to 0.18 micron drawn). Prototyping in this
process began in the second half of 1998. At the same time, STMicroelectronics
has started production of its 0.20 micron effective gate length (0.25 micron
drawn) CMOS technology, known as HCMOS- 7. This process is used to produce
"system-on-chip" products incorporating tens of millions of transistors combined
with embedded memory for telecom, digital consumer and PC applications.

Industry Background

      Semiconductors are the basic building blocks used to create an increasing
variety of electronic products and systems. Since the invention of the
transistor in 1948, continuous improvements in semiconductor process and design
technologies have led to smaller, more complex and more reliable devices at a
lower cost per function. As performance has increased and size and cost have
decreased, semiconductors have expanded beyond their original primary
applications (military applications and computer systems), to applications such
as telecommunications systems, automotive products, consumer goods and
industrial automation and control systems. In addition, system users and
designers have demanded systems with more functionality, higher levels of
performance, greater reliability and shorter design cycle times, all in smaller
packages at lower costs. These demands have resulted in increased semiconductor
content as a percentage of system cost. Calculated on the basis of the total
available market (the "TAM"), which includes all semiconductor products, as a
percentage of worldwide revenues from production of electronic equipment
according to published industry data, semiconductor pervasiveness has increased
from approximately 9% in 1991 to approximately 13% in 1998. The demand for
electronic systems has also expanded geographically with the emergence of new
markets, particularly in the Asia Pacific region.

      Semiconductor sales have increased significantly over the long term but
have experienced significant cyclical variations in growth rates. According to
trade association data the TAM increased from $17.8 billion in 1983 to $125.6
billion in 1998 (growing at a compound annual rate of approximately 14%). At the
same time the serviceable available market (the "SAM"), which prior to 1995
consisted of the TAM without DRAMS, microprocessors and opto-electronic products
and commencing in 1995 and for all subsequent periods presented, includes
microprocessors as a result of the Company's production of x86 products,
increased from approximately $15.0 billion in 1983 to $107.0 billion in 1998
(growing at a compound annual rate of approximately 14%). In 1998, the TAM
decreased by 8.4 %. Based on trade association data for the first quarter of
1999, the TAM increased in the first quarter of 1999 by 6.8% compared to the
first quarter of 1998. The SAM decreased 5.2% in 1998 compared to 1997; however,
based on trade association data for the first quarter of 1999, the SAM increased
by 3.5% compared to the first quarter of 1998. In 1998, approximately


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<PAGE>



33% of all semiconductors were shipped to the Americas, 21% to Japan, 23% to
Europe, and 23% to the Asia Pacific region.

      Although cyclical changes in production capacity in the semiconductor
industry and demand for electronic systems have resulted in pronounced cyclical
changes in the level of semiconductor sales and fluctuations in prices and
margins for semiconductor products from time to time, the semiconductor industry
has experienced substantial growth over the long term. Factors that are
contributing to long-term growth include the development of new semiconductor
applications, increased semiconductor content as a percentage of total system
cost, emerging strategic partnerships and growth in the electronic systems
industry in the Asia Pacific region.

      Semiconductor Classifications

      The process technologies, levels of integration, design specificity,
functional technologies and applications for different semiconductor products
vary significantly. As differences in these characteristics have increased, the
semiconductor market has become highly diversified as well as subject to
constant and rapid change. Semiconductor product markets may be classified
according to each of these characteristics.

      Semiconductors can be manufactured using different process technologies,
each of which is particularly suited to different applications. Since the
mid-1970s, the two dominant processes have been bipolar (the original technology
used to produce integrated circuits) and CMOS (complementary
metal-oxide-silicon). Bipolar devices typically operate at higher speeds than
CMOS devices, but CMOS devices consume less power and permit more transistors to
be integrated on a single IC. While bipolar semiconductors were once used
extensively in large computer systems, CMOS has become the prevalent technology,
particularly for devices used in personal computer systems. In connection with
the development of new semiconductor applications and the demands of system
designers for more integrated semiconductors, advanced technologies have been
developed during the last decade that are particularly suited to more
systems-oriented semiconductor applications. For mixed-signal applications,
BiCMOS technologies have been developed to combine the high speed and high
voltage characteristics of bipolar technologies with the low power consumption
and high integration of CMOS technologies. For intelligent power applications,
BCD technologies have been developed that combine bipolar, CMOS and DMOS
technologies. Such systems-oriented technologies require more process steps and
mask levels, and are more complex than the basic function-oriented technologies.
The use of systems- oriented technologies requires knowledge of system design
and performance characteristics (in particular, analog and mixed-signal systems
and power systems) as well as expertise and experience with several
semiconductor process technologies.

      Semiconductors are often classified as either discrete devices (such as
individual diodes, thyristors, transistors as well as opto-electronic products)
or integrated circuits (in which thousands of functions are combined on a single
"chip" of silicon to form a more complex circuit). Compared to the market for
ICs, there is typically less differentiation among discrete products supplied by
different semiconductor manufacturers. Also, discrete markets have generally
grown at slower, but more stable, rates than IC markets.

      Semiconductors may also be classified as either standard components or
application-specific ICs ("ASICs"). Standard components are used by a large
group of systems designers for a broad range of applications, while ASICs are
designed to perform specific functions in specific applications. Generally,
there are three types of ASICs: full-custom devices, semicustom devices and
application-specific standard products ("ASSPs"). Full custom devices are
typically designed to meet the particular requirements of one specific customer.
Semicustom devices are more standardized ICs that can be customized with
efficient CAD tools within a short design cycle time to perform specific
functions. ASSPs are standardized ASICs that are designed to perform specific
functions in a specific application, but are not proprietary to a single
customer.



                                        8

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      The two basic functional technologies for semiconductor products are
analog and digital. Analog (or linear) devices monitor, condition, amplify or
transform analog signals, which are signals that vary continuously over a wide
range of values. Analog circuits are critical as an interface between electronic
systems and a variety of real world phenomena such as sound, light, temperature,
pressure, weight or speed. Electronics systems continuously translate analog
signals into digital data, and vice versa.

      The analog semiconductor market consists of a large and growing group of
specific markets that serve numerous and widely differing applications,
including applications for automotive systems, instrumentation, computer
peripheral equipment, industrial controls, communications devices, video
products and medical systems. Because of the varied applications for analog
circuits, manufacturers typically offer a greater variety of devices to a more
diverse group of customers. Compared to the market for commodity digital devices
such as standard memory and logic devices, the analog market is characterized by
longer product life cycles, products that are less vulnerable to technological
obsolescence, and lower capital requirements due to the use of mature
manufacturing technologies. Such characteristics have resulted in growth rates
that have been less volatile than growth rates for the overall semiconductor
industry.

      Digital devices perform binary arithmetic functions on data represented by
a series of on/off states. Historically, the digital IC market has been
primarily focused on the fast growing markets for computing and information
technology systems. Increasing demands for high-throughput computing and
networking and the proliferation of more powerful personal computers and
workstations in recent years have led to dramatic increases in digital device
density and integration. As a result, significant advances in electronic system
integration have occurred in the design and manufacture of digital devices.

      There are two major types of digital ICs: memory products and logic
devices. Memory products, which are used in electronic systems to store data and
program instructions, are generally classified as either volatile memories
(which lose their data content when power supplies are switched off) or
nonvolatile memories (which retain their data content without the need for
constant power supply). Volatile memories are used to store data in virtually
all computer systems, from large and mid-range computers to personal computers
and workstations. Memory products are typically standard, general purpose ICs
that can be manufactured in high volumes using basic CMOS processes, and they
are generally differentiated by cost and physical and performance
characteristics, including data capacity, die size, power consumption and access
speed.

      The primary volatile memory devices are DRAMs, which accounted for 60.9%
of semiconductor memory sales in 1998, and SRAMs (static RAMs). DRAMs are
volatile memories that lose their data content when power supplies are switched
off, whereas SRAMs are volatile memories that allow the storage of data in the
memory array but without the need for clock or refresh logic circuitry. SRAMs
are roughly four times as complex as DRAMs (four transistors per bit of memory
compared to one transistor) and are significantly more expensive than DRAMs per
unit of storage. DRAMs are used in a computer's main memory to temporarily store
data retrieved from low cost external mass memory devices such as hard disk
drives. SRAMs are principally used as caches and buffers between a computer's
microprocessor and its DRAM-based main memory.

      Nonvolatile memories are typically used to store program instructions that
control the operation of microprocessors and electronic systems. Among such
nonvolatile memories, read-only memories ("ROMs") are permanently programmed
when they are manufactured while programmable ROMs (PROMs) can be programmed by
system designers or end-users after they are manufactured. Erasable PROMs
(EPROMs) may be erased and reprogrammed several times, but to do so EPROMs must
be physically removed from electronic systems, exposed to ultraviolet light,
reprogrammed using an external power supply and then returned to the systems.
Electrically erasable PROMs (EEPROMs) can be erased byte by byte and
reprogrammed "in-system" without the need for removal. Using EEPROMs, a system
designer or user can program or reprogram systems at any time. "Flash" memories
are products


                                        9

<PAGE>



that represent an intermediate solution for system designers between EPROMs and
EEPROMs based on their cost and functionality.

      Flash memories are typically less expensive than EEPROMs, but can also be
erased and rewritten. The entire contents of a flash memory or large blocks of
data (not individual bytes) can be erased with a "flash" of current. Because
flash memories can be erased and reprogrammed electrically and in-system, they
are more flexible than EPROMs and, therefore, may replace EPROMs in many of
their current applications. Flash memories may also be used for solid state mass
storage of data, a potentially high volume application, and in other
applications including, in particular, mobile telephone systems.

      Logic devices process digital data to control the operation of electronic
systems. The largest segment of the logic market, standard logic devices,
includes microprocessors, microcontrollers and digital signal processors.
Microprocessors are the central processing units of computer systems.
Microcontrollers are complete computer systems contained on single integrated
circuits that are programmed to specific customer requirements. They contain
microprocessor cores as well as logic circuitry and memory capacity.
Microcontrollers control the operation of electronic and electromechanical
systems by processing input data from electronic sensors and generating
electronic control signals, and are used in a wide variety of consumer products
(alarm systems, household appliance controls and video products), automotive
systems (engine control and dashboard instrumentation), computer peripheral
equipment (disk drives, facsimile machines, printers and optical scanners),
industrial applications (motor drives and process controllers), and
telecommunications systems (telephones, answering machines and digital cellular
phones). Digital signal processors ("DSPs") are parallel processors used for
high complexity, high speed real-time computations in a wide variety of
applications, including answering machines, modems, digital cellular telephone
systems, audio processors and data compression systems. Standard devices are
intended to be utilized by a large group of systems designers for a broad range
of applications. Consequently, standard devices usually contain more functions
than are actually required and, therefore, may not be cost-effective for certain
specific applications. In addition to standard logic devices, a broad range of
full-custom, semicustom and ASSP logic devices has been developed for a wide
variety of applications. These devices are typically designed to meet particular
customer requirements. Compared to memory markets, logic device markets are much
more differentiated and dependent upon intellectual property and advanced
product design skills.

      Analog/digital (or "mixed-signal") ICs combine analog and digital devices
on a single chip to process both analog signals and digital data. Historically,
analog and digital devices have been developed separately as they are
fundamentally different and it has been technically difficult to combine analog
and digital devices on a single IC. System manufacturers have generally
addressed mixed-signal requirements using printed circuit boards containing many
separate analog and digital circuits acquired from multiple suppliers. However,
system designers are increasingly demanding system level integration in which
complete electronic systems containing both analog and digital functions are
integrated on a single IC.

      Mixed-signal ICs are typically characterized as analog ICs due to their
similar market characteristics, including longer product life cycles, diverse
applications and customers and more stable growth through economic cycles as
compared to digital devices. However, certain parts of the mixed-signal market
are becoming higher volume markets as the increasing use of mixed-signal devices
has enhanced the options of system designers and contributed to the development
of new applications, including multimedia, video conferencing, automotive, mass
storage and personal communications.



                                       10

<PAGE>



The Semiconductor Market

      The following table sets forth information with respect to worldwide
semiconductor sales by type of semiconductor and geographic region:

<TABLE>
<CAPTION>

                              Worldwide Semiconductor Sales(1)           Compound Annual Growth Rates(2)
                       ------------------------------------------     --------------------------------------
                       1983   1988   1993   1996    1997     1998     83-88   88-93    93-95   97-98   93-98
                       ----   ----   ----   ----    ----     ----     -----   -----    -----   -----   -----
                                        (in billions $)                      (expressed as percentages)
                                        ---------------                      --------------------------
<S>                   <C>    <C>    <C>    <C>     <C>      <C>       <C>     <C>      <C>     <C>     <C>
Integrated Circuits.  $13.3  $35.9  $66.0  $114.9  $119.5   $109.1    22.0%   13.0%    38.2%   (8.8)%  10.6%

 Analog (linear and
    mixed-signal)...    2.8    7.2   10.7    17.0    19.7     19.1    20.8     8.2     24.6    (3.4)   12.3
 Digital Logic......    6.7   17.8   34.1    61.9    70.4     67.0    21.6    13.9     28.1    (4.9)   14.5
    Memory:
      DRAM..........    1.7    6.3   13.1    25.1    19.7     14.0    30.0    15.8     76.5   (29.2)    1.3
      Others........    2.0    4.6    8.1    10.9     9.6      9.0    18.1    12.0     24.7    (5.8)    2.0
                      -----  -----  -----  ------  ------      ---   -----   -----   ------   ------  -----
    Total Memory....    3.7   10.9   21.2    36.0    29.3     23.0    24.1    14.2     58.7   (21.6)    1.6
Total digital.......   10.4   28.7   55.3    97.9    99.6     90.0    22.5    14.0     40.7    (9.8)   10.2
Discrete.............   3.7    7.0    8.6    12.9    13.1     11.9    13.6     4.2     27.6    (9.4)    6.7
Opto-electronics....    0.7    2.1    2.6     4.1     4.5      4.6    24.6     4.4     28.6     2.5    11.7
                      -----  -----  -----  ------  ------   ------   -----   -----   ------   ------  -----
    TAM.............   17.8   45.0   77.3   132.0   137.2    125.6    20.4    11.4     36.7    (8.4)   10.2
                      =====  =====  =====  ======  ======   ======   =====   =====   ======   ======  =====
Europe...............   3.3    8.1   14.6    27.6    29.1     29.4    19.7    12.5     39.0     1.1    15.0
Americas............    7.8   13.4   24.7    42.7    45.9     41.4    11.4    13.0     37.9    (9.6)   10.9
Asia Pacific........    1.2    5.4   14.2    27.5    30.1     28.9    35.1    21.3     44.1    (4.4)   15.3
Japan................   5.5   18.1   23.8    34.2    32.1     25.9    26.9     5.6     29.2   (19.2)    1.7
                      ------ -----  -----  ------  ------     ----   -----   -----   ------   ------  -----
    TAM............. $ 17.8  $45.0  $77.3  $132.0  $137.2   $125.6    20.4%   11.4%    36.7%   (8.4)%  10.2%
                      =====  =====  =====  ======  ======   ======   =====   =====   ======   ======  =====
--------------
<FN>
(1)    Source: WSTS.
(2)    Calculated using end points of the periods specified.
</FN>
</TABLE>

       During the 1960s and 1970s, the development of semiconductor process
technologies was critical to the success of participants in the industry. As
process technologies matured, manufacturing sciences became important; in the
1980s, the emphasis shifted to increasing production volumes and yields and
lowering production costs. The large capital expenditures and other resources
required during this period to develop advanced manufacturing capabilities
resulted in a stratification of the industry between broad range suppliers
operating multiple front-end and back-end manufacturing facilities and specialty
niche players operating small wafer fabs or subcontracting wafer production.

       With the continuing development of new semiconductor applications and
increasing demands of system designers for more integrated systems-oriented
products, semiconductor manufacturers must continually improve their core
technology and manufacturing competencies. In addition, the increasing diversity
and complexity of semiconductor products, the demands of technological change,
and the costs associated with keeping pace with industry developments have
contributed to the growth of cooperative product design and development and
manufacturing alliances with customers as well as among semiconductor suppliers.
Alliances with customers provide the manufacturer with valuable systems and
application know-how and access to markets for key products, while allowing the
manufacturer's customers to share some of the risks and benefits of product
development. Customers also gain access to the manufacturer's process
technologies and manufacturing infrastructure. Alliances with other
semiconductor manufacturers permit costly


                                       11

<PAGE>



research and development and manufacturing resources to be shared to mutual
advantage for joint technology development.

       The Company believes that major new growth segments in the semiconductor
market are developing, in particular for digital multimedia, networking and
wireless communications applications. New applications have emerged, such as
set-top boxes, digital television, digital video discs, digital mobile computing
and communications, smartcards, automotive multimedia, digital still imaging and
mass storage, that are requiring new and rapidly evolving semiconductor
technologies. The Company believes many of these new products will require a
high level of semiconductor integration, combining various technologies such as
bipolar, analog, CMOS, power and nonvolatile memory, on a single chip.

       To compete as a broad line semiconductor manufacturer, management
believes that it is important to have: (i) a broad and diverse customer base;
(ii) a diversified product portfolio (including analog, digital mixed-signal and
power products) and experience in several application markets; (iii) a broad
range of process technologies (including basic function-oriented and advanced
systems-oriented technologies); (iv) design extension and CAD tools in both
analog and digital technologies; (v) an efficient, quality, global manufacturing
infrastructure; (vi) global marketing and technical support; and (vii) a
worldwide network of strategic alliances with customers and other semiconductor
manufacturers. The Company also believes that its independence from any single
system group manufacturer is an advantage for STMicroelectronics in working
closely with customers in different market segments.

Strategy

       In 1996 the Company achieved its Vision 2000 objective, originally
adopted in 1993, to become one of the world's top ten semiconductor suppliers
and to achieve operating results better than the average of the top ten
semiconductor suppliers. In 1998, according to published industry data,
STMicroelectronics ranked ninth among worldwide suppliers of semiconductor
devices. Management's objective is to consolidate and improve its ranking within
the top ten semiconductor suppliers while sustaining or improving its operating
results relative to its peer group. The key elements of the Company's strategy
are set forth below.

       Broad Range Supplier. The Company offers a diversified product portfolio
and develops products for a wide range of market applications to reduce its
dependence on any single product, industry or application market. Within its
diversified portfolio, the Company has focused on developing products that
exploit its technological strengths in creating customized, system-level
solutions with substantial analog and mixed-signal content. Products include
differentiated ICs (which the Company defines as being its dedicated products,
semicustom devices and microcontrollers) and analog ICs (including mixed-signal
ICs), the majority of which are also differentiated ICs. As a leading provider
of differentiated ICs, the Company has developed close relationships with
customers, resulting in early knowledge of their evolving requirements and
opportunities to access their markets for other products. Differentiated ICs,
which are less vulnerable to competitive pressures than standard commodity
products, accounted for approximately 62% of the Company's net revenues in 1998
compared to approximately 57% in 1997. The Company also targets applications
that require substantial analog and mixed-signal content and can exploit the
Company's system level expertise. Analog ICs accounted for approximately 51% of
the Company's 1998 net revenues compared to approximately 49% in 1997, while
discrete devices accounted for approximately 13% of the Company's net revenues
in 1998 compared to approximately 14% in 1997. In recent years differentiated
ICs, in particular analog ICs, have experienced less volatility in sales growth
rates and average selling prices than the overall semiconductor industry.

       However, as a broad range supplier, the Company can also benefit from
selling standard products. Consistent with this view, the Company has
established the Gold Standard program to promote the sale of certain standard
products meeting specified quality, cost and lead-time criteria. The related
initiatives include worldwide advertising, promotional task forces in all
regions, special distribution initiatives and worldwide training of sales and
marketing personnel.


                                       12

<PAGE>



       Total standard products (including all nonvolatile memories, discrete
devices, and all standard logical and linear ICs) represented approximately 38%
of the Company's sales in 1998 and, in management's view, increased sales of
these products represent an opportunity to improve cash flow because the
manufacture of standard products requires little capital investment.

       Leader in a Broad Range of Process and Design Technologies. The Company
intends to continue to exploit its expertise and experience with a wide range of
process and design technologies to develop its capabilities. The Company is
committed to continuing to increase research and development expenditures in the
future as well as continuing to develop alliances with other semiconductor
companies and suppliers of software development tools. Technological advances in
the areas of transistor performance and interconnection technologies are being
developed through the Company's logic products and semicustom devices. In 1998
the Company pursued the development of the advanced process steps necessary for
its 0.18 micron seven metal layer process that can operate at high clock speeds
(frequency of 500 MHZ at 1.8V) and capable of densities of up to 50,000 gates
per square millimeter. The Company continually works with key suppliers to
develop advanced and standardized design methodologies for its CMOS processes as
well as libraries of macrofunctions and megafunctions for many of its products,
and is focusing on improving its concurrent engineering practices to better
coordinate design activities and reduce overall time-to-market. It is also
working closely with many of its key suppliers to develop easy-to-use design
tools for specific applications. Alliances with other semiconductor
manufacturers are generally designed both to permit costly research and
development and manufacturing resources to be shared to mutual advantage for
joint technology development and to reduce time to market.

       Diversified Customer Base with Focus on Strategic Alliances. The Company
works with its key customers to identify evolving needs and new applications and
to develop innovative products and product features. The Company also seeks to
use its access to key customers as a supplier of application-specific products
to establish itself as a supplier across a broad range of products. Alliances
with customers allow the Company and its customers to share some of the risks of
product development and the customers to gain access to the Company's process
technologies and manufacturing infrastructure. The Company has targeted
alliances with customers in each of its key application markets of
telecommunications, automotive, consumer and computer. It has established
alliances with, among others, Alcatel, Bosch, Daewoo Electronics,
Hewlett-Packard, Marelli, Nokia, Nortel Networks, Pioneer, Seagate Technology,
Thomson Multimedia and Western Digital. In establishing these alliances, the
Company has also aimed to cover its key geographical markets.

       Integrated Presence in Key Regional Markets. The Company has consistently
sought to develop a competitive advantage by building an integrated presence in
each of the world's three major economic zones: Europe, Asia and North America.
An integrated presence means having manufacturing, design, sales and marketing
capabilities in each region, in order to ensure that the Company is well
positioned to anticipate and meet its customers' business requirements in local
markets. Therefore, the Company has established front-end manufacturing
facilities in the United States (in Phoenix, Carrollton and Rancho Bernardo), in
Europe (Agrate, Casteletto, Catania, Crolles, Rennes, Rousset and Tours) and in
Asia (Singapore); the more labor-intensive back-end facilities have been located
in Malaysia, Malta, Morocco, Singapore and China, enabling the Company to take
advantage of favorable production costs (particularly labor costs). With major
design centers and local sales and marketing groups within close proximity of
key customers in each region, the Company believes it can maintain strong
relationships with its customers. STMicroelectronics intends to continue to
build its integrated local presence in each region where it competes in its
efforts to better serve its customers and to develop an early presence in
potential high growth markets such as China, where the Company has both a
back-end facility and a design center, and India, where the Company has a design
center.

       Balanced Sales by Application and Region in High Growth Market Segments.
The Company has developed a strong product portfolio across major application
markets including computer peripherals, wireless communications, digital
consumer electronics, smartcards, automotive and power management. While the
Company is consolidating its


                                       13

<PAGE>



position in its established high volume businesses, including switching, engine
management, car safety, traditional analog TV, VCR, computer peripherals, power
and industrial and consumer appliances, it has also been investing research and
development and design resources to develop the next generation of high growth
applications, such as smartcards, portable computing, digital consumer (DVD, new
generations of set-top boxes, digital TV), wireless communications (digital
cellular phones), high speed modems (xDSL), new automotive products (car
multimedia) and new generations of mass storage devices. The Company also
maintains a geographically diverse customer base across a broad range of market
applications.

       To date, the Company's growth has been attributable primarily to internal
growth. However, in 1998, the Company announced the acquisition from Adaptec of
Peripheral Technology Solutions Group which is specialized in the design of
products for the hard disk drive market, as well as the purchase of Vision
Group, a leading designer and supplier of CMOS sensors. These purchases and
acquisitions were completed in 1999. Furthermore, the Company may, from time to
time, consider making selected acquisitions that the Company believes would
complement or expand its existing business. Announcements concerning potential
acquisitions could be made at any time. Acquisitions involve a number of risks
that could adversely affect the Company's operating results, including: (i) the
diversion of management's attention; (ii) the assimilation of the operations and
personnel of the acquired companies; (iii) the assumption of potential
liabilities, disclosed or undisclosed, associated with the business acquired,
which liabilities may exceed the amount of indemnification available from the
seller; (iv) the risk that the financial and accounting systems utilized by the
business acquired will not meet the Company's standards; (v) the risk that the
businesses acquired will not maintain the quality of products and services that
the Company has historically provided; (vi) the inability to attract and retain
qualified management for the acquired business; and (vii) the inability of the
Company to retain customers of the acquired entity. There can be no assurance
that (a) the Company will be able to consummate future acquisitions on
satisfactory terms, if at all, (b) adequate financing will be available for
future acquisitions on terms acceptable to the Company, if at all, or (c) any
operations acquired will be successfully integrated or that such operations will
ultimately have a positive impact on the Company. See "Item 9: Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

Customers and Applications

      STMicroelectronics designs, develops, manufactures and markets over 3,000
main types of products that it sells to approximately 800 direct customers. The
Company also sells its products through distributors. To many of its key
customers the Company provides a wide range of products, including dedicated
products, discrete devices, memory products and programmable products. The
Company's position as a strategic supplier of application-specific products to
certain customers fosters close relationships that provide it with opportunities
to supply such customers' requirements for other products, including discrete
devices, programmable products and memory products.

      The following table sets forth certain of the Company's significant
customers and certain applications for its products:



                                       14

<PAGE>



Telecommunications
--------------------------------------------------------------------------------
   Customers:    Alcatel      Lucent Technologies   Nortel Network   Samsung
                 Bosch        Motorola              Philips          Siemens
                 Ericsson     Nokia                 Sagem            Telital

   Applications: Answering machines                   Modems
                 Central office switching systems     PBX systems
                 Digital cellular telephones          Telephone sets
                                                      (corded and cordless)
                 xDSL chip set
--------------------------------------------------------------------------------
Computer Systems

   Customers:    ACER              Creative Technology NEC       3D Labs
                 Adaptec           Epson               Olivetti  Western Digital
                 ATI Technologies  Hewlett-Packard     Quantum   Xerox
                 Bull              IBM                 Samsung
                 Compaq            Maxtor              Seagate Technology

   Applications: Data storage                         Photocopiers
                 Monitors and displays                Printers
                 Graphics chip sets
--------------------------------------------------------------------------------
Automotive

   Customers:    Bosch              Delphi            Marelli       Siemens
                 Chrysler           Ford              Motorola      Valeo
                 Daimler-Benz       Kenwood           Pioneer

   Applications: Alternator regulators              Ignition circuits
                 Airbags                            Injection circuits
                 Antiskid braking systems           Multiplex wiring kits
                 Automotive entertainment systems   Transmission control systems
                 Body and chassis electronics       Global positioning systems
                 Engine management systems
--------------------------------------------------------------------------------
Consumer Products

   Customers:    Bose Corporation   Kenwood          Philips  Sony
                 Daewoo             Matsushita       Pioneer  Thomson Multimedia
                 General Instrument NEC              Samsung
                 Lucky Goldstar     Nokia Networks   Scientific Atlanta
                 Grundig            Pace             Sharp

   Applications: Audio power amplifiers             Digitial TVs
                 Audio processors                   Digital video disks
                 Cable television systems           Set-top boxes
                 Compact disk players               TV sets and monitors
                 Digital cameras                    Video cassette recorders
--------------------------------------------------------------------------------
                                                                     (continued)


                                       15

<PAGE>



--------------------------------------------------------------------------------
Industrial and Other Applications

  Customers:     Astec           Giescke & Devrient   Philips          Siemens
                 Delta           Liton                Schlumberger
                 De La Rue       Mannesman            Schneider
                 Emerson         Orga
                 Gemplus

  Applications:  Battery chargers                     Motor controllers
                 Smartcards ICs                       Power supplies
                 Industrial automation and control    Switch mode power supplies
                   systems
                 Intelligent power switches
                 Lighting systems (lamp ballasts)
--------------------------------------------------------------------------------

       In 1998, no single customer accounted for more than 10% of the Company's
net revenues, and sales to the Company's top ten customers accounted for
approximately 43% of the Company's net sales in 1998 (39% in 1997). The Company
has several large customers, certain of whom have entered into strategic
alliances with the Company. Many of the Company's key customers operate in
cyclical businesses and have in the past, and may in the future, vary order
levels significantly from period to period. In addition, approximately 18% of
the Company's net revenues in 1998 were made through distributors, compared to
approximately 22% in 1997. There can be no assurance that such customers or
distributors, or any other customers, will continue to place orders with the
Company in the future at the same levels as in prior periods. The loss of one or
more of the Company's customers or distributors, reduced bookings or product
returns by its key customers or distributors, could adversely affect the
Company's operating results. In addition, in a declining market the Company has
been in the past and may in the future be driven to lower prices in response to
competitive pressures. Despite price reductions, however, in an industry
downturn order cancellations may be expected, particularly by distributors and
for commodity products.

Products and Technology

      STMicroelectronics designs, develops, manufactures and markets a broad
range of products used in a wide variety of microelectronic applications,
including telecommunications systems, computer systems, consumer goods,
automotive products and industrial automation and control systems. The Company's
products include standard commodity components, full custom devices, semicustom
devices and ASSPs for analog, digital and mixed-signal applications.
Historically, the Company has not produced DRAMs or x86 microprocessors.

        In 1998, the Company had four principal products groups: Dedicated
Products, Programmable Products, Memory Products and Discrete and Standard ICs.
Certain information with respect to revenues for these product groups for 1998
is shown in the table below. For a breakdown of the Company's net revenues by
Group and geography for the last three years, see "Item 9: Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations." Revenues for future periods will be
calculated according to the new groups described below.


                                       16

<PAGE>



<TABLE>
<CAPTION>


                                                               1998 Group Revenues by Region
                                             ------------------------------------------------------------------
                                                             (percentage of Group net revenues)
                                                   Total
                                Total           (% of total                 North
                            (in millions)      net revenues)    Europe     America     Asia Pacific (1)     Region Five     Japan
                           ---------------     -------------   --------   ---------    ----------------    -------------   ------
<S>                         <C>                   <C>            <C>         <C>            <C>                 <C>         <C>
Dedicated Products
Group...................... $ 1,865.6             43.9%          36%          21%            37%                 2%           4%
Programmable
Products...................     783.4             18.4%          37%          33%            24%                 3%           3%
Memory Products............     659.6             15.5%          54%          16%            18%                 2%          10%
Discrete and Standard
ICs........................     828.7             19.5%          44%          21%            30%                 4%           1%

<FN>
---------------
(1)     Many of the products sold in the Asia Pacific region are sold to
        U.S.-based original equipment manufacturers located in the region.
</FN>
</TABLE>

      At the beginning of 1999, the Company implemented organizational changes
to better orient its products groups to end use applications. Its products are
now organized into the following principal product groups: Telecommunications,
Peripherals and Automotive (formerly Dedicated Products), Consumer and
Microcontroller (formerly Programmable Products), Memory Products and Discrete
and Standard ICs. As part of its activities outside the principal product
groups, the Company also has a New Ventures Group, which identifies and develops
new business opportunities to complement the Company's existing businesses, and
a Subsystem Product Group, which produces subsystems for industrial and other
applications.

       Telecommunications, Peripherals and Automotive Groups

       The Dedicated Products Groups was reorganized into the Telecommunications
Group, which has two applications divisions, and the Automotive and Peripherals
Group, which has four divisions. The video products which formed part of the
former Dedicated Products Group are today encompassed within the Consumer and
Microcontroller Groups. The Groups also have two support divisions (i) digital
signal processing and microcontrollers cores and (ii) digital and mixed
analog/digital semi-custom. The Telecommunications, Peripherals and Automative
Groups are responsible for the design, development and manufacture of
application-specific products using advanced bipolar, CMOS, BiCMOS mixed-signal
and power technologies as well as mixed analog/digital semicustom devices. The
Groups offer complete system solutions to customers in several application
markets. All of the Groups' products are ASSPs, full-custom or semicustom
devices that may also include DSP and micro-controllers cores.

       The Telecommunications, Peripherals and Automotive Groups work closely
with customers to develop application-specific products using
STMicroelectronics' technologies and manufacturing capabilities. The breadth of
the Groups' customer and application base provides it with a source of stability
in the cyclical semiconductor market. In addition, the Company's position as a
strategic supplier of application-specific products fosters close relationships
that provides them with opportunities to supply such customers' requirements for
other products, including discrete devices, microcontrollers and memory
products.

          The Telecommunications, Peripherals and Automotive Groups particularly
emphasize dedicated ICs for automotive, computer peripherals and industrial
application segments, as well as for communication, computing and networking
application segments.


                                       17

<PAGE>



       The Telecommunications Group has two divisions:

       (i)    Wireline Telecommunications Products. The Company's
              telecommunications products are used primarily in telephone sets,
              modems and subscriber line interface cards (SLICs) for digital
              central office switching equipment. The Company is targeting
              applications in high speed communications networks and telephone
              sets and asynchronous transfer mode ("ATM") communication systems.
              During 1998, significant developments in the Company's
              telecommunications product area included the introduction of the
              ToscaTM two-chip set for Asymmetric Digital Subscriber Loop (ADSL)
              and the delivery of more than 300,000 full-rate ADSL chip sets to
              the leading equipment manufacturer. The Company also formed a
              partnership with Telia Research AB to develop a Very high bit-rate
              Digital Subscriber Loop (VDSL) system to support broadband
              communications facilities for interactive multimedia Internet
              access, video-on-demand, and other advanced services. The Company
              furthermore announced the Pegas.usBTM chip set, the first host
              signal processing modem to take advantage of the Universal Serial
              Bus for connection to personal computers, as well as a super-
              integrated IC that includes a digital signal processor (DSP) plus
              all of the analog functions needed for phone, fax, modem and
              answering machine functions.

       (ii)   Wirelesss Telecommunications Products. In wireless
              telecommunications, the Company focuses its product offerings on
              cellular phones, pagers and wireless local loop applications,
              serving the major OEMs in each of these areas with differentiated
              ICs. In cellular phones, the Company is supplying products for
              both the analog and digital market segments (including GSM and
              CDMA) and reinforcing its leading position in energy management
              (50 million units shipped in 1998), audio CODEC (30 million units
              shipped in 1998), and RF/IF ICs (30 million units shipped in
              1998). The Company has gained experience and know-how with the
              major silicon components of cellular phone applications, and is
              developing system and software capabilities to provide full
              solutions for specifically targeted applications, particularly in
              the baseband processor, where in 1998 the Company shipped
              approximately 7 million D950 and pursued the development of its
              new ST100 DSP cross core currently under development.

       The Peripherals and Automotive Group has four divisions:

       (i)    Data Storage. STMicroelectronics produces ICs for several data
              storage applications, in particular disk drives with advanced
              solutions for read and write digital channels, controllers, host
              interfaces, digital power processing and micromachinery. The group
              is working actively on super-integrating these macro-functions. In
              1998, the Company announced the acquisition from Adaptec of
              Peripheral Technology Solutions Group which is specialized in the
              design of products for the hard disk drive market. The acquisition
              was completed in 1999. The acquisition complements the Company's
              activities with respect to (i) product line, giving the Company
              access to leading disk controller products and know-how, (ii)
              design teams, contributing Adaptec's designers with CMOS read
              channel product design expertise, (iii) geography, providing the
              Company a base in Silicon Valley, and (iv) customer base, adding
              customers in Asia Pacific and Japan. In 1998, the Company also
              signed a cooperation agreement with IBM to accelerate the
              development of advanced system-on-a-chip products, particularly
              ICs for data storage applications and PC-compatible information
              appliances.

        (ii)  Printers. STMicroelectronics is focusing on inkjet printer
              components and is an important supplier of pen chips, motor
              drivers, head drivers and image processors. The Company is an
              important partner of Hewlett-Packard for technology development
              and manufacturing. Since the beginning of the cooperation with
              Hewlett-Packard, the Company has supplied more than 400,000 wafers
              for pen chip applications.


                                       18

<PAGE>




       (iii)  Audio and Automotive Products. STMicroelectronics' audio products
              include audio power amplifiers, audio processors and graphic
              equalizer ICs. The Company has sold more than 1.2 billion audio
              power amplifier ICs since 1972. The Company's automotive products
              include alternator regulators, airbag controls, antiskid braking
              systems, ignition circuits, injection circuits, multiplex wiring
              kits and products for body and chassis electronics, engine
              management and instrumentation systems. The Company is currently
              developing solutions for global positioning systems (GPS) and
              multi-media in the car. In 1998, the Company signed a strategic
              alliance for car entertainment systems with Pioneer Electronics of
              Japan. Due to its super-integration know-how, the Company has
              successfully expanded its presence beyond Europe to the United
              States and Japan, further accessing key customers such as
              Mitsubishi and Denso.

              In 1998, the Company announced the launch of two devices (ST20 GPG
              and STB 5600) that for the first time allow a complete GPS system
              to be implemented by using just two chips. In the fourth quarter
              of 1998, the Company also delivered the first working prototypes
              of a single chip system called Euterpe, that combines voice
              recognition, voice synthesis and text to speech technologies.

       (iv)   Industrial and Power Supplies. STMicroelectronics designs and
              manufactures products for industrial automation systems, lighting
              applications (lamp ballast), battery chargers and switch mode
              power supplies (SMPS). Its key products are power ICs for motor
              controllers and read/write amplifiers, intelligent power ICs for
              spindle motor control and head positioning in computer disk drives
              and battery chargers for portable electronic systems, particularly
              mobile telephone sets.

          The Groups also have two support divisions (i) digital signal
processing and microcontroller cores and (ii) digital and mixed analog/digital
semicustom. These two divisions are centers of excellence to develop key
competences in the field of semicustom (digital and analog) as well as in DSP
and microcontrollers cores. The Company is currently developing superintegrated
solutions using its broad range of technologies (CMOS, BiCMOS, BCD) and its
expertise in microcontrollers/DSP cores, dedicated IC megacells and embedded
memory capability for hard disk drive applications. The same methodology is
being applied to develop ICs for other computer peripherals such as monitors and
inkjet printers.

          Consumer and Microcontroller Groups

          The Consumer and Microcontroller Groups are the successors to the
Programmable Products Group and is responsible for the design, development and
manufacture of designs, develops and manufactures microcomponents (including
microcontrollers and digital signal processors), digital semicustom devices,
graphic controllers and MPEG decoder ICs and image processing semicustom devices
for many diverse products targeted at high growth digital applications,
including information technology, automotive and multimedia.

          The Consumer and Microcontroller Groups are divided into the Consumer
Group and the Microcontrollers Group, each further divided into several
divisions.

          The Consumer Group has four divisions:

      (i)     Digital Video. Emerging digital video technologies offer a number
              of advantages over traditional analog video, including the ability
              to compress video data for transmission and storage, to transmit
              and reproduce video data without perceptible image degradation and
              to randomly access and edit video data. In 1998, the digital
              consumer market grew due to the strong growth of digital TV
              satellite broadcasting in the United States and digital TV in the
              United Kingdom.


                                       19

<PAGE>



              This division delivers large volumes of MPEG decoder ICs suitable
              for video CD products, personal computers, set-top boxes
              (including cable, satellite and terrestrial DVD) and digital TV
              applications. The majority of these products implement the MPEG 2
              standard. In 1998, STMicroelectronics started volume production of
              the STi5500 Omega chip, the first in a family of highly integrated
              devices that combine an MPEG 2 audio/video decoder with a 32-bit
              microprocessor and other functions to create a complete set-top
              box back-end section on a single chip. Among recent important
              developments for digital TV, the Company introduced the STi5505,
              the world's first device to integrate a complete DVD back-end
              decoder and a 32-bit host processor on a single. In April 1998,
              STMicroelectronics introduced the STi7000 chip, the first
              integrated solution for High-Definition Television (HDTV)
              combining an MPEG 2 decoder with an advanced display and format
              converter into one single chip. Production of the STi7000 started
              in the fourth quarter of 1998. The Company has also been selected
              to provide the conditional access module to Canal+ for digital TV.

      (ii)    Consumer Broad Band Division. This division develops chip sets for
              the front-end section of all major digital video applications. For
              example, this division designs and manufactures semi-custom
              products for data input from compact disc-audio and digital video
              players, digital broadcast and data exchange on cable as well as
              for the IEEE 1394 serial digital interface.

     (iii)    TV, Monitor and Camera Division. This division targets analog
              television and video camera recorders, monitors and flat panel
              displays and image capturing and transmission. In addition to the
              traditional analog TV and monitor businesses, in 1998, the
              division started to address the market for digital cameras. In
              order to achieve its goals with respect to this market, the
              Company made in late 1998 an offer to acquire Vision Group plc, a
              U.K. company based in Edinburgh, Scotland, which has developed a
              technology for the production of CMOS sensors, and completed the
              acquisition in 1999. The Company also signed a partnership
              agreement with Live Picture to design a new microchip that will
              enable digital camera users to create instantly 360-degree
              panoramic photos and to introduce other virtual reality features.
              With CMOS imaging technology it is thus possible to produce the
              principal features of a camera on a single IC, which is
              significantly cheaper than using a multi-component chip set based
              on traditional Charge Coupled Devices (CCD) technology. Potential
              applications of the technology include PC cameras for transmitting
              images across the Internet, digital still cameras, camcorders,
              security cameras, videophones, automotive applications, biometrics
              and toys.

        (iv)  Graphics Products. In 1998, the Company produced over 5 million
              Riva 128 and 128ZY graphic accelerators to deliver visual
              computing on PC platforms. The RIVA 128 was developed in
              conjunction with nVidia. In early 1999, the Company entered into a
              partnership agreement with Videologic of the United Kingdom for
              developing the next generation 3D accelerator aimed at the PC and
              digital consumer market.

        The Microcontroller Group has one division and two support groups:

        (i)   Microcontroller Division. This division provides competitive,
              high-volume 8-bit microcontrollers for all major application
              segments and 16-bit DSP for the mass market. This family of
              products has been developed with a wide portfolio of processes
              capable of embedding nonvolatile memories such as EPROM, EEPROM
              and flash memories.

      Within the support groups, the Microcontroller Core Development group
develops 32- and 64-bit microcontroller cores. Current products include the
successful ST20 and ST40 products. The Company has entered an agreement with
Hitachi to co-develop a 64-bit microcontroller core (ST50) based on Hitachi
original Super H architecture and STMicroelectronics know-how in 64-bit



                                       20

<PAGE>



microprocessors for interactive set-top boxes, digital video products, car
multimedia systems and other consumer oriented products.

      The Microcontroller Development Tools Group is concerned with software and
hardware development tools for microcontroller cores and with software
methodology for the microcontrollers and application divisions.

      Memory Products Group

      The Memory Products Group designs, develops and manufactures a broad range
of semiconductor memory products but does not produce DRAMs. According to
published industry data, on the basis of 1998 revenues, STMicroelectronics was
the leading producer of EPROMs, with a 38% market share, and the second leading
supplier of EEPROMs.

      According to published industry data, the total market for memory devices
in 1998 was approximately $23.0 billion including DRAMs (61%), SRAMs (17%) and
nonvolatile memories (22%).

      The Company's Memory Products Group is organized into the following
divisions: (i) EPROMs; (ii) flash memories; (iii) smartcard products; (iv)
EEPROMs and application-specific memories; and (v) SRAMs.

      EPROMs. STMicroelectronics produces a broad range of EPROMs, from 16 Kbit
to 32 Mbit. According to published industry data, STMicroelectronics
consolidated its world's leading market position for EPROMS in 1998, with
revenues of $188 million or approximately 38% of worldwide EPROM sales. The
Company currently produces EPROMs using 0.40 micron CMOS technologies.

      The EPROM market is relatively mature, and worldwide sales declined in
1998 according to published industry data. The Company has succeeded in
maintaining its market leadership because of its EPROM technology, which has
allowed the Company to build one of the broadest product portfolios currently
offered in the market. At the same time, this technology has permitted
continuous improvement of manufacturing yields and reduction of die size, giving
the Company an advantageous cost position. Efficient manufacturing in its
Singapore assembly plant together with STMicroelectronics' sales and
distribution channels have contributed to the exploitation of the Company's
technological advantage.

      Flash Memories. The Company currently supplies single voltage (down to 3.0
volt) NOR cell structure flash memory products up to 16 Mbit, and is introducing
into production a family of 32 Mbit flash memories operating at 1.8 volt and
manufactured using 0.25 micron technology. The Company is jointly developing
with Mitsubishi a new generation of flash memory products, starting with
multi-level 64 Mbit, as well as associated processes from 0.20 through 0.18
micron. The market for flash memories is growing fast, according to published
industry data, driven by cellular phones and digital consumer applications
growth.

      Smartcard Products. Smartcards are credit card-like devices containing
integrated circuits that store data and provide an array of security
capabilities. They are used in a wide and growing variety of applications,
including public pay telephone systems (primarily in France and Germany),
cellular telephone systems (primarily in Europe), bank cards (primarily in
France) and pay television systems (primarily in the United States, United
Kingdom and France). Other applications include medical record applications,
card-access security systems and toll-payment applications. In 1998, the
Company's total number of smartcard chips sold since 1983 exceeded one billion,
with more than 100 million microcontroller-based smartcard ICs shipped per year
since 1997. According to independent market analysts, the 1998 volume confirmed
the Company's leading market position with approximately a 43% share in
microcontroller-based smartcard ICs that form the basis for such advanced
applications as electronic purses, bankcards, pay TV and GSM systems.

      In 1998, the Company was awarded certifications to ITSEC level E3 High,
the most stringent level normally required in commercial applications, for two
products that will be used in the French health card project, indicating the


                                       21

<PAGE>



Company's leadership position in terms of independent security certifications.
The Company also introduced the ST16RF product range, the world's first dual
mode (contact/contactless) smartcard microcontrollers. Originally developed for
the French public transport system in Paris (RATP) and rail operator (SNCF),
these devices have potential uses in public transport ticketing, with trial now
underway in Nice, France. In November 1998, the Company also announced the
world's first ISO 1443 type B contactless memory designed for use in electronic
tags, RF/ID and similar applications where the memory is powered by the received
carrier electromagnetic wave as well as a new addition to the ST19 family of
smartcard chips, the ST19 SF64, which is a device particularly suited to high
end telecoms, Java Cards and similar multiapplication cards.

      EEPROMs and Application-Specific Memories. The Company offers serial
EEPROMs up to 256 Kbit and parallel EEPROMs up to 1 Mbit. Serial EEPROMs are the
most popular type of EEPROMs and are generally used in computer, automotive and
consumer applications. Parallel EEPROMs account for a smaller portion of the
EEPROM market, being used mainly in telecommunications equipment.
STMicroelectronics entered the parallel EEPROM market in late 1993. The Company
intends to work closely with its key customers and strategic allies to identify
and develop new application-specific memory devices using mixed technologies. In
1998, the sales of this division represented, according to industry data,
approximately 17% of the world market for EEPROM and other nonvolatile memory
compared to approximately 14% in 1997.

      SRAMS. The Company focuses on producing nonvolatile SRAMs (battery
back-up) used in computers and telecommunications equipment.

      Discrete and Standard ICs Group

      The Discrete and Standard ICs Group designs, develops and manufactures
discrete power devices, power transistors, standard linear and logic ICs, and RF
products. According to published industry data, based on 1998 revenues,
STMicroelectronics is among the leading suppliers of power transistors and among
the top two suppliers of thyristors, worldwide.

      The Group's discrete and standard products are manufactured using mature
technological processes. Although such products are less capital intensive than
the Company's other principal products, the Company is continuously improving
product performance and developing new product features. The Group has a diverse
customer base, and a large percentage of the Group's products are sold through
distributors.

      Discrete Power Devices. STMicroelectronics manufactures and sells a
variety of discrete power devices, including rectifiers, protection devices and
thyristors (SCRs and triacs). The Company's devices are used in various
applications, including in particular telecommunications systems (telephone
sets, modems and line cards), household appliances and industrial systems (motor
control and power control devices). More specifically, rectifiers are used in
voltage converters and voltage regulators, protection devices are used to
protect electronic equipment from power supply spikes or surges, and thyristors
are used to vary current flows through a variety of electrical devices,
including lamps and household appliances. The Company offers a highly successful
range of standard products built with its proprietary Application Specific
Discretes (ASDTM) technology, which allows a variety of discrete structures to
be merged into a single device optimized for specific applications such as EMI
filtering for cellular phones.

      Power Transistors. STMicroelectronics designs, manufactures and sells
power transistors, which (like the Company's discrete power devices) operate at
high current and voltage levels in a variety of switching and pulse mode
systems. The Company has three power transistor divisions: bipolar transistors,
power MOSFETs (metal-oxide-silicon field effect transistors) and new power
transistors such as IGBTs.



                                       22

<PAGE>



      The Company's bipolar power transistors are used in a variety of
high-speed, high-voltage applications, including SMPS (switch mode power supply)
systems, television/monitor deflection circuits and lighting systems. According
to published industry data, on the basis of 1998 revenues, STMicroelectronics is
among the leading suppliers of bipolar transistors, including RF power
transistors. The Company introduced power MOSFETs in 1991 to extend the use of
power transistors to new high-frequency, high-voltage applications, including
automotive components, crowbar protection devices, resonant converters and power
factor correction devices. A new family of products, low voltage power MOSFETs
known as the NE series, is being produced with a new technology that provides
substantial advantages over conventional cellular power MOSFET processes.

      The Company also offers a family of VIPower (vertical integration power)
products, as well as omnifets and application-specific devices. VIPower products
exhibit the operating characteristics of power transistors while incorporating
full thermal, short circuit and overcurrent protection and allowing logic level
input. VIPower products are used in consumer goods (lamp ballasts) and
automotive products (ignition circuits, central locking systems and transmission
circuits). Omnifets are power MOSFETs with fully integrated protection devices
that are used in a variety of sophisticated automotive and industrial
applications. Application-specific devices are semicustom ICs that integrate
diodes, rectifiers and thyristors on the same chip, thereby providing
cost-effective and space-saving components with a short design time.

      In the first quarter of 1998, the Company extended its offer of VIPower
technology by introducing a Smart H Bridge Driver that can sustain high peak
current streams for short time periods. The Company also introduced innovative
front-end and packaging technologies that significantly increase MOSFET power
density and a new range of products based on its Application Specific Discrete
(ASD) technology that integrate two key telephone set functions into a single
surface mounting package.

      Standard Logic and Linear ICs. The Company produces a variety of bipolar
and HCMOS logic devices, including clocks, registers, gates and latches. Such
devices are used in a wide variety of applications, including increasingly in
portable computers, computer networks and telecommunications systems. The
Company also offers standard linear ICs covering a variety of applications,
including amplifiers, comparators, decoders, detectors, filters, modulators,
multipliers and voltage regulators.

      Radio Frequency Products. The Company supplies components for RF
transmission systems used in television broadcasting equipment, radar systems,
telecommunications systems and avionic equipment. The Company is targeting new
applications for its RF products, including two-way wireless communications
systems (in particular, cellular telephone systems) and commercial radio
communication networks for business and government applications.

Sales, Marketing and Distribution

      In 1998, the Company derived approximately 82% of its revenues from sales
directly to customers through its regional sales organizations (compared to
approximately 78% in 1997) and 18% of its net revenues from sales through
distributors (compared to approximately 22% in 1997). The Company operates
regional sales organizations in Europe, North America, the Asia Pacific region,
Japan and, since January 1, 1998, in "Region Five" which includes emerging
markets such as South America, Africa, Eastern Europe, the Middle East and
India. In 1998, approximately 41.6% of the Company's revenues originated in
Europe (compared to approximately 43.6% in 1997), while 22.1% originated in the
Americas (compared to approximately 22.4% in 1997), 29.4% originated in the Asia
Pacific region (compared to approximately 26.5% in 1997), 4.3% originated in
Japan (compared to approximately 5.3% in 1997) and 2.6% originated in Region
Five (compared to approximately 2.2% in 1997). In 1998, no single customer
accounted for more than 10% of the Company's net revenues, and sales to the
Company's top ten customers accounted for approximately 43% of the Company's net
sales in 1998 (39% in 1997).



                                       23

<PAGE>



      The European region is divided into ten sales and marketing units: five
major accounts groups organized by market segments (telecom, industrial and
smartcards, consumer, automotive and computer), four geographically configured
units to cover mid-sized OEM customers (France and the Benelux, Central Europe,
Northern Europe and Southern Europe) and a distribution unit.

      In North America, the sales and marketing team is organized into five
business units that are located near major centers of activity for either a
particular application or geographic region: automotive (Detroit, Michigan),
industrial and consumer (Chicago, Illinois), computer and peripheral equipment
(San Jose, California and Longmont, Colorado following the acquisition of
Adaptec), communications (Dallas, Texas) and distribution (Boston,
Massachusetts). Each business unit has a sales force that specializes in the
relevant business sector, providing local customer service, market development
and specialized application support for differentiated system oriented products.
This structure allows STMicroelectronics to monitor emerging applications, to
provide local design support, and to identify new products for development in
conjunction with the various product divisions as well as to develop new markets
and applications with its current product portfolio. A central product marketing
operation in Boston provides product support and training for standard products
for the North America region, while a logistics center in Phoenix supports
just-in-time delivery throughout North America. In addition, a comprehensive
distribution business unit provides product and sales support for the nationwide
distribution network.

      In the Asia Pacific region, sales and marketing is organized by country
and is managed from the Company's regional sales headquarters in Singapore. The
Company has sales offices in Taiwan, Korea, China, Hong Kong, Malaysia, Thailand
and Australia. The Singapore sales organization provides central marketing,
customer service, technical support, shipping, laboratory and design services
for the entire region. In addition, there are design centers in Taiwan, Korea,
Hong Kong and Shenzhen.

      In Japan, the large majority of the Company's sales are made through
distributors, as is typical for foreign suppliers to the Japanese market.
However, the Company's sales and marketing engineers in Japan work directly with
the customers as well as with the distributors to meet customers' needs. The
Company provides marketing and technical support services to customers through
sales offices in Tokyo and Osaka. In addition, the Company has established a
design center and application laboratory in Tokyo. The design center designs
custom ICs for Japanese clients, while the application laboratory allows
Japanese customers to test STMicroelectronics' products in specific
applications.

      Region Five was created as of January 1, 1998 and includes emerging
markets such as South America, Africa, Eastern Europe, the Middle East and
India. Prior to that time, these markets had been covered, where appropriate, by
the other existing sales and marketing organizations. Region Five also includes
the design center in India, which employs 428 people in a wide range of
activities. The Company intends to increase its focus on the new sales and
marketing region to enhance its presence in these new markets.

      The Company's central marketing efforts are organized into a central
strategic marketing organization and a key account management organization. The
strategic marketing organization is organized by application market. The focus
is on system research and development and the timely generation of the advanced
system know-how and intellectual property that is critical to the successful
introduction of future generations of differentiated products.

      In 1996, the Company undertook the Gold Standard program, a long-term
commitment to excellence in standard products. The program consists of
manufacturing and offering standard products at the same price level as the
market but with a superior level of quality, service and lead time. The related
initiatives included worldwide advertising, promotional task forces in all
regions, special distribution initiatives and worldwide training of salespeople
and marketing personnel.



                                       24

<PAGE>



      In addition to the central strategic marketing team, the Company has
established key account management teams to serve key multinational customers.
The key account management teams work with the Company's regional and divisional
managers to provide a broad range of products to its major accounts and to
develop complete systems solutions. The teams build strategic relationships with
the Company's major accounts that can lead to the development of new products,
increased access to evolving technologies and enhanced knowledge of customer
requirements.

      Each of the five regional sales organizations operate dedicated
distribution organizations. To support the distribution network,
STMicroelectronics operates logistic centers in Saint Genis, France;Phoenix,
Arizona; and Singapore, and has made considerable investments in warehouse
computerization and logistics support.

      The Company also uses distributors and representatives to distribute its
products around the world. Typically, distributors handle a wide variety of
products, including products that compete with STMicroelectronics' products, and
fill orders for many customers. Most of the Company's sales to distributors are
made under agreements allowing for price protection and/or the right of return
on unsold merchandise. The Company recognizes revenues when it ships products to
distributors. Sales representatives generally do not offer products that compete
directly with the Company's products, but may carry complementary items
manufactured by others. Representatives do not maintain a product inventory;
instead, their customers place large quantity orders directly with
STMicroelectronics and are referred to distributors for smaller orders.

Research and Development

      Management believes that research and development is critical to the
Company's success and is committed to increasing research and development
expenditures in the future. Despite significant cost reductions following the
Company's formation in 1987, and particularly in 1990 and 1991 when the Company
experienced losses, management did not reduce research and development spending.
This commitment to research and development continues unabated, with the Company
spending $690 million or 16.2% of revenue on research and development in 1998.
The table below sets forth information with respect to the Company's research
and development spending since 1994 (not including design center, process
engineering, pre-production or industrialization costs):

<TABLE>
<CAPTION>

                                                 Year ended December 31,
                                      ----------------------------------------------------
                                        1994       1995      1996       1997        1998
                                      --------   --------   -------   --------     -------
                                                 (in millions, except percentages)

<S>                                     <C>       <C>        <C>        <C>         <C>
Expenditures..........................  $338.3    $440.3     $532.3     $610.9      $689.8
as a percentage of net revenues.......   12.8%     12.4%      12.9%      15.2%       16.2%
</TABLE>

      As a result of the history of the Company, approximately 81% of the
Company's research and development expenses in 1998 were incurred in Europe,
primarily in France and Italy. See "--State Support for the Semiconductor
Industry." As of December 31, 1998, approximately 4,400 employees were employed
in research and development activities.

      Central research and development units conduct research on the basic VLSI
technologies, packaging technologies and design tools that are used by all
product groups and the front-end manufacturing organization. STMicroelectronics'
central research and development activities are conducted in Crolles, France;
Agrate, Italy; Carrollton, Texas; Phoenix, Arizona; Berkeley, California; and
Noida, India. The central research and development units participate in several
strategic partnerships. The Company's manufacturing facility at Crolles, France
houses a research and development center that is operated in the legal form of a
French Groupement d'interet economique ("GIE") pursuant to a partnership
agreement in effect until the end of 1998 between the Company and CNET, the
research laboratory of France Telecom, an indirect shareholder of the Company.
This center has developed submicron process technologies


                                       25

<PAGE>



and is currently working on the development of 0.18 micron and future generation
technologies, including copper interconnect, low k dielectric, silicon
germanium, embedded RAMs and RF options. The Company and CNET have decided to
extend the GIE to include as a member the Laboratoire d'Electronique de
Technologie d'Instrumentation ("LETI"), a research laboratory of CEA-Industrie,
one of the indirect shareholders of the Company. The Company is also cooperating
with Philips Semiconductors to jointly develop sub-micron CMOS logic processes
in Crolles, France under an agreement which has been extended through the year
2000.

      In 1998, the Company also cooperated with GRESSI, the research and
development GIE formed by the CNET and LETI. The objectives of the cooperation
were to develop know-how on innovative aspects of VLSI technology evolution
which can be transferred to industrial applications, and to address the
development of innovative process steps and process modules to be used in future
generations of VLSI products. The cooperation agreement provided for a
pluriannual plan through 1998, and the Company bore half of the program's total
cost. The cooperation with GRESSI was superseded, as of January 1, 1999, by a
tripartite cooperation arrangement between the Company, CNET and LETI, within
the framework of an extended GIE named Centre Commun de Microelectronique de
Crolles. This cooperation is directed towards sub 0.18 micron technologies with
a view to preparing the technology to begin production of 12-inch wafers and
associated wafer fabrication processes. The tripartite cooperation is intended
to last until the end of 2002 and the related contractual arrangements are in
the process of being finalized.

      A technical center in Noida, India, develops design software and CAD
libraries and tools. At the Agrate, Italy site, the Company is developing
nonvolatile memory technologies and programmable logic processes using a pilot
line which is being upgraded to 8-inch with a capability of 0.25 micron and
below. See "Item 13: Interest of Management in Certain Transactions." The
Company has developed a wide network of cooperation with several universities in
the United Kingdom (Bristol and Newcastle), Italy (Bologna, Catania, Milan,
Pavia and Turin), France (Grenoble, Marseille, Toulouse and Tours), in the
United States (Carnegie Mellon, Stanford, Berkeley and UCLA) and Singapore for
basic research projects on design and process development.

      In addition to central research and development, each operating division
also conducts independent research and development activities on specific
processes and products.

State Support for the Semiconductor Industry

      Due to the importance of the semiconductor industry, various government
authorities in the world, including the European Commission and individual
countries in Europe, have established programs for the funding of research and
development, innovation, industrialization and training in the industry. In
addition, many countries grant various forms of tax relief, direct grants and
other incentives to semiconductor companies as well as other industries to
encourage investment. The Company has structured its operations to benefit from
such programs and incentives and expects to continue to do so in the future.
Unlike certain of its competitors, however, the Company does not receive
significant direct or indirect financing from defense development programs.

      The main European programs in which the Company is involved include: (i)
the Micro-Electronics Development for European Application ("MEDEA") cooperative
research and development program, (ii) European Union research and development
projects such as ESPRIT (European Strategic Programme for Information
Technology) and RACE (Research and Development in Advanced Communications
Technologies for Europe), (iii) national programs for research and development
and industrialization in the electronics industries, and (iv) investment
incentive programs for the economic development of certain regions. The
pan-European programs are generally open to eligible companies operating and
investing in Europe and cover a period of several years. In Italy, both
electronics and economic development programs are open to eligible companies
regardless of their ownership or country of incorporation.



                                       26

<PAGE>



      The MEDEA cooperative research and development program was launched in
June 1996 by the Eureka Conference and is designed to bring together many of
Europe's top researchers in a 12,000 man-year program that will cover the period
1997-2000. The MEDEA program replaced the joint European research program called
JESSI, which was a European cooperative project in microelectronics among
several countries that covered the period 1988 through 1996 and involved more
than 80 companies. In Italy, the Programma Nazionale per la Microelettronica has
18 participants, and various programs for intervention in the Mezzogiorno
(southern Italy) are open to eligible companies, including non-European
companies, operating in the region and regulated by specific laws. Italian
programs often cover several years, but funding is typically subject to annual
budget appropriation. In France, support for microelectronics is provided to
over 30 companies manufacturing or using semiconductors. The amount of support
under French programs is decided annually and subject to budget appropriation.

      As a result of the history of the Company, its research and development
facilities and activities are mainly concentrated in France and Italy, and the
substantial majority of the Company's state funding has been derived from
programs in such countries. The Company has entered into funding agreements with
France and Italy which set forth the parameters of state support under certain
national programs and require, among other things, compliance with European
Commission ("EC") regulations and approval by EC authorities and annual and
project-by-project reviews and approvals.

      The EC adopted guidelines in 1995 seeking to limit state aid for research
and development activities routinely performed in the normal course of the
business. There can be no assurance that the Company will be able to continue to
benefit from state aid previously committed, that such aid will not be revoked
or discontinued at any time or that aid granted by a national government for
research and development will not be reviewed or challenged by the EC.

      Funding of programs in France and Italy is subject to annual
appropriation, and if such governments were unable to provide anticipated
funding on a timely basis or if existing government-funded programs were
curtailed or discontinued, such an occurrence could have a material adverse
effect on the Company's business, operating results and financial condition.
From time to time the Company has experienced delays in the receipt of funding
under these programs. As the availability and timing of such funding are
substantially outside the Company's control, there can be no assurance that the
Company will continue to benefit from such government support, that funding will
not be delayed from time to time, that sufficient alternative funding would be
available if necessary or that any such alternative funding would be provided on
terms favorable to the Company as those previously provided.

      Public authority funding for research and development is reported in
"Other Income and Expenses" in the Company's consolidated statements of income.
See Note 18 to the consolidated audited financial statements for each of the
years in the three-year period ended December 31, 1998, including the Notes
thereto (collectively, the "Consolidated Financial Statements") included
elsewhere in this annual report on Form 20-F. Such funding has totalled $63.8
million, 55.3 million and $63.5 million in the years 1996, 1997 and 1998,
respectively. Public funding for industrialization costs (which include certain
costs incurred to bring prototype products to the production stage) is offset
against expenses in computing cost of sales, and has the effect of increasing
the Company's gross profit. Such funding of industrialization costs has totalled
$4.6 million, $6.2 million and $3.1 million in 1996, 1997 and 1998,
respectively. See Note 18 to the Consolidated Financial Statements. Government
support for capital expenditures funding has totalled $93.3 million, $30.2
million, and $182.4 million in the years 1996, 1997 and 1998, respectively. Such
funding has been used to support the Company's capital investment; while receipt
of these funds is not directly reflected in the Company's results of operations,
the resulting lower amounts recorded in property, plant and equipment reduce the
level of depreciation recognized by the Company.

      Low interest financing has been made available (principally in Italy)
under programs such as the Italian Republic's Fund for Applied Research,
established in 1968 for the purpose of supporting Italian research projects
meeting specified program criteria. At year-end 1996, 1997 and 1998, the Company
had $95.2 million, $63.7 million


                                       27

<PAGE>



and $49.4 million, respectively, of indebtedness outstanding under
state-assisted financing programs at an average interest cost of 2.3%, 2.1% and
2.1%, respectively.

Intellectual Property

      Intellectual property rights which apply to various Company products
include patents, copyrights, trade secrets, trademarks and maskwork rights.
STMicroelectronics owns more than 17,000 original invention patents or pending
patent applications, most of which have been registered in several countries
around the world. In 1998, the Company filed 671 original patent applications
around the world. Management believes that its intellectual property represents
valuable property and intends to protect the Company's investment in technology
by enforcing all of its intellectual property rights.

      The Company has entered into several patent cross-licenses with several
major semiconductor companies, consisting primarily of most of the major
Japanese and Korean semiconductor companies. The Company has announced that it
has signed a broad patent cross-license agreement with IBM in June 1998 and with
Intel in January 1999.

      The Company's success depends in part on its ability to obtain patents,
licenses and other intellectual property rights covering its products and their
design and manufacturing processes. To that end, the Company has acquired
certain patents and patent licenses and intends to continue to seek patents on
its inventions and manufacturing processes. The process of seeking patent
protection can be long and expensive, and there can be no assurance that patents
will issue from currently pending or future applications or that, if patents are
issued, they will be of sufficient scope or strength to provide meaningful
protection or any commercial advantage to the Company. In addition, effective
copyright and trade secret protection may be unavailable or limited in certain
countries. Competitors may also develop technologies that are protected by
patents and other intellectual property rights and therefore such technologies
may be unavailable to the Company or available to the Company subject to adverse
terms and conditions. Litigation, which could demand financial and management
resources, may be necessary to enforce patents or other intellectual property
rights of the Company.

      Also, there can be no assurance that litigation will not be commenced in
the future against the Company regarding patents, maskworks, copyrights,
trademarks or trade secrets, or that any licenses or other rights to necessary
intellectual property could be obtained on acceptable terms. The failure to
obtain licenses or other intellectual property rights, as well as the expense or
outcome of litigation, could adversely affect the Company's results of
operations or financial condition. The Company has from time to time received,
and it may in the future receive, communications alleging possible infringement
of certain patents and other intellectual property rights of others. Regardless
of the validity or the successful assertion of such claims, the Company could
incur significant costs with respect to the defense thereof which could have a
material adverse effect on the Company's results of operations or financial
condition.

Backlog

      The Company's sales are made primarily pursuant to standard purchase
orders that are generally booked from one to twelve months in advance of
delivery. Quantities actually purchased by customers, as well as prices, are
subject to variations between booking and delivery to reflect changes in
customer needs or industry conditions. During periods of industry overcapacity
and declining selling prices, customer orders are not generally made as far in
advance of the scheduled shipment date as during periods of capacity constraint.
Such reduced lead time can reduce management's ability to forecast production
levels and revenues.

      The Company's backlog decreased during 1998 in difficult semiconductor
market conditions. In the first quarter of 1999, backlog increased compared to
year-end 1998.



                                       28

<PAGE>



      STMicroelectronics also sells certain products to key customers pursuant
to frame contracts. Frame contracts are annual fixed-price contracts with
customers setting forth the terms of purchase and sale of specific products that
may be ordered in the future. These contracts allow the Company to schedule
production capacity in advance and allow customers to manage their inventory
levels consistent with just-in-time principles while shortening the cycle times
required to produce ordered products. Orders under frame contracts are also
subject to risks of price reduction, order cancellation and modifications as to
quantities actually ordered.

Competition

      Markets for the Company's products are intensely competitive. While only a
few companies compete with STMicroelectronics in all of the Company's product
lines, the Company faces significant competition in each of its product lines.
STMicroelectronics competes with major international semiconductor companies,
some of which have substantially greater financial and other resources than the
Company with which to pursue engineering, manufacturing, marketing and
distribution of their products. Smaller niche companies are also increasing
their participation in the semiconductor market, and semiconductor foundry
companies have expanded significantly, particularly in Asia. Competitors include
manufacturers of standard semiconductors, application-specific ICs and fully
customized ICs, including both chip and board-level products, as well as
customers who develop their own integrated circuit products and foundry
operations. Some of the Company's competitors are also its customers.

      The Company gained market share in 1998, when the Company's net sales grew
5.7% while the TAM decreased 8.4% and the SAM decreased 5.2%, according to trade
association data. The Company gained market share in 1995 and 1996 against both
the TAM and the SAM although it lost market share against both the TAM and the
SAM in 1997. The Company does not manufacture DRAMs, which are commodity memory
products sold in high volumes that have experienced severe price cutting in
1996, 1997 and in 1998. The Company gained market share against both the TAM and
the SAM in the first quarter of 1999, when the Company's revenues grew 10.7%
compared to first quarter 1998 while the TAM grew 6.8% and the SAM grew 3.5%.

       The Company believes that recent difficult market conditions have led
certain of its competitors to redirect their marketing focus and manufacturing
capacity toward products that compete with the Company's products. The Company
believes increased competition in its core product markets is generating greater
pricing pressure, increased competition for market share in the SAM, and a
generally more challenging market environment for the Company.

      According to published industry data and other industry sources,
investment in worldwide semiconductor fabrication capacity totalled
approximately $44 billion in 1996, $40 billion in 1997 and $28 billion in 1998,
or approximately 33%, 29% and 22 %, respectively, of the TAM for such years. In
addition to international semiconductor companies, companies specializing in
operating semiconductor foundries such as UMC, TSMC and Chartered
Semiconductors, have added significant capacity, particularly in Asia. These
additions to capacity have contributed to an increase of supply over demand and
to declines in average selling prices and the downturn in the industry. These
has also been a shift in existing industry capacity to production of products
that compete with the Company's products. The Company believes that fluctuations
in the rate of industry capacity additions relative to the growth rate in demand
for semiconductor products could continue to contribute to fluctuations in
average selling prices and affect the Company's results of operations.

      The Company's primary competitors include Advanced Micro Devices, Hitachi,
Intel Corporation, Lucent Technologies, Mitsubishi Electric Corporation,
Motorola, National Semiconductor Corporation, Nippon Electric Company, Philips
Semiconductors, Samsung, Siemens, Texas Instruments and Toshiba. Companies
primarily operating foundries include UMC, TSMC and Charter Semiconductors.



                                       29

<PAGE>



      The Company competes in different product lines to various degrees on the
basis of price, technical performance, product features, product system
compatibility, customized design, availability, quality and sales and technical
support. In particular, standard products may involve greater risk of
competitive pricing, inventory imbalances and severe market fluctuations than
differentiated products. The Company's ability to compete successfully depends
on elements both within and outside of its control, including successful and
timely development of new products and manufacturing processes, product
performance and quality, manufacturing yields and product availability, customer
service, pricing, industry trends and general economic trends.

Employees

        At December 31, 1998, the Company employed approximately 29,182 people,
of whom approximately 5,938 were employed in France, 6,357 were employed in
Italy, 637 were employed in the rest of Europe, 2,655 were employed in the
United States, 5,449 were employed in Malta and Morocco and 4,686 were employed
in Singapore, Malaysia and Japan. As of December 31, 1998 approximately 4,400
employees were engaged in research and development, 1,700 in marketing and
sales, 20,200 in manufacturing, 1,600 in administration and general services and
1,300 in divisional functions.

        The Company's future success will depend, in part, on its ability to
continue to attract, retain and motivate highly qualified technical, marketing,
engineering and management personnel. Unions are present in France, Italy,
Malta, Morocco and Singapore. The Company has not experienced any significant
strikes or work stoppages in recent years, other than in connection with
national strikes in Italy, and management believes that the Company's employee
relations are good.

        As part of its commitment to the principles of TQM, the Company decided
in July 1994 to develop an internal education organization called "ST
University", responsible for organizing training courses to executives,
engineers, technicians and sales personnel within the Company and coordinating
all training for STMicroelectronics' employees. In 1998, ST University organized
over 100,000 hours of training for 3,500 employees.

Environmental Matters

        The Company's manufacturing operations use many chemicals and gases and
the Company is subject to a variety of governmental regulations related to the
use, storage, discharge and disposal of such chemicals and gases and other
emissions and wastes. Consistent with the Company's TQM principles, the Company
has established proactive environmental policies with respect to the handling of
such chemicals and gases and emissions and waste disposals from its
manufacturing operations. The Company has engaged outside consultants to audit
its environmental activities and has created environmental management teams,
information systems, education and training programs, and environmental
assessment procedures for new processes and suppliers. All of the Company's
plants are certified for the Eco- Management and Audit Scheme ("EMAS") and have
also obtained ISO 14001 certification.

        Although the Company has not suffered material environmental claims in
the past and believes that its activities conform to presently applicable
environmental regulations, in all material respects, environmental claims or the
failure to comply with present or future regulations could result in the
assessment of damages or imposition of fines against the Company, suspension of
production or a cessation of operations.

Year 2000

        Reference is made to the information appearing under the caption "Year
2000" on pages 36 through 39 of the Registrant's 1998 Annual Report, which
information is incorporated herein by reference.



                                       30

<PAGE>



        As of May 29, 1999, the Company's groups have fully completed Phases 1
to 3 and substantially completed Phases 4 and 5. Approximately 83% of items
involved have a status of tested and certified compliant. For the 17% not yet
tested and certified compliant, approximately 85% of the preparatory work has
been completed. Globally, the Company is near 95% completion relative to the
total work load, and is on schedule relative to the Year 2000 Project plan. At
May 29, 1999, 94% of front-end equipment and 96% of back-end equipment had been
tested or certified compliant. The Company's target is to have 100% tested
compliance by mid 1999, but there remains the possibility of some delays due to
the late delivery of solutions by certain suppliers. At May 29, 1999, 95% of
facilities equipment was tested or certified compliant. For business software
systems including financial accounting, sales order management and human
resources systems applications which are not otherwise being upgraded, specific
year 2000 compliance is being worked on internally. The Company expects to
complete most such upgrades by the end of June 1999. At May 29, 1999, 64% of
corporate materials suppliers and virtually all corporate equipment suppliers
have indicated that they are currently Year 2000 Compliant. Substantially all
other significant suppliers are on schedule to achieve Year 2000 Compliance in
due time before January 1, 2000. The Company has determined the magnitude of the
remaining tasks (completion of Phases 4 and 5) and has fixed schedules and
assigned resources accordingly. The Company has estimated the total capital
costs related to its Year 2000 activities to be in the range of approximately
$40 million.

                         Item 2: Description of Property

Manufacturing

        STMicroelectronics currently operates 17 main manufacturing facilities
around the world. The table below sets forth certain information with respect to
STMicroelectronics' current manufacturing facilities, products and technologies.
Front-end manufacturing facilities are wafer fabrication plants and back-end
facilities are assembly, packaging and final testing plants.




                                       31

<PAGE>


<TABLE>
<CAPTION>


      Location                               Products                                            Technologies
---------------------        -------------------------------------------     --------------------------------------------------
<S>                          <C>                                             <C>
Front-end Facilities:
Crolles, France              Semicustom devices, microcontrollers            Fab-     8-inch 0.5/0.18 micron CMOS and
                             and dedicated products                                   0.7/0.25 micron BiCMOS; R&D on
                                                                                      VLSI submicron technologies in
                                                                                      conjunction with CNET and Philips
                                                                                      Semiconductors
Phoenix, Arizona             Dedicated products                              Fab -    8-inch 0.7/0.35 micron CMOS,
                                                                                      0.5/0.35 micron BiCMOS
Agrate, Italy                Nonvolatile memories, microcontrollers and      Fab 1-   6-inch 0.8/0.5 micron CMOS
                             dedicated products                              Fab 2-   6-inch 2.0/0.8 micron BiCMOS and
                                                                                      BCD
                                                                             Fab 3-   6-inch 0.35/0.18 micron CMOS pilot
                                                                                      line being converted to 8-inch
Rousset, France              Microcontrollers, nonvolatile memories and      Fab -    6-inch 0.8/0.5 micron CMOS
                             smartcard ICs
Catania, Italy               Power transistors, smart power ICs              Fab 1-   5-inch 3 micron bipolar power
                             and nonvolatile memories                        Fab 2-   6-inch 4/1 micron MOS power
                                                                             Fab 3-   6-inch 4/1 micron pilot line
                                                                             Fab 4-   8-inch 0.5/0.25 CMOS
Rennes, France               Dedicated and power products                    Fab -    5-inch 2 micron BiCMOS, BCD and
                                                                                      bipolar
Castelletto, Italy           Smart power BCD                                 Fab -    6-inch 4.0/0.8 micron BCD pilot line
Tours, France                Protection thyristors, diodes and application-  Fab 1-   4/5-inch discrete
                             specific discretes                              Fab 2-   4/5-inch discrete
Ang Mo Kio, Singapore        Dedicated products, microcontrollers, power     Fab 1-   5-inch 1.5 micron CMOS and power
                             transistors and commodity products                       MOS
                                                                             Fab 2-   5-inch 6/3 micron bipolar transistor
                                                                             Fab 3-   5-inch 2.0/1.2 micron bipolar ICs
                                                                             Fab 4-   5-inch 5 micron standard linear
Carrollton, Texas            Memories, microcontrollers, dedicated           Fab -    6-inch 0.7 micron BiCMOS, 1.0
                             products and semicustom devices                          micron BCD and 0.8/0.6 micron
                                                                                      CMOS
Rancho Bernardo,             Dedicated products                              Fab -    6-inch 1.0 micron BCD
   California

Back-end Facilities:
Muar, Malaysia               Dedicated and standard products,
                             microcontrollers
Kirkop, Malta                Dedicated products, microcontrollers,
                             semicustom devices
Toa Payoh, Singapore         Nonvolatile memories and power ICs
Ain Sebaa, Morocco           Discrete and standard products
Shenzhen, China              Nonvolatile memories, discrete and standard
                             products
Bouskoura, Morocco           Subsystems, RF

</TABLE>

        STMicroelectronics has expanded its diversified manufacturing
infrastructure while improving the cost, quality and flexibility of its
operations. STMicroelectronics has applied recent investments in its
manufacturing facilities to bring to full capacity the 8-inch front-end
manufacturing facility in Crolles, France, to continue the ramp up of the new


                                       32

<PAGE>



8-inch front-end manufacturing facilities in Phoenix, Arizona and Catania,
Italy, and to continue to build and equip a new back-end facility in Shenzhen,
China. Capital expenditures for 1998 were devoted principally (i) to the
expansion of the 8-inch front-end wafer fabrication plant in Crolles, France,
(ii) to equip and upgrade both the new 8-inch and existing 6-inch front-end
facilities at the Catania, Italy plant, (iii) to the extension and conversion of
an existing facility in Agrate, Italy, (iv) to the expansion of the 6-inch
facility in Carrollton, Texas, (v) to the ramp-up of production at the Phoenix,
Arizona 8-inch front-end facility, (vi) to the expansion of the back-end
facilities in Muar, Malaysia, and (vii) to the expansion of the back-end
facilities in Morocco, Malta and Shenzhen, China.

        The Company currently expects that capital spending for 1999 will
continue to be at levels at least as high as in each of the last three years,
and possibly higher. The most significant of the Company's 1999 capital
expenditure projects are expected to be the conversion from 6-inch to 8-inch and
expansion at one of its front-end wafer fabrications plants in Agrate, Italy,
the increase of capacity of the 8-inch facilities in Catania, Italy, the
completion of construction of its new 8-inch front-end wafer fabrications
facility in Rousset, France, the conversion of its facilities in Crolles, France
to 0.25 micron and 0.18 micron processes, the increase of capacity of the 8-inch
facilities in Phoenix, Arizona and the expansion of the back-end facilities in
Muar and Morocco. The Company has also identified an additional 8- inch wafer
fabrication facility to be built in Italy that is planned to be operational by
the year 2001. The Company has decided to build a new 300 millimeter, 12-inch
wafer research fabrication and pilot line at Crolles (France) using 0.18 micron
and below process technology. The Company will continue to monitor its level of
capital spending, however, taking into consideration factors such as trends in
the semiconductor market, capacity utilization and announcements by competitors.

        In 1994, the Company created a joint venture with a subsidiary of the
Shenzhen Electronics Group ("SEG") that built and equipped a back-end
manufacturing facility mentioned above in the Futian free-trade zone of Shenzhen
in southern China. STMicroelectronics owns a 60% interest in the joint venture,
with a subsidiary of SEG owning the remaining 40%. Construction of the plant and
equipment installation was completed in 1996 as scheduled and production started
at the end of 1996. The joint venture will have invested approximately $150
million in the project by the end of 1999. SEG is a diversified export-oriented
electronics company controlled by the Shenzhen Municipal Government that
manufactures communications equipment, computers and electronic products and
components and engages in import-export trading, financial investment management
and real estate.

        Although each fabrication plant is dedicated to specific processes, the
Company's strategy is to develop local presences, better serve customers and
mitigate manufacturing risks by having key processes operated in different
manufacturing plants. The Company is also seeking to take advantage of current
industry overcapacity by qualifying subcontractors on a limited basis both for
wafer foundry and back-end services and thereby minimizing its capital
expenditure needs.

        The Company's manufacturing processes are highly complex, require
advanced and costly equipment and are continuously being modified in an effort
to improve yields and product performance. Impurities or other difficulties in
the manufacturing process can lower yields, interrupt production or result in
losses of products in process. As system complexity has increased and sub-micron
technology has become more advanced, manufacturing tolerances have been reduced
and requirements for precision have become even more demanding. Although the
Company's increased manufacturing efficiency has been an important factor in its
improved results of operations, the Company has from time to time experienced
production difficulties that have caused delivery delays and quality control
problems, as is common in the semiconductor industry. No assurance can be given
that the Company will be able to increase manufacturing efficiency in the future
to the same extent as in the past or that the Company will not experience
production difficulties in the future.

        STMicroelectronics is fostering a corporate-wide TQM culture that
defines a common set of objectives and performance measurements for employees in
all geographic regions, at every stage of product design, development,
production and consignment for all product lines. TQM in STMicroelectronics is
based on five key principles:


                                       33

<PAGE>



management commitment, employee empowerment, continuous improvement, management
by fact and customer focus. TQM has become an integral part of the
STMicroelectronics' culture and it is designed to develop a self-directed work
force with a common set of values, objectives and problem-solving processes.
Since 1987, the Company has improved average AIQ (electrical) status levels from
5,000 ppm to 14 ppm at the end of 1998. The Company uses through-the-wall
mounted equipment for clean rooms to reduce the risk of wafer contamination from
equipment. The Company also uses robot confinement systems to reduce the risk of
wafer contamination. The Company's CIM systems provide management with real time
data on all aspects of the performance of its manufacturing systems. Most of the
Company's manufacturing facilities have been certified to conform to ISO
international quality standards. Several major customers, including
Hewlett-Packard, Nokia, Sharp, Chrysler and Sanyo, have recognized
STMicroelectronics' commitment to quality and have honored the Company with
quality awards in the recent past. In September 1997, the Company was awarded
the 1997 European Quality Award For Business Excellence in the category of large
business by the EFQM.

        STMicroelectronics' manufacturing processes use many raw materials,
including silicon wafers, lead frame, mold compound, ceramic packages and
chemicals and gases. The Company obtains its raw materials and supplies from
diverse sources on a just-in-time basis. Although supplies for the raw materials
used by the Company are currently adequate, shortages could occur in various
essential materials due to interruption of supply or increased demand in the
industry.

        The Company has principal executive offices located in the vicinity of
Geneva Airport at Route de Pre-Bois 20, ICC Bloc A, 1215 Geneva 15, Switzerland
and at Technoparc du Pays de Gex-BP112, 165 rue Edouard Branly, 01637 St. Genis
Pouilly, France. The latter office is maintained by the Company's French
subsidiary. The Company's corporate seat is in Amsterdam, The Netherlands. The
Company also operates nine research and development centers and 31 design
centers. The Company maintains regional sales headquarters in Geneva,
Switzerland, Boston, Massachusetts, Singapore and Tokyo, Japan, and has 62 sales
offices in 24 countries throughout Europe, North America, Japan, the Asia
Pacific region and Region Five. In general, the Company owns its manufacturing
facilities and leases most of its sales offices.

        As is common in the semiconductor industry, the Company has from time to
time experienced difficulty in ramping up production at new facilities or
effecting transitions to new manufacturing processes and, consequently, has
suffered delays in product deliveries or reduced yields. There can be no
assurance that the Company will not experience manufacturing problems in
achieving acceptable yields, product delivery delays or interruptions in
production in the future as a result of, among other things, capacity
constraints, construction delays, ramping up production at new facilities,
upgrading or expanding existing facilities, changing its process technologies,
or contamination or fires, storms, earthquakes or other acts of nature, any of
which could result in a loss of future revenues. In addition, the development of
larger fabrication facilities that include 8-inch or larger capabilities and
require 0.25 micron or smaller technology has increased the potential for losses
associated with production difficulties, imperfections, or other causes of
defects. In the event of an incident leading to an interruption of production at
a fab, the Company may not be able to shift production to other facilities on a
timely basis or the customer may decide to purchase products from other
suppliers, and in either case the loss of revenues and impact on the Company's
relationship with its customers could be significant. The Company's operating
results could also be adversely affected by the increase in fixed costs and
operating expenses related to increases in production capacity if revenues do
not increase commensurately.


                            Item 3: Legal Proceedings

        As is the case with many companies in the semiconductor industry, the
Company has from time to time received communications alleging possible
infringement of certain intellectual property rights of others. Irrespective of
the validity or the successful assertion of such claims, the Company could incur
significant costs with respect to the defense thereof which could have a
material adverse effect on the Company's results of operations or financial
condition.



                                       34

<PAGE>



        The Company is currently involved in certain legal proceedings; however,
the Company does not believe that the ultimate resolution of pending legal
proceedings will have a material adverse effect on its financial condition.

        The public prosecutor in Catania, Italy commenced a criminal
investigation into alleged unauthorized use of public funds for research and
development. Based on a report from a panel of experts appointed by the public
prosecutor, the prosecutor issued a request for indictment in June 1997 against
the 11 members of the Board of Directors of the research and development
consortium Corimme, in which the Company's Italian subsidiary
("STMicroelectronics Italy") has a two-thirds voting interest (the remaining
one-third interest is held by the University of Catania). The people indicted
included eight employees or ex-employees of STMicroelectronics Italy and three
professors of the University of Catania.

        Following the request for indictment, the 11 members of Corimme's Board
of Directors filed an incidente probatorio in December 1997, requesting the
appointment of a panel of independent experts to verify the assertions made by
the public prosecutor's experts. During a hearing on March 25, 1998, the judge
for the preliminary hearing accepted the incidente probatorio and named a panel
of independent experts. The college of independent experts, in their public
report filed with the court in February 1999, concluded that not only were the
accusations formulated by the public prosecutor concerning the use of public
funds for research and development unfounded, but also that the research and
development performed by Corimme had been very wide ranging, complex, as well as
fully in line with requirements for the public funding received. The court will
now hold hearings to make a decision on the pursuit of charges against the 11
indicted persons in light of the report from the independent college of experts.

        In parallel, the tax authorities in Catania had issued proceedings
against Corimme for alleged unauthorized VAT deductions and irregular invoicing
for the years 1988 to 1993, and the tax authorities in Milan had issued
proceedings against STMicroelectronics Italy for alleged VAT infringements
during the years 1990 to 1994 and income tax infringements during the years 1990
to 1992 for invoicing for allegedly noneligible production services performed by
Corimme for the account of STMicroelectronics Italy.

        In a final ruling in March 1999, the Commissione Tributaria Centrale
confirmed the previous decisions favorable to Corimme entered by the Commissione
Tributaria Provinciale and the Commissione Tributaria Regionale, with respect to
the years 1988 and 1989.

        The Commissione Tributaria Provinciale of Catania has ruled in favor of
Corimme with respect to the years 1990 to 1993, in first instance, and the
Commissione Tributaria Provinciale of Milan has ruled in favor of
STMicroelectronics Italy with respect to VAT claims for the years 1990 to 1994.
Presently, appeals are pending before the Commissione Tributaria Regionale.

        The Commissione Tributaria Provinciale of Milan has also ruled in favor
of STMicroelectronics Italy on the various income tax proceedings for the period
1990-1992. The tax authorities have accepted these rulings by waiving their
right of appeal.

        The Company's management believes that Corimme's contractual and other
requirements have been honored in all material respects in accordance with the
requirements and with applicable financial procedures provided by the Italian
government and has no grounds to suspect malfeasance. The Company has cooperated
fully with the authorities in the conduct of the inquiry. Although it remains
impossible to determine with certainty the ultimate outcome of the remaining
ongoing investigations, management believes the investigations will not have a
material effect on the financial condition or results of operations of the
Company.




                                       35

<PAGE>




                          Item 4: Control of Registrant

Principal Shareholders

        The following table sets forth certain information with respect to the
ownership of the Company's Common Shares as of June 10, 1999.


Shareholders                                             Common Shares Owned (1)
------------                                             -----------------------
                                                         Number(2)           %
                                                         ----------         ----
STMicroelectronics Holding II B.V. ("ST Holding II").....79,863,880         55.9
--------------
(1)         Prior to the offer and sale of Common Shares by the Company and ST
            Holding II, completed on June 10, 1998 (the "Share Offering"), ST
            Holding II held 68.9% of the outstanding Common Shares of the
            Company. Simultaneously with the Share Offering, the Company offered
            and sold $513,852,000 principal amount at maturity Liquid Yield
            OptionTM Notes (the "Notes") convertible, subject to certain
            conditions, into Common Shares at a conversion rate of 8.952 Common
            Shares per $1,000 principal amount at maturity. Assuming all Notes
            are converted, ST Holding II will own 54.2% of the outstanding
            Common Shares. These calculations do not give effect to Common
            Shares that may be issued under the Employee Stock Plan or pursuant
            to options granted to members and professionals of the Supervisory
            Board.
(2)         On June 16, 1999, the Company effected a 2:1 stock split.


          ST Holding is 50% owned by a group of French shareholders that are
indirectly controlled by the French government and 50% owned by a group of
Italian shareholders that are indirectly controlled by the Italian government.
The group of French shareholders is comprised of France Telecom, the French
state-controlled telephone company, and CEA-Industrie, a corporation controlled
by the French atomic energy commission, who hold through FT1CI. The group of
Italian shareholders is represented by MEI-Microelettronica Italiana s.r.l.
("MEI"), an Italian holding company owned by Istituto per la Ricostruzione
Industriale-IRI S.p.A. ("I.R.I."), the holding company for Italian state-owned
industrial and commercial interests, and Comitato per l'intervento nella SIR ed
in settori ad alta tecnologia ("Comitato SIR"). As of June 18, 1999, the
interest previously held by Comitato SIR was transferred to Ministero del Tesoro
del Bilancio e della Programmazione Economica-Dipartimento del Tesoro, the
Italian Ministry of Treasury. The shares of France Telecom are listed on the
ParisBourse and the New York Stock Exchange. Certificats d'investissement of
CEA-Industrie are listed on the ParisBourse.

          The officers and directors of the Company as a group do not own a
material number of Common Shares.

          The chart below illustrates the current shareholding structure as of
June 10, 1999:



                                       36

<PAGE>


         This information was represented by an organizational chart in the
original document.

         Description of Shareholding Structure: STMicroelectronics N.V. is owned
55.9% by STMicroelectronics Holding II B.V. and 44.1% by the public.
STMicroelectronics Holding II B.V. is a wholly-owned subsidiary of
STMicroelectronics Holding N.V. which is 50% owned by a group of French
shareholders and 50% owned by a group of Italian shareholders. The French
shareholder, FT1CI, is owned 51% by CEA-Industrie and 49% by France Telecom,
respectively. The Italian shareholder, MEI, is owned 50.1% and 49.9% by I.R.I.
and Comitato SIR(1), respectively.

--------------
(1)   As of June 18, 1999, the interest previously held by Comitato SIR was
      transferred to Ministero del Tesoro del Bilancio e della Programmazione
      Economica-Dipartimento del Tesoro, the Italian Ministry of the Treasury.


Shareholder Agreements

        In connection with the formation of the Company, Thomson-CSF and STET,
as shareholders of the Company, entered into a shareholders agreement on April
30, 1987. In connection with the formation of ST Holding in 1989, which
coincided with the acquisition by Thorn EMI of its interest in the Company, the
shareholders agreement (as amended, the "Holding Shareholders Agreement") was
amended to apply to the parties' ownership in ST Holding. The rights and
obligations of Thomson-CSF and STET under the Holding Shareholders Agreement
were subsequently transferred to or assumed by, as the case may be, FT2CI for
Thomson-CSF, and Finmeccanica and MEI for STET. In connection with the transfer
by Finmeccanica of its interest in ST Holding to MEI, the rights and obligations
of Finmeccanica under the Holding Shareholders Agreement were subsequently
transferred to or assumed by, as the case may be, MEI.

        The Holding Shareholders Agreement contemplates that the parties shall
agree upon common proposals and jointly exercise their powers of decision and
their full control of the strategies and actions of ST Holding and the Company.
Under the Holding Shareholders Agreement, the Supervisory Board of ST Holding,
which is composed of three representatives of the French Owner and three
representatives of the Italian Owner, must give its prior approval before ST
Holding, the Company, or any subsidiary of the Company may: (i) modify its
articles of incorporation; (ii) change its authorized share capital, issue,
acquire or dispose of its own shares, change any shareholder rights or issue any
instruments granting an interest in its capital or profits; (iii) be liquidated
or dispose of all or a substantial and material part of its assets or any shares
it holds in any of its subsidiaries; (iv) enter into any merger, acquisition or
joint venture agreement (and, if substantial and material, any agreement
relating to intellectual property) or form a new company; (v) approve such
company's draft consolidated balance sheets and financial statements or any
profit


                                       37

<PAGE>



distribution by such company; or (vi) enter into any agreement with any of the
direct or indirect French or Italian Owners outside the normal course of
business. The Holding Shareholders Agreement also provides that long-term
business plans and annual budgets of the Company and its subsidiaries, as well
as any significant modifications thereto, shall be approved in advance by the
Supervisory Board of ST Holding. In addition, the Supervisory Board of ST
Holding shall also decide upon operations of exceptional importance contained in
the annual budget even after financing thereof shall have been approved.

        Such agreement also provides that similar and adequate levels of
research, development and technological innovation shall be achieved by the
Company and its subsidiaries in France and Italy and that there shall be no
substantial discrepancy in the percentage of state financing compared to
research, development and technological innovation expenditures by the Company
and its subsidiaries in each such country. See "Item 1: Description of
Business--State Support for the Semiconductor Industry." Pursuant to the terms
of the Holding Shareholders Agreement, ST Holding is not permitted, as a matter
of principle, to operate outside the field of semiconductor products. The
parties to the Holding Shareholders Agreement also undertake to refrain directly
or indirectly from competing with the Company in the area of semiconductor
products, subject to certain exceptions, and to offer the Company opportunities
to commercialize or invest in any semiconductor product developments by them.
Any financing or capital provided by the parties to ST Holding or the Company is
intended to be provided pro rata based on the parties' respective shareholdings
in ST Holding. In the Holding Shareholders Agreement, the parties state that it
is of the utmost importance that the French and Italian governments grant
sufficient and continuous financial support for research and development, and
undertake to take suitable actions with a view to obtaining such funding. See
"Item 1: Description of Business--State Support for the Semiconductor Industry."

        In the event of a disagreement that cannot be resolved between the
parties as to the conduct of the business and actions contemplated by the
Holding Shareholders Agreement, each party has the right to offer its interest
in ST Holding to the other, which then has the right to acquire, or to have a
third party acquire, such interest. If neither party agrees to acquire or have
acquired the other party's interest, then together the parties are obligated to
try to find a third party to acquire their collective interests, or such part
thereof as is suitable to change the decision to terminate the agreement. The
Holding Shareholders Agreement otherwise terminates in the event that one of the
parties thereto ceases to hold shares in ST Holding.

        Pursuant to the terms of the Holding Shareholders Agreement and for the
duration of such agreement, FT2CI (the "French Owner"), on the one hand, and MEI
(the "Italian Owner"), on the other hand, have agreed to maintain equal
interests in the share capital of ST Holding and maintain, together, ownership
of the majority of ST Holding's issued voting shares. As a result of the merger
of FT1CI and FT2CI, the rights and obligations of FT2CI under the Holdings
Shareholders Agreement have been transferred to FT1CI. The admission of a third
party to the share capital of ST Holding, whether through the sale of ST
Holding's outstanding shares or through the issue by ST Holding of new shares,
or by any other means, must be unanimously agreed upon. In the event of a new
shareholder, the parties undertake to ensure that the balance between the French
and Italian shareholdings is maintained until at least December 31, 1998.
Pursuant to a Memorandum of Understanding dated February 24, 1998, the
arrangements set forth in the Holding Shareholders Agreement were extended until
at least December 31, 1998. The Company has also been informed that the
Shareholders Agreement between FT1CI and Thomson-CSF relating to the management
of their respective holdings in ST Holding and the Company terminated on October
6, 1997.

        The Company has been informed that the shareholders of FT1CI have also
entered into a separate shareholder agreement that requires the consent of the
Board of Directors of each such company to certain actions taken by ST Holding,
the Company and its subsidiaries. These agreements provide for the management of
the interests of CEA-Industrie and France Telecom in ST Holding and the
Company, with the object of defining between them the positions, strategies and
decisions to be taken by the French Owner in ST Holding affecting the management
of ST Holding, and the Company and its subsidiaries. The Company is not a party
to such agreement.



                                       38

<PAGE>



        The agreement between the shareholders of FT1CI (CEA-Industrie and
France Telecom) provides that the following acts with respect to ST Holding or
the Company must be approved by three-quarters of the Board of Directors of
FT1CI (which consists of five directors, three of whom are chosen by
CEA-Industrie and two of whom are chosen by France Telecom): (i) any
modification of the articles of association of ST Holding or the Company, (ii)
any change in the capital of ST Holding or the Company, or issuance, purchase or
sale by ST Holding or the Company of their shares or rights attached thereto, or
the issuance of any securities giving rights to a share in the capital or
profits of ST Holding or the Company, (iii) the liquidation or dissolution of ST
Holding or the Company or the sale of all or an important and material part of
the business or assets of ST Holding or the Company representing at least
$10,000,000 of the consolidated shareholders' equity of the Company, (iv) any
merger, acquisition, partnership in interest or the execution of any material
agreement relating to intellectual property rights, in each case in which ST
Holding or the Company participates or in which a proposal is made to
participate, or the establishment by ST Holding or the Company of new companies
or groups, (v) approval of the balance sheets and consolidated accounts of ST
Holding, the Company and its subsidiaries as well as the policies of
distributions of profits among the group, (vi) any agreement between ST Holding
and/or the Company and the shareholders of FT1CI which is out of the ordinary
course of business, (vii) the approval of, or material modifications to,
shareholders agreements with the Italian Owner with respect to ST Holding or the
Company and (viii) approval of strategic multi-year plans and annual
consolidated budgets of ST Holding and the Company. Transfers of shares in FT1CI
to third parties are subject to the approval of at least four members of the
Board of Directors, and are subject to a right of first refusal of the other
shareholders, as well as other provisions. In the event CEA-Industrie proposes
to sell its interest in FT1CI, in whole or in part, France Telecom has the right
to require the acquirer to purchase its interest as well. The FT1CI shareholders
agreement terminates upon the termination of FT1CI.

        As is the case with other companies controlled by the French Government,
the French Government has appointed a Commissaire du Gouvernement and a
Controleur d'Etat for FT1CI. Pursuant to Decree No. 94-214, dated March 10,
1994, these Government representatives have the right (i) to attend any board
meeting of FT1CI, and (ii) to veto any board resolution or any decision of the
president of FT1CI within 10 days of such board meeting (or, if they have not
attended the meeting, within 10 days of the receipt of the board minutes or the
notification of such president's decision); such veto lapses if not confirmed
within one month by the Ministry of the Economy or the Ministry of Industry.
FT1CI is subject to certain points of the arrete of August 9, 1953 pursuant to
which the Ministry of the Economy and any other relevant ministries (a) have the
authority to approve decisions of FT1CI relating to budgets or forecasts of
revenues, operating expenses and capital expenditures, and (b) may set
accounting principles and rules of evaluation of fixed assets and amortization.

        In connection with the Initial Public Offering, ST Holding II and the
Company entered into a registration rights agreement pursuant to which the
Company agreed that, upon request from ST Holding II, the Company will file a
registration statement under the Securities Act of 1933, as amended, to register
Common Shares held by ST Holding II, subject to a maximum number of five
requests in total as well as a maximum of one request in any twelve-month
period. Subject to certain conditions, the Company will grant ST Holding II the
right to include its Common Shares in any registration statements covering
offerings of Common Shares by the Company. ST Holding II will pay a portion of
the costs of any requested or incidental registered offering based upon its
proportion of the total number of Common Shares being registered, except that ST
Holding II will pay any underwriting commissions relating to Common Shares that
it sells in such offerings and any fees and expenses of its separate advisors,
if any. Such registration rights agreement will terminate upon the earlier of
December 15, 2004 and such time as ST Holding II and its affiliates own less
than 10% of the Company's outstanding Common Shares.

        The French and Italian shareholders of ST Holding have agreed in the
Memorandum of Understanding dated February 24, 1998, which has not been
modified, to continue to manage their interest in the Company through ST Holding
until at least December 31, 1998, and accordingly, for so long as they hold
their interests in ST Holding, they have undertaken (i) to jointly hold 100% of
ST Holding's capital and voting rights, (ii) to maintain equality between the
shareholdings of the French and Italian shareholders, (iii) to ensure that ST
Holding maintains more than 50% of the Company's share


                                       39

<PAGE>



capital and voting rights, and (iv) to jointly exercise their decision-making
powers and monitor strategies and actions as part of ST Holding's management
bodies.

        On May 31, 1999, the Company's shareholders at the annual general
meeting approved the creation of 180,000,000 Preference Shares. These Preference
Shares entitle a holder to full voting rights at any meeting of shareholders and
to a preferential right to dividends. On May 31, 1998, the Company entered into
an option agreement with ST Holding II, which provides that Preference Shares
shall be issued to ST Holding II upon request subject to the adoption of a
resolution of the Supervisory Board of the Company recognizing that a hostile
takeover or similar action exists and giving its consent to the exercise of the
option and upon payment of at least 25% of the par value of the Preference
Shares to be issued. The option is contingent upon ST Holding II retaining at
least 33% of the issued share capital of the Company.


                        Item 5: Nature of Trading Market

Common Shares

        Since 1994, the Common Shares have been traded on the New York Stock
Exchange under the symbol "STM" and on the ParisBourse and were quoted on SEAQ
International. On June 5, 1998, the Common Shares were also listed for the first
time on the Italian Stock Exchange, where they have been traded since that date.

        The Common Shares have been included in the CAC 40, the principal index
published by the SBF-ParisBourse, since November 12, 1997. The CAC 40 is derived
daily by comparing the total market capitalization of 40 stocks included in the
monthly settlement market of the ParisBourse to a baseline established on
December 31, 1987. Adjustments are made to allow for expansion of the sample due
to new issues. The CAC 40 indicates the trends in the French stock market as a
whole and is one of the most widely followed stock price indices in France.

        The table below indicates the range of the high and low prices in U.S.
dollars for the Common Shares on the New York Stock Exchange and the high and
low prices in euros for the Common Shares on the ParisBourse during each quarter
in 1997, 1998 and to date 1999. In December 1994, the Company completed the
Initial Public Offering of 21,000,000 Common Shares at an initial price to the
public of $22.25 per share. On June 16, 1999, the Company effected a 2:1 stock
split. The table below has been adjusted to reflect the split.




                                       40

<PAGE>


<TABLE>
<CAPTION>


                                            New York Stock Exchange                      ParisBourse
                                            Price per Common Share                Price per Common Share(1)
                                            -------------------------       ---------------------------------

Calendar Period                               High           Low              High                Low
---------------                               ----           ---              ----                ---
<S>                                         <C>            <C>              <C>               <C>
1997
      First quarter.....................    $ 40-7/16      $ 31-7/8         Euro 33.39       Euro 26.91
      Second quarter....................    $ 44           $ 31-1/4         Euro 37.66       Euro 28.06
      Third quarter.....................    $ 49-17/32     $ 40-9/32        Euro 47.79       Euro 35.83
      Fourth quarter....................    $ 47           $ 25-3/4         Euro 43.07       Euro 23.87
1998
      First quarter.....................    $ 39-3/8       $ 25-5/8         Euro 37.24       Euro 23.63
      Second quarter....................    $ 45-7/8       $ 32-1/4         Euro 42.46       Euro 29.42
      Third quarter.....................    $ 36-1/4       $ 22             Euro 33.26       Euro 18.37
      Fourth quarter....................    $ 41-7/16      $ 17-15/16       Euro 34.99       Euro 15.02
1999
      First quarter.....................    $ 53-13/16     $ 40-1/4         Euro 48.50       Euro 34.40
      Second quarter (through June 23)..    $ 72-1/2       $ 49             Euro 67.95       Euro 44.50
<FN>
--------------
(1)   For periods prior to January 1, 1999, the share prices on the ParisBourse
      have been converted into euros at the official exchange rate of Euro
      1.00 = FRF 6.55957.
</FN>
</TABLE>

        At December 31, 1998, there were 142,478,106 Common Shares issued and
outstanding, of which 14,331,742 or 10.05% were registered in the Common Share
registry maintained on the Company's behalf in New York.

        Since June 5, 1998, the Common Shares have also been listed on the
Italian Stock Exchange. The table below indicates the range of high and low
prices in euros for the Common Shares on the Italian Stock Exchange, as adjusted
for the 2:1 stock split.


Calendar Period                                       Italian Stock Exchange
                                                    Price per Common Share(1)
                                               ---------------------------------
                                                   High               Low
                                               ------------       --------------
1998
    Second quarter (since June 5, 1998).....   Euro 32.79        Euro 30.38
    Third quarter...........................   Euro 32.53        Euro 19.92
    Fourth quarter..........................   Euro 34.77        Euro 15.73
1999
    First quarter...........................   Euro 46.53        Euro 34.96
    Second quarter (through June 23)........   Euro 67.23        Euro 45.94

--------------
(1)     For periods to January 1, 1999, the share prices on the Italian Stock
        Exchange have been converted into euros at the official exchange rate of
        Euro 1.00 = Lit. 1,936.27.


                                       41

<PAGE>



Dividends

        On May 31, 1999, the Company's shareholders approved the payment of a
cash dividend with respect to the year ended December 31, 1998 of $0.16 per
Common Share payable as of June 15, 1999 to shareholders of record on June 1,
1999.

Liquid Yield OptionTM Notes

        The Liquid Yield OptionTM Notes ("LYONs") of the Company are traded on
the New York Stock Exchange and the ParisBourse. The table below indicates the
range of the high and low prices on the New York Stock Exchange and the high and
low prices for the LYONs on the ParisBourse, in both cases as a percentage of
principal amount at maturity, during each quarter in 1998 and to date in 1999.

<TABLE>
<CAPTION>

                                                 New York Stock Exchange                  ParisBourse
                                                     Price per LYON                      Price per LYON
                                                 ------------------------           ------------------------
Calendar Period                                  High              Low                High             Low
---------------                                  ----              ---                ----             ---
<S>                                              <C>               <C>              <C>              <C>
1998
       Second quarter (since June 5, 1998)...     85-1/8%          83-1/2%           99%              85.5%
       Third quarter.........................     85-1/8%          80%               88.5%            72.1%
       Fourth quarter........................     83%              80%               89%              75%
1999
      First quarter..........................     94%              84%               97.5%            90%
      Second quarter (through June 23).......    130%              94%              122.1%           101.3%
</TABLE>


ParisBourse

          The securities of most large public companies are listed on the
Premier Marche with the Second Marche available for small and medium-sized
companies. Both the Premier Marche and the Second Marche are operated by the
SBF-ParisBourse (the "SBF"). Securities are also traded on the Marche Libre-OTC
which is also operated by the SBF.

          The Common Shares are listed on the Premier Marche. Shares listed on
the ParisBourse are placed in one of four categories depending on the volume of
transactions. The Common Shares are listed in the category known as Continu A,
which includes the most actively traded shares (with a minimum daily trading
volume of FF250,000 or twenty trades).

          Official trading of listed securities on the ParisBourse is transacted
through providers of investment services (investment companies and other
financial institutions) and takes place continuously on each business day from
10:00 a.m. to 5:00 p.m., with a pre-opening session from 8:30 a.m. to 10:00 a.m.
Any trade effected after the close of a stock exchange session will be recorded,
on the next ParisBourse trading day, at the closing price for the relevant
security at the end of the previous day's session. The SBF publishes a daily
Official Price List that includes price information on each listed security. The
ParisBourse has introduced continuous trading by computer for most listed
securities.

          Trading in the listed securities of an issuer may be suspended by the
SBF if quoted prices exceed certain price limits defined by the regulations of
the SBF. In particular, if the quoted price of a Continu A security varies by
more than 10 percent from the previous day's closing price, trading may be
suspended for up to 15 minutes. Further suspensions for up to 15 minutes are
also possible if the price again varies by more than five percent. The SBF may
also


                                       42

<PAGE>



suspend trading of a listed security in certain other limited circumstances,
including, for example, the occurrence of unusual trading activity in such
security.

          Trades of securities listed on the Premier Marche of the ParisBourse
are settled in either of two ways: in the cash settlement market or the monthly
settlement market. The Common Shares are settled in the marche a reglement
mensuel (monthly settlement market). In the monthly settlement market, the
purchaser may elect to settle on the third trading day following the trade
(reglement immediat or immediate settlement) or decide on the determination date
(date de liquidation), which is the fifth trading day prior to the end of the
month) either (i) to settle the trade no later than on the last trading day of
such month or (ii) upon payment of an additional fee, to extend to the
determination date of the following month the option either to settle no later
than the last trading day of such month or to postpone further the selection of
a settlement date until the next determination date (a procedure known as
report). Such purchaser may decide to renew its option on each subsequent
determination date upon payment of an additional fee. The majority of
transactions in equity securities on the ParisBourse are settled on the monthly
settlement market. In accordance with French securities regulation, any sale of
shares executed on the monthly settlement market during the month of a dividend
payment date is deemed to occur after payment of the dividend, and the
purchaser's account will be credited with an amount equal to the dividend paid
and the seller's account will be debited in the same amount.

Securities Trading in Italy

          The Mercato Telematico Azionario (the "MTA"), the Italian automated
screen-based quotation system on which the Company's Common Shares are listed,
is organized and administered by Borsa Italiana S.p.A. ("Borsa Italiana")
subject to the supervision and control of CONSOB, the public authority charged,
inter alia, with regulating investment companies, securities markets and public
offerings of securities in Italy to ensure the transparency and regularity of
dealings and protect investors. Borsa Italiana was established to manage the
Italian regulated financial markets (including the MTA) as part of the
implementation in Italy of the EU Investment Services Directive pursuant to
Legislative Decree No. 415 of July 23, 1996 (the "Eurosim Decree"). Borsa
Italiana became operative in January 1998, replacing the administrative body
Consiglio di Borsa, and has issued rules governing the organization and the
administration of the Italian stock exchange, futures and options markets as
well as the admission to listing on and trading in these markets. The
shareholders of Borsa Italiana are primarily financial intermediaries.

          A five-day rolling cash settlement period applies to all trades of
equity securities in Italy effected on a regulated market. Any person, through
an authorized intermediary, may purchase or sell listed securities following (i)
in the case of sales, deposit of the securities; and (ii) in the case of
purchases, deposit of 100% of such securities' value in cash, or deposit of
listed securities or government bonds of an equivalent amount. No "closing
price" is reported for the electronic trading system, but an "official price",
calculated for each security as a weighted average of all trades effected during
the trading day net of trades executed on a "cross-order" basis, and a
"reference price", calculated for each security as a weighted average of the
last 10% of the trades effected during such day, are reported daily.

          If the opening price of a security (established each trading day prior
to the commencement of trading based on bids received) differs by more than 10%
(or such other amount established by Borsa Italiana) from the previous day's
reference price, trading in that security will not be permitted until Borsa
Italiana authorizes it. If in the course of a trading day the price of a
security fluctuates by more than 5% from the last reported sale price (or 10%
from the previous day's reference price), an automatic five minute suspension in
the trading of that security will be declared. In the event of such a
suspension, orders already placed may not be modified or canceled and new orders
may not be processed. Borsa Italiana has the authority to suspend trading in any
security, among other things, in response to extreme price fluctuations. In
urgent circumstances, CONSOB may, where necessary, adopt measures required to
ensure the transparency of the market, orderly trading and protection of
investors.

          Italian law requires that trading of equity securities, as well as any
other investment services, may be carried out on behalf of the public only by
registered securities dealing firms and banks (with minor exceptions). Banks and


                                       43

<PAGE>



investment services firms organized in a member nation of the EU are permitted
to operate in Italy provided that the intent of the bank or investment services
firm to operate in Italy is communicated to (i) Bank of Italy and to (ii) Bank
of Italy and CONSOB, respectively, by the competent authority of the member
state. Non-EU banks and non-EU investment services firms may operate in Italy
subject to a specific authorization granted by decree of the Italian Ministry of
Treasury and CONSOB, respectively. The settlement of stock exchange transactions
is facilitated by Monte Titoli.

          The settlement of stock exchange transactions is facilitated by Monte
Titoli, a centralized securities clearing system owned by the Banca d'Italia
and certain major Italian banks and financial institutions. Almost all Italian
banks and some registered securities dealing firms have securities accounts with
Monte Titoli. Beneficial owners of shares may hold their interests through
specific deposit accounts with any depositary having an account with Monte
Titoli. Beneficial owners of shares held with Monte Titoli may transfer their
shares, collect dividends, create liens and exercise other rights with respect
to those shares through such accounts.

          Participants in Euroclear and Cedelbank may hold their interests in
shares and transfer the shares, collect dividends and exercise their
shareholders' rights through Euroclear and Cedelbank. A holder may require
Euroclear and Cedelbank to transfer its shares to an account of such holder with
an Italian bank or any authorized broker having an account with Monte Titoli.

                 Item 6: Exchange Controls and Other Limitations
                           Affecting Security Holders

        None.


                                Item 7: Taxation


        The following is a summary of certain tax consequences of the
acquisition, ownership and disposition of the Common Shares based on tax laws of
The Netherlands and the United States as in effect on the date of this annual
report on Form 20-F, and is subject to changes in Netherlands or U.S. law,
including changes that could have retroactive effect. The following summary does
not take into account or discuss the tax laws of any country other than The
Netherlands or the United States, nor does it take into account the individual
circumstances of an investor. Prospective investors in the Common Shares in all
jurisdictions are advised to consult their own tax advisers as to Netherlands,
U.S. or other tax consequences of the purchase, ownership and disposition of the
Common Shares.

Netherlands Taxation

          The following summary of Netherlands tax considerations is based on
present Netherlands tax laws as interpreted under officially published case law.
The description is limited to the tax implications for an owner of Common Shares
who is not, or is not deemed to be, a resident of The Netherlands for purposes
of the relevant tax codes (a "non-resident Shareholder" or "Shareholder").

          Withholding Tax

          Dividends distributed by the Company are subject to a withholding tax
imposed by The Netherlands at a rate of, generally, 25%. The expression
"dividends distributed by the Company" as used herein includes, but is not
limited to:



                                       44

<PAGE>



          (i)      distributions in cash or in kind, deemed and constructive
                   distributions and repayments of paid-in capital not
                   recognized for Netherlands dividend withholding tax purposes;

          (ii)     liquidation proceeds, proceeds of redemption of Common Shares
                   or, as a rule, consideration for the repurchase of Common
                   Shares by the Company in excess of the average paid-in
                   capital recognized for Netherlands dividend withholding tax
                   purposes;

          (iii)    the par value of Common Shares issued to a Holder of Common
                   Shares or an increase of the par value of Common Shares, as
                   the case may be, to the extent that it does not appear that a
                   contribution, recognized for Netherlands dividend withholding
                   tax purposes, has been made or will be made; and

          (iv)     partial repayment of paid-in capital, recognized for
                   Netherlands dividend withholding tax purposes, if and to the
                   extent that there are net profits ("zuivere winst"), unless
                   the general meeting of shareholders of the Company has
                   resolved in advance to make such repayment and provided that
                   the par value of the Common Shares concerned has been reduced
                   by an equal amount by way of an amendment of the Articles of
                   Association.

          If a Holder of Common Shares is resident in a country other than The
Netherlands and if a double taxation convention is in effect between The
Netherlands and such country, such Holder may, depending on the terms of such
double taxation convention, be eligible for a full or partial exemption from, or
refund of, Netherlands dividend withholding tax.

          U.S. Shareholders. Under the Tax Convention of December 18, 1992,
concluded between the United States and The Netherlands (the "Convention"), the
withholding tax on dividends paid by the Company to a resident of the United
States (as defined in the Convention) who is entitled to the benefits of the
Convention under Article 26 may be reduced to 15% pursuant to Article 10 of the
Convention. Dividends paid by the Company to U.S. pension funds and U.S. exempt
organizations may be eligible for an exemption from dividend withholding tax.

          Relief/refund Procedure. If the 15% rate, or an exemption in case of a
qualifying U.S. pension fund, is applicable pursuant to the Convention, the
Company is allowed to pay out a dividend under deduction of 15%, or respectively
without any deduction, if, at the payment date, the relevant shareholders have
submitted the duly signed form IB 92 USA, which form includes a banker's
affidavit. Holders of Common Shares through DTC will initially receive dividends
subject to a withholding rate of 25%. An additional 10% of the dividend will be
paid to holders upon receipt by the dividend disbursing agent of notification
from the Participants in DTC that such holders are eligible for the reduced rate
under the Convention. Only where the applicant has not been able to claim full
or partial relief at source, will he be entitled to a refund of the excess tax
withheld. In that case he should mention in the Form IB 92 USA the circumstances
that prevented him from claiming relief at source.

          Qualifying U.S. exempt organizations can only ask for a full refund of
the tax withheld by using the Form IB 95 USA, which form also includes a
banker's affidavit.

          Income Tax and Corporate Income Tax

          A non-resident individual or corporate Shareholder will not be subject
to Netherlands income tax (as opposed to the dividends withholding tax discussed
above) with respect to dividends distributed by the Company on the Common Shares
or with respect to capital gains derived from the sale or disposition of Common
Shares in the Company, provided that:

                   (a) the non-resident Shareholder does not have an enterprise
          or an interest in an enterprise that is, in whole or in part, carried
          on through a permanent establishment or a permanent representative in
          The


                                       45

<PAGE>



          Netherlands and to which enterprise or part of an enterprise, as the
          case may be, the Common Shares are attributable; and

                   (b) the non-resident Shareholder does not have a substantial
          interest or a deemed substantial interest in the Company or, in the
          event the Shareholder does have such an interest, it forms part of the
          assets of an enterprise.

          Generally, a Shareholder will not have a substantial interest if he,
his spouse, certain other relatives (including foster children) or certain
persons sharing his household, do not hold, alone or together, whether directly
or indirectly, the ownership of, or certain other rights over, shares
representing five per cent or more of the total issued and outstanding capital
(or the issued and outstanding capital of any class of shares) of the Company or
rights to acquire shares, whether or not currently issued, that represent at any
time (and from time to time) five percent or more of the total issued and
outstanding capital (or the issued and outstanding capital of any class of
shares) of the Company or the ownership of certain profit participating
certificates that relate to five percent or more of the annual profit of the
Company and/or to five percent or more of the liquidation proceeds of the
Company. A deemed substantial interest is present if (part of) a substantial
interest has been disposed of, or is deemed to have been disposed of, on a
non-recognition basis.

          Net Wealth Tax

          A non-resident individual Shareholder is not subject to Netherlands
net wealth tax with respect to the Shares, provided that the non-resident
Shareholder does not have an enterprise or an interest in an enterprise that is,
in whole or in part, carried on through a permanent establishment or a permanent
representative in The Netherlands and to which enterprise or part of an
enterprise, as the case may be, the Common Shares are attributable.

          Corporations are not subject to Netherlands net wealth tax.

          Gift and Inheritance Tax

          A gift or inheritance of Common Shares from a non-resident Shareholder
will not be subject to a Netherlands gift and inheritance tax, unless:

                   (a) the non-resident Shareholder at the time of the gift has
          or at the time of his death had an enterprise or an interest in an
          enterprise that is or was, in whole or in part, carried on through a
          permanent establishment or a permanent representative in The
          Netherlands and to which enterprise or part of an enterprise, as the
          case may be, the Common Shares are attributable; or

                   (b) in the case of a gift of Common Shares by an individual
          Shareholder who at the time of the gift was neither resident nor
          deemed to be resident in The Netherlands, the death of such individual
          occurs within 180 days after the date of the gift, while such
          individual is resident or deemed to be resident in The Netherlands.

United States Taxation

          The following discussion is a summary of certain U.S. federal income
tax consequences of the ownership of Common Shares by U.S. Holders, as defined
below. This summary applies only to a beneficial owner of Common Shares (a) who
owns, directly or indirectly, less than 10% of the voting stock of the Company,
(b) who is (i) a citizen or resident of the United States for U.S. federal
income tax purposes, (ii) a U.S. domestic corporation or (iii) otherwise subject
to U.S. federal income taxation on a net income basis in respect of the Common
Shares, (c) who holds the Common Shares as capital assets, (d) whose functional
currency is the U.S. dollar, (e) who is a resident of the United


                                       46

<PAGE>



States and not also a resident of The Netherlands for purposes of the
Convention, (f) who is entitled under the "limitation on benefits" provisions
contained in the Convention to the benefits of the Convention and (g) who does
not have a permanent establishment or fixed base in The Netherlands (a "U.S.
Holder"). Certain holders (including, but not limited to, United States
expatriates, tax-exempt organizations, persons subject to the alternative
minimum tax, securities broker-dealers and certain other financial institutions,
persons holding the Common Shares in a hedging transaction or as part of a
straddle or conversion transaction or holders whose functional currency is not
the U.S. dollar) may be subject to special rules not discussed below. Because
this is a general summary, prospective purchasers are advised to consult their
own tax advisors with respect to the U.S. federal, state, local and applicable
foreign tax consequences of the purchase, ownership and disposition of Common
Shares.

          This summary is based on the Internal Revenue Code of 1986, as amended
(the "Code"), the Convention, judicial decisions, administrative pronouncements
and existing and proposed Treasury regulations as of the date hereof, all of
which are subject to change, possibly with retroactive effect.

          Dividends

          For U.S. federal income tax purposes, the gross amount of
distributions made by the Company with respect to the Common Shares (including
the amount of any Netherlands taxes withheld therefrom) will generally be
includable in the gross income of a U.S. Holder in the year received as foreign
source dividend income to the extent that such distributions are paid out of the
Company's current or accumulated earnings and profits as determined under U.S.
federal income tax principles. To the extent, if any, that the amount of any
such distribution exceeds the Company's current or accumulated earnings and
profits, it will be treated first as a tax-free return of the U.S. Holder's tax
basis in the Common Shares (thereby increasing the amount of any gain or
decreasing the amount of any loss realized on the subsequent sale or disposition
of such Common Shares) and thereafter as capital gain. No dividends received
deduction will be allowed with respect to dividends paid by the Company. The
amount of any distribution paid in Dutch guilders will be equal to the U.S.
dollar value of such Dutch guilders on the date of distribution, regardless of
whether the payment is in fact converted into U.S. dollars at that time. Gain or
loss, if any, realized on the sale or other disposition of such Dutch guilders
will be U.S. source ordinary income or loss. The amount of any distribution of
property other than cash will be the fair market value of such property on the
date of distribution.

          Subject to certain limitations, Netherlands taxes withheld from a
distribution at the rate provided in the Convention will be eligible for credit
against a U.S. Holder's U.S. federal income tax liability. Under current Dutch
law, the Company under certain circumstances may be permitted to deduct and
retain from such withholding a portion of the amount that would otherwise be
required to be remitted to the taxing authorities in The Netherlands. This
amount generally may not exceed 3% of the total dividend distributed by the
Company. To the extent that the Company has withheld an amount from dividends
paid to shareholders which it then is not required to remit to any taxing
authority in The Netherlands, such amount in all likelihood would not qualify as
a creditable tax for U.S. tax purposes. The Company will endeavor to provide to
U.S. Holders information concerning the extent to which it has applied the
reduction described above to dividends paid to U.S. Holders. The limitation on
foreign taxes eligible for credit is calculated separately with respect to
specific classes of income. For this purpose, dividends distributed by the
Company with respect to the Common Shares will generally constitute "passive
income" or, in the case of certain U.S. Holders, "financial services income."
The rules relating to the determination of the U.S. foreign tax credit are
complex and holders should consult their tax advisors to determine whether and
to what extent a credit would be available. U.S. Holders that do not elect to
claim a foreign tax credit may instead claim a deduction for all foreign taxes
paid in the taxable year.

          Sale or Other Disposition of Common Shares

          Upon a sale or other disposition of Common Shares, a U.S. Holder will
recognize gain or loss for U.S. federal income tax purposes in an amount equal
to the difference between the amount realized and the U.S. Holder's tax basis


                                       47

<PAGE>



in such Common Shares. Such gain or loss will be capital gain or loss. Any such
gain or loss, if any, will generally be U.S. source gain or loss. In the case of
a U.S. Holder who is an individual, any capital gain generally will be subject
to U.S. federal income tax at preferential rates if specified minimum holding
periods are met.

          U.S. Information Reporting and Backup Withholding

          Dividend payments with respect to Common Shares and proceeds from the
sale, exchange or redemption of Common Shares may be subject to information
reporting to the Internal Revenue Service ("IRS") and possible U.S. backup
withholding at a 31% rate. Backup withholding will not apply, however, to a
holder who furnishes a correct taxpayer identification number or certificate of
foreign status and makes any other required certification or who is otherwise
exempt from backup withholding. Persons required to establish their exempt
status generally must provide such certification on IRS Form W-9 (Request for
Taxpayer Identification Number and Certification) in the case of U.S. persons
and on IRS Form W-8 (Certificate of Foreign Status) in the case of non-U.S.
persons. Finalized Treasury regulations have generally expanded the
circumstances under which information reporting and backup withholding may apply
for payments made after December 31, 2000. Holders of Common Shares should
consult their tax advisors regarding the application of the information
reporting and backup withholding rules, including the finalized Treasury
regulations.

          Amounts withheld as backup withholding may be credited against a
holder's U.S. federal income tax liability, and a holder may obtain a refund of
any excess amounts withheld under the backup withholding rules by filing the
appropriate claim for refund with the IRS and furnishing any required
information.


                  Item 8: Selected Consolidated Financial Data

          Reference is made to the information appearing under the caption
"Selected Consolidated Financial Data" on page 27 of the Registrant's 1998
Annual Report, which information is hereby incorporated by reference.


            Item 9: Management's Discussion and Analysis of Financial
                       Condition and Results of Operations

          Reference is made to the information appearing under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 28 through 40 of the Registrant's 1998 Annual Report, which
information is hereby incorporated by reference.


       Item 9A: Quantitative and Qualitative Disclosures About Market Risk

          The principal market risks to which the Company is exposed are changes
in interest rates and foreign currency exchange rates. The Company's exposure to
market risk for changes in interest rates relates primarily to the Company's
investment portfolio and long-term debt obligations.

          The Company places its cash and cash equivalents with high credit
quality financial institutions. The Company manages the credit risks associated
with financial instruments through credit approvals, investment limits and
centralized monitoring procedures but does not normally require collateral or
other security from the parties to the financial instruments with off-balance
sheet risk. The Company is averse to principal loss and ensures the safety and
preservation of its invested funds by limiting default risk, market risk and
reinvestment risk. The Company primarily enters into debt obligations to support
general corporate and local purposes including capital expenditures and working
capital needs.



                                       48

<PAGE>



          The Company enters into forward contracts and foreign currency options
to protect against the volatility of foreign currency exchange rates and to
cover a portion of both its probable anticipated, but not firmly committed,
transactions and transactions with firm foreign currency commitments. The risk
of loss associated with purchased options is limited to premium amounts paid for
the option contracts. The risk of loss associated with forward contracts is
equal to the exchange rate differential from the time the contract is made until
the time it is settled.

          Forward contracts outstanding as of December 31, 1998 have remaining
terms of one to 25 months, maturing mainly during first quarter 1999, and amount
to $342.5 million forward sale of U.S. dollars, $20.1 million forward purchase
of U.S. dollars, $200.4 million forward sale of other foreign currencies, and
$71.8 million forward purchase of other foreign currencies. There were no
foreign currency options outstanding as of December 31, 1998. The principal
currencies covered are the German mark, the Singapore dollar, the Japanese yen,
the French franc, the Swiss franc and the Italian lira.

          The Company does not anticipate any material adverse effect on its
financial position, results of operations or cash flow resulting from the use of
these instruments in the future. There can be no assurance that these strategies
will be effective or that transaction losses can be minimized or forecasted
accurately. The Company does not use financial instruments for speculative or
trading purposes.

          The information below summarizes the Company's market risks associated
with cash equivalents, debt obligations, and other significant financial
instruments as of December 31, 1998. The information below should be read in
conjunction with Notes 14 and 23 to the Consolidated Financial Statements.

          The table below presents principal amounts and related
weighted-average interest rates by year of maturity for the Company's investment
portfolio and debt obligations:

<TABLE>
<CAPTION>

                                                                                                               Fair value at
                                                                                                                December 31,
                                     1999        2000      2001      2002     2003      Thereafter    Total        1998
                                     ----        ----      ----      ----     ----      ----------    ----     -------------
                                                        (in thousands of U.S. dollars, except percentages)

Assets:
<S>                               <C>         <C>        <C>       <C>       <C>      <C>        <C>             <C>
    Cash equivalents............  $1,100,752        --        --       --       --         --    $1,100,752      $1,100,752
    Average interest rate.......       6.63%        --        --       --       --         --          6.63%

Long-term debt:
    Fixed rate..................     $45,245  $109,936  $102,460  $77,741   $9,200   $456,527      $801,109        $802,565
    Average interest rate.......       4.12%      4.84%    5.29%    5.45%    5.00%      1.91%          3.28%
</TABLE>

    Long-term debt by currency:

                                                 Amount in          Amount in
                                               thousands of       thousands of
                                             original currency    U.S. dollars
                                             -----------------    ------------
    U.S. dollar.............................          455,885        $ 455,885
    Italian lira (in million lira)..........          383,109          231,752
    French franc............................          552,347           98,628
    Other currencies........................               --           14,844
                                                                   -----------
    Total in U.S. dollars...................                         $ 801,109
                                                                   ===========

          As of December 31, 1997, fixed-rate debt of $415.0 million was
outstanding, with a fair value of $405.4 million, at an average interest rate of
5.19%. Additionally, cash equivalents of $702.2 million were outstanding, at an
average interest rate of 5.64%.


                                       49

<PAGE>



          The following table provides information about the Company's foreign
exchange forward contracts at December 31, 1998:
<TABLE>
<CAPTION>

                                                                                                                 Fair Value
                                                                                Notional          Average     in thousands of
                                                                               Amount(1)       Contract Rate    U.S. dollars
                                                                             ------------      -------------  ---------------
<S>                                                                          <C>                <C>           <C>
Foreign Currency Forward Exchange Contracts to buy (sell)
   U.S. dollars for foreign currencies:
Deutsche mark...........................................................        (14,000)           1.692      $  (14,050)
Malaysian ringgit.......................................................          4,672            3.796           4,667
French franc............................................................       (120,000)           5.610        (120,504)
Italian lira..............................................................     (115,000)       1,662.102        (115,440)
Singapore dollar........................................................        (78,000)           1.641         (77,391)
                                                                             ----------                         ---------
Total net in U.S. dollars...............................................       (322,328)                      $ (322,718)
                                                                              =========                         =========


Foreign Currency Forward Exchange Contracts to buy (sell) German marks for
   foreign currencies:
U.S. dollar..............................................................       (80,000)           1.702      $  (47,826)
Malaysian ringgit........................................................           661            2.278             396
French franc.............................................................         6,910            1.016           4,213
                                                                                  ------                      ----------
Total net in German marks................................................       (72,429)
Total net in U.S. dollars................................................       (43,376)                      $  (43,217)
                                                                                                              ==========

Foreign Currency Forward Exchange Contracts to buy (sell) Japanese yen for
   foreign currencies:
U.S. dollar.............................................................       (150,000)         121.550      $   (1,313)
Italian lira............................................................        200,000           14.407           1,775
Malaysian ringgit........................................................        12,000           31.250             101
French franc............................................................        650,000           21.693           5,736
Singapore dollar........................................................     (2,950,000)          71.686         (25,628)
                                                                             -----------                        --------
Total net in Japanese yen...............................................     (2,238,000)
Total net in US dollars.................................................        (19,461)                      $  (19,329)
                                                                                                              ==========

Foreign Currency Forward Exchange Contracts to buy (sell) Swiss francs for
   foreign currencies:
U.S. dollar.............................................................         55,001            1.356      $   40,265
Italian lira............................................................          1,500        1,218.500           1,107
French franc............................................................          3,900            4.113           2,856
Singapore dollar........................................................            277            1.227             199
                                                                               ---------                       ---------
Total net in Swiss francs...............................................         60,678
Total net in U.S. dollars...............................................         44,355                       $   44,427
                                                                                                               =========

Foreign Currency Forward Exchange Contracts to buy (sell) Italian lira for
   foreign currencies (in million lira):
U.S. dollar..............................................................      (200,000)       1,738.979      $ (125,137)
Malaysian ringgit........................................................           103          425.710             63
Singapore dollar.........................................................           934        1,002.000            559
                                                                               ---------                     -----------
Total net in Italian lira................................................      (198,963)
Total net in U.S. dollars...............................................       (120,358)                      $ (124,515)
                                                                                                             ===========
<FN>
(1) Amounts in thousands of original currency (Italian lira expressed in millions).
</FN>
</TABLE>


                                       50

<PAGE>




          The Company also entered into additional forward contracts as of
December 31, 1998, for a countervalue of $19.4 million denominated in various
currencies including pounds sterling, French francs, Spanish pesetas and
European Currency Units, which approximated the fair value of such contracts.

          The notional amount of cross-currency contracts outstanding at
December 31, 1997 was $305.2 million, which approximated the fair value of such
contracts. These contracts expired in 1998.


                  Item 10: Directors and Officers of Registrant

Supervisory Board

          The management of the Company is entrusted to the Management Board
under the supervision of the Supervisory Board. The Supervisory Board advises
the Management Board and is responsible for supervising the policies pursued by
the Management Board and the general course of affairs of the Company and its
business. In fulfilling their duties under Dutch law, the members of the
Supervisory Board must serve the interests of the Company and its business.

          The Supervisory Board consists of such number of members as is
resolved by the general meeting of shareholders upon proposal of the Supervisory
Board, with a minimum of six members. The members of the Supervisory Board are
appointed upon proposal of the Supervisory Board by the general shareholders'
meeting by a majority of the votes cast at a meeting where at least one-third of
the outstanding share capital is present or represented.

          Pursuant to various shareholders agreements, the membership of the
Supervisory Board of the Company must include three members designated by the
French shareholders from the Board of Directors of FT1CI (following the merger
of FT2CI and FT1CI, a corporation owned by CEA-Industrie and France Telecom),
and three members designated by the Italian shareholders (of whom I.R.I. has the
right to appoint two members and Ministero del Tesoro (following transfer of the
interest previously held by Comitato SIR on June 18, 1999) has the right to
appoint one member). See "Item 4: Control of Registrant--Shareholder
Agreements." The Supervisory Board of the Company currently includes two members
who are not affiliated with ST Holding and its direct and indirect shareholders.

          The members of the Supervisory Board appoint a chairman and vice
chairman of the Supervisory Board from among the members of the Supervisory
Board (with approval of at least three-quarters of the members of the
Supervisory Board) and may appoint one or more members as a delegate supervisory
director to communicate on a regular basis with the Management Board.
Resolutions of the Supervisory Board require the approval of at least
three-quarters of its members. The Supervisory Board must meet upon request by
two or more of its members or by the Management Board. The Supervisory Board has
adopted internal regulations to clarify the manner by which it carries out the
supervisory duties imposed upon it by law, the Company's Articles of Association
and resolutions of the shareholders and the Supervisory Board itself. By such
resolution the Supervisory Board has authorized (i) the establishment of a
secretariat (headed by an individual approved by it and appointed for a one-year
renewable term) whose functions are to: (a) assist the Chairman and Vice
Chairman of the Supervisory Board in the operations of the Board, (b) implement
and oversee the execution within the Company of decisions adopted by the
Supervisory Board, and (c) cooperate in and contribute to the execution of the
functions of the designated Secretary and Assistant Secretary of the Supervisory
Board; (ii) (a) the possibility of the appointment by the members of the
Supervisory Board of assistants and (b) the appointment by such board of two
controllers to exercise operational and financial control over the operations of
the Company who, with assistants, will also review operation reports and the
implementation of Supervisory Board decisions; and (iii) the establishment by
the Supervisory Board of advisory committees. In addition, the Supervisory Board
has established procedures for the preparation of Supervisory Board resolutions
and the setting of the Board's calendar.


                                       51

<PAGE>



          Members of the Supervisory Board must retire no later than at the
ordinary general meeting of shareholders held after a period of three years
following their appointment, but may be re-elected. A member of the Supervisory
Board must retire at the ordinary general meeting of shareholders held in the
year in which he reaches the age prescribed by Dutch law for retirement of a
supervisory director (currently at age 72). Members of the Supervisory Board may
be suspended or dismissed by the general meeting of shareholders. The
Supervisory Board may make a proposal to the general meeting of shareholders for
the suspension or dismissal of one or more of its members. The members of the
Supervisory Board may receive compensation if authorized by the general meeting
of shareholders.

          The shareholders agreement between the group of French shareholders
and the group of Italian shareholders, as shareholders of ST Holding, also
includes certain provisions requiring the approval of the Supervisory Board of
ST Holding for certain actions by ST Holding, the Company and its subsidiaries.
In addition, pursuant to the shareholders agreement among the group of French
shareholders and a decree issued by certain Ministries of The Republic of
France, the approval by members of the Supervisory Board appointed by the French
shareholders of certain actions to be taken by the Company or its subsidiaries
requires the approval of the Board of Directors of FT1CI and is subject to a
veto by certain Ministries of The Republic of France. These requirements for the
prior approval of various actions to be taken by the Company and its
subsidiaries may give rise to a conflict of interest between the interests of
the Company and the individual shareholders approving such actions, and may
result in a delay in the ability of the Management Board to respond as quickly
as may be necessary in the rapidly changing environment of the semiconductor
industry. Such approval process is subject to the provisions of Dutch law
requiring members of the Supervisory Board to act independently in the
supervision of the management of the Company.

          The members of the Supervisory Board are:


            Name                  Position           Year Appointed      Age
            ----                  --------           --------------      ---
      Jean-Pierre Noblanc         Chairman              1994             60
      Bruno Steve                 Vice Chairman         1989             57
      Tom de Waard                Member                1998             52
      Remy Dullieux               Member                1993             48
      Riccardo Gallo              Member                1997             55
      Francis Gavois              Member                1998             63
      Alessandro Ovi              Member                1994             55
      Robert M. White             Member                1996             60

          Jean-Pierre Noblanc has been the Chairman of the Supervisory Board
since May 31, 1999, and has been a member of the Supervisory Board since 1994.
He served as Vice Chairman of the Supervisory Board from June 1996 to May 31,
1999. Mr. Noblanc is presently General Manager of the Components Sector of CEA
Industrie. Prior to joining CEA Industrie, Mr. Noblanc served at CNET, the
Research Center of France Telecom, as Director of the Applied Research Center of
Bagneux and of the Microelectronics Center of Grenoble. Mr. Noblanc holds a
degree in engineering from the Ecole Superieure d'Electricite and a doctoral
degree in physical sciences from the University of Paris. Mr. Noblanc is an
Associate Member of the Committee on Applications of the French Academy of
Sciences and a director of Thomson S.A. Mr. Noblanc also serves on the board of
Pixtech Inc. and Picogiga S.A.

          Bruno Steve has been a member of the Company's Supervisory Board since
1989 and its Chairman until May 31, 1999. He served as Vice Chairman of the
Supervisory Board from 1989 to July 1990. From July 1990 to March 1993, Mr.
Steve served as Chairman of the Supervisory Board. He has been with I.R.I.,
Finmeccanica's parent company, Finmeccanica and other affiliates of I.R.I. in
various senior positions for over 17 years. Mr. Steve is currently Chairman of
MEI, President of the board of statutory auditors of Alitalia S.p.a. and
Iritecna S.p.a. in liquidazione and member of statutory auditors of Alitalia
Express S.p.A., Stretto di Messina S.p.A. and Sigma S.p.A. He served as the
Chief


                                       52

<PAGE>



Operating Officer of Finmeccanica from 1988 to July 1997 and Chief Executive
Officer from May 1995 to July 1997. He was Senior Vice President of Planning,
Finance and Control of I.R.I. from 1984 to 1988. Prior to 1984, Mr. Steve served
in several key executive positions at Telecom Italia, I.R.I.'s holding company
for the telecommunications sector.

          Tom de Waard was appointed to the Supervisory Board in 1998. Mr. de
Waard is a partner of Stibbe Simont Monahan Duhot, a leading Dutch law firm,
where he has held several positions since 1979 and has gained extensive
experience working with major international companies, particularly with respect
to corporate finance. He is a member of the Amsterdam bar and received his law
degree from Leiden University in 1979.

          Remy Dullieux has been a member of the Supervisory Board since 1993.
He is a graduate of the Ecole Polytechnique. Since June 1996, Mr. Dullieux has
served as a France Telecom Executive Manager for the Northern and Eastern areas
of France. From 1991 to June 1996, Mr. Dullieux served as Group Executive Vice
President for Strategic Procurement and Development of France Telecom. From 1985
to 1988, Mr. Dullieux served as Regional Manager of Creteil.

          Riccardo Gallo was appointed to the Supervisory Board in 1997. He is
Associate Professor of Industrial Economics at the Engineering Faculty of "La
Sapienza" University in Rome. He is also a member of the board of directors of
Comitato Sir. From 1982 to 1991, he served as Director General at the Italian
Ministry of the National Budget. In the early 1990s, he served as Vice Chairman
of I.R.I. In 1994, he was appointed by the Italian Minister of Industry as
Extraordinary Commissioner of Fidia, a research-oriented pharmaceutical company.

          Francis Gavois was appointed to the Supervisory Board in 1998. Mr.
Gavois is the Chairman of the Supervisory Board of ODDO et Cie. He is also a
member of the Board of Directors of Plastic Omnium and the Supervisory Board of
the Consortium de Realisation (CDR). From 1984 to 1997, Mr. Gavois held several
positions, including Chairman of the Board of Directors and President of Banque
Francaise du Commerce Exterieur (BFCE). Prior to that time Mr. Gavois held
positions in the French government. He is a graduate of the Institut d'Etudes
Politiques de Paris and the Ecole Nationale d'Administration.

          Alessandro Ovi has been a member of the Supervisory Board since 1994.
He received a doctoral degree in Nuclear Engineering from the Politecnico in
Milan and a masters degree in operations research from Massachusetts Institute
of Technology. He is currently the Chief Executive Officer of Tecnitel S.p.A., a
subsidiary of Telecom Italia Group. Prior to joining Tecnitel S.p.A., Mr. Ovi
was the Senior Vice President of International Affairs and Communications at
I.R.I. He currently serves on the boards of Italtel (a Telecom Italia and
Siemens Company), MEI, Sirti, Carnegie Mellon University and Corporation
Development Committee of the Massachusetts Institute of Technology.

          Robert M. White was appointed to the Supervisory Board in June 1996.
Mr. White is a University Professor and Department Head at Carnegie Mellon
University and serves as a member of several corporate boards, including those
of Ontrack Data Systems, Inc., and Zilog, Inc. He is a member of the U.S.
National Academy of Engineering. From 1990 to 1993, Mr. White served as Under
Secretary of Commerce for Technology in the United States Government. Prior to
1990, Mr. White served in several key executive positions at Xerox Corporation,
Control Data Corporation and MCC. He received a doctoral degree in physics from
Stanford University and graduated with a degree in science from Massachusetts
Institute of Technology.

          The Supervisory Board has established an Audit Committee comprised of
Messrs. Dullieux, Ovi and an independent director, Mr. White, and a Compensation
Committee comprised of the Chairman (Mr. Noblanc), the Vice Chairman (Mr. Steve)
and an independent director (Mr. White).



                                       53

<PAGE>



Management Board

          The management of the Company is entrusted to the Management Board
under the supervision of the Supervisory Board. Under the Articles of
Association, the Management Board must obtain prior approval from the
Supervisory Board for (i) all proposals to be submitted to a vote at the general
meeting of shareholders; (ii) the formation of all companies, acquisition or
sale of any participation, and conclusion of any cooperation and participation
agreement; (iii) all multi-year plans of the Company and the budget for the
coming year, covering investment policy, policy regarding research and
development, as well as commercial policy and objectives, general financial
policy, and policy regarding personnel; and (iv) all acts, decisions or
operations covered by the foregoing and constituting a significant change with
respect to decisions already taken by the Supervisory Board. The Management
Board must seek approval from the general meeting of shareholders for decisions
relating to (i) the sale of all or of an important part of the Company's assets
or concerns; and (ii) all mergers, acquisitions or joint ventures which the
Company wishes to enter into and which the Supervisory Board considers to be of
material significance. In addition, under the Articles of Association, the
Supervisory Board may specify by resolution certain actions by the Management
Board that require its prior approval. Following the adoption of such a
resolution, the actions by the Management Board requiring such prior approval
include the following: (i) modification of its Articles of Association; (ii)
change in its authorized share capital, issue, acquisition or disposal of its
own shares, change in any shareholder rights or issue of any instruments
granting an interest in its capital or profits; (iii) liquidation or disposal of
all or a substantial and material part of its assets or any shares it holds in
any of its subsidiaries; (iv) entering into any merger, acquisition or joint
venture agreement (and, if substantial and material, any agreement relating to
intellectual property) or formation of a new company; (v) approval of such
company's draft consolidated balance sheets and financial statements or any
profit distribution by such company; (vi) entering into any agreement with any
of the direct or indirect French or Italian shareholders outside the normal
course of business; (vii) submission of documents reporting on (a) approved
policy, expected progress and results and (b) strategic long-term business plans
and consolidated annual budgets or any modifications to such; (viii) preparation
of long-term business plans and annual budgets; (ix) adoption and implementation
of such long-term business plans and annual budgets; (x) approval of all
operations outside the normal course of business, including operations already
provided for in the annual budget; and (xi) approval of the quarterly,
semi-annual and annual consolidated financial statements prepared in accordance
with internationally accepted accounting principles. Such resolution also
requires that the Management Board obtain prior approval from the Supervisory
Board for (i) the appointment of the members of the statutory management,
administration and control bodies of the Company's French and Italian
subsidiaries; and (ii) the nomination of the statutory management,
administration and control bodies of the Company and each of the Company's other
direct and indirect subsidiaries followed by confirmation to the Supervisory
Board of such nominees' appointments. The general meeting of shareholders may
also specify certain actions of the Management Board that require shareholder
approval. The Company's Articles of Association provide that the Management
Board must obtain shareholder approval prior to (i) the sale of all or an
important part of the Company's assets and concerns; and (ii) all mergers,
acquisitions or joint ventures which the Company wishes to enter into and which
the Supervisory Board considers to be of material significance. See "Item 1:
Description of Business" and "Item 13: Interest of Management in Certain
Transactions."

          The Management Board shall consist of such number of members as
resolved by the general meeting of shareholders upon the proposal of the
Supervisory Board. The members of the Management Board are appointed for three
year terms upon proposal by the Supervisory Board at the general shareholders'
meeting by a majority of the votes cast at a meeting where at least one-third of
the outstanding share capital is present or represented. The Supervisory Board
appoints one of the members of the Management Board to be chairman of the
Management Board (upon approval of at least three-quarters of the members of the
Supervisory Board). Resolutions of the Management Board require the approval of
a majority of its members. Mr. Pasquale Pistorio, the Company's President and
Chief Executive Officer, is currently the sole member of the Management Board.
His term expires in 2002.

          The general meeting of shareholders may suspend or dismiss one or more
members of the Management Board at a meeting at which at least one-half of the
outstanding share capital is present or represented. No quorum is required


                                       54

<PAGE>



if a suspension or dismissal is proposed by the Supervisory Board. The
Supervisory Board may suspend members of the Management Board, but a general
meeting of shareholders must be convened within three months after such
suspension to confirm or reject the suspension. The Supervisory Board shall
appoint one or more persons who shall, at any time, in the event of absence or
inability to act of all the members of the Management Board, be temporarily
responsible for the management of the Company. The Supervisory Board determines
the compensation and other terms and conditions of employment of the members of
the Management Board.

Executive Officers

          The executive officers of the Company support the Management Board in
its management of the Company, without prejudice to the Management Board's
ultimate responsibility. The Company is organized in a matrix structure with
geographical regions interacting with product divisions, bringing all levels of
management closer to the customer and facilitating communication among research
and development, production, marketing and sales organizations.



                                       55

<PAGE>



          The executive officers of the Company are:

<TABLE>
<CAPTION>
                                                                                                 Years in
                                                                             Years with        Semiconductor
    Name                               Position                             the Company(1)        Industry           Age
    ----                               --------                             --------------        --------           ---
<S>                          <C>                                                 <C>                <C>               <C>
Pasquale Pistorio            President and Chief Executive Officer                19                35                63
Georges Auguste              Corporate Vice President, Total Quality and          12                25                50
                             Environmental Management
Laurent Bosson               Corporate Vice President, Front-end                  16                16                56
                             Manufacturing
Carlo Bozotti                Corporate Vice President, Memory Products            22                22                46
                             Group
Salvatore Castorina          Corporate Vice President, Discrete and               17                33                62
                             Standard ICs Group
Alain Dutheil                Corporate Vice President, Strategic Planning         16                29                54
                             and Human Resources
Pietro Fox                   Corporate Vice President, European Region            35                41                61
Philippe Geyres              Corporate Vice President, Consumer and               15                23                47
                             Microcontroller Group
Maurizio Ghirga              Corporate Vice President, Chief Financial            16                16                61
                             Officer
Jean-Claude Marquet          Corporate Vice President, Asia/Pacific               13                32                57
                             Region
Pier Angelo Martinotti       Corporate Vice President, New Ventures               18                31                58
                             Group
Joel Monnier                 Corporate Vice President, Central Research           16                25                53
                             and Development
Piero Mosconi                Corporate Vice President, Treasurer                  35                35                59
Richard Pieranunzi           Corporate Vice President, Americas Region            18                33                60
Aldo Romano                  Corporate Vice President, Telecommunications,        33                33                58
                             Peripherals and Automotive Group
Giordano Seragnoli           Corporate Vice President, Back-end                   34                36                62
                             Manufacturing and Subsystems Products Group
Keizo Shibata                Corporate Vice President, Japan Region                7                34                62
Enrico Villa                 Corporate Vice President, Region Five                31                31                58
<FN>
--------------
(1) Including years with Thomson Semiconducteurs or SGS Microelettronica.
</FN>
</TABLE>

          Pasquale Pistorio has more than 35 years of experience in the
semiconductor industry. After graduating in Electrical Engineering from the
Polytechnical University of Turin in 1963, he started his career selling
Motorola products. Mr. Pistorio joined Motorola in 1967, becoming Director of
World Marketing in 1977 and General Manager of the International Semiconductor
Division in 1978. Mr. Pistorio joined SGS Microelettronica as President and
Chief Executive Officer in 1980 and became President and Chief Executive Officer
of the Company upon its formation in 1987.

          Georges Auguste has served as Corporate Vice President, Total Quality
and Environmental Management since 1999. Mr Auguste received a degree in
engineering from the Ecole Superieure d'Electricite (SUPELEC ) in 1974 and

                                       56

<PAGE>



a diploma in business administration from the Caen University in 1976. Prior to
joining the Company, Mr. Auguste worked with Philips Components from 1974 to
1986, in various positions in the field of manufacturing. From 1990 to 1997 he
headed the Company's operations in Morocco and from 1997 to 1999 Mr. Auguste
served as director of Total Quality and Environmental Management.

          Laurent Bosson has served as Corporate Vice President, Front-end
Manufacturing and VLSI Fabs since 1989 and from 1992 to 1996 he was given
additional responsibility as President and Chief Executive Officer of the
Company's operations in the Americas. Mr. Bosson received a Masters degree in
Chemistry from the University of Dijon in 1969. He joined Thomson-CSF in 1964
and has held several positions in engineering and manufacturing. In 1982, Mr.
Bosson was appointed General Manager of the Tours and Alencon facilities of
Thomson Semiconducteurs. In 1985, he joined the French subsidiary of SGS
Microelettronica as General Manager of the Rennes, France manufacturing
facility.

          Carlo Bozotti has served as Corporate Vice President, Memory Products
since August 1998. Mr. Bozotti joined SGS Microelettronica in 1977 after
graduating in Electronic Engineering from the University of Pavia. Mr. Bozotti
served as Product Manager for the Industrial, Computer Peripheral and Telecom
divisions and as Product Manager for the Monolithic Microsystems' Telecom
business unit from 1986 to 1987. He was appointed Director of Corporate
Strategic Marketing and Key Accounts for the Headquarters Region in 1988 and
became Vice President, Marketing and Sales, Americas Division in 1991. Mr.
Bozotti has served as Corporate Vice President, Memory Products since August
1998, after having served as Corporate Vice President, Europe and Headquarters
Region from 1994 to 1998.

          Salvatore Castorina has served as Corporate Vice President, Discrete
and Standard ICs Group since 1989. Mr. Castorina received his engineering degree
in Electronics from the Polytechnical University of Turin and began his career
as a teacher of electrical and electronic technologies prior to joining
Thomson-CSF in Milan in 1965. In 1967, he joined Motorola Semiconductors and
held various positions in sales and marketing. In 1981, Mr. Castorina joined the
Company as General Manager of Transistors in Catania and became the General
Manager of the Company's Discrete Division in 1989.

          Alain Dutheil has served as Corporate Vice President, Strategic
Planning and Human Resources since 1994 and 1992, respectively. Mr. Dutheil is
also President of the Company's French subsidiary. After graduating in
Electrical Engineering from the Ecole Superieure d'Ingenieurs de Marseilles
(ESIM), Mr. Dutheil joined Texas Instruments in 1969 as a Production Engineer,
becoming Director for Discrete Products in France and Human Resources Director
for Texas Instruments, France in 1980 and Director of Operations for Texas
Instruments, Portugal in 1982. He joined Thomson Semiconducteurs in 1983 as
General Manager of a plant in Aix-en-Provence, France and then became General
Manager of the Company's Discrete Products Division. From 1989 to 1994, Mr.
Dutheil served as Director for Worldwide Back-end Manufacturing, in addition to
serving as Corporate Vice President for Human Resources from 1992 until the
present.

          Pietro Fox has served as Corporate Vice President, Europe Region since
October 1998. He graduated from the Istituto Industriale A. Rosse in Vicenza in
1957 and studied Electrical Engineering at the Burrough Polytechnic in London.
His professional career started in 1958 at Standard Telephones & Cables (the
English ITT affiliate) where he worked as an Applications Engineer in the
semiconductor field. In 1962, he returned to Italy to work as Product Marketing
Engineer for semiconductors at Raytheon-Elsi SpA. His career in the Product
Marketing sector of SGS Fairchild SpA, the company that subsequently became
STMicroelectronics, began in 1964. In September 1971, he then became Marketing
Manager for North America and was appointed President of the newly created
SGS-Ates Semiconductor Corp. In March 1976, Mr. Fox moved to Germany and became
General Manager of SGS-Thomson Microelectronics GmbH in Munich. In 1997, Mr. Fox
gained increased responsibility in the European Telecom field when he became
Vice President of the Telecom Business Unit for Europe.



                                       57

<PAGE>



          Philippe Geyres has served as Corporate Vice President, General
Manager Consumer and Microcontroller Group (formerly Programmable Products
Group) since 1990. Mr. Geyres graduated from the Ecole Polytechnique in 1973 and
began his career with IBM in France before joining Schlumberger Group in 1980 as
Data Processing Director. He was subsequently appointed Deputy Director of the
IC Division at Fairchild Semiconductors. Mr. Geyres joined Thomson
Semiconducteurs in 1983 as Director of the Bipolar Integrated Circuits Division.
He was appointed Strategic Programs Director in 1987 and, later the same year,
became Corporate Vice President, Strategic Planning of the Company.

          Maurizio Ghirga became Corporate Vice President, Chief Financial
Officer in 1987, after having served as chief financial controller of SGS
Microelettronica since 1983. Mr. Ghirga has a degree in Business Administration
from the University of Genoa. He spent more than ten years of his career in
various financial capacities at ESSO Company (an Exxon subsidiary in Italy) and
prior to joining the Company was Financial Controller of one of the largest
refinery plants in Italy and of an ESSO chemical subsidiary.

          Jean-Claude Marquet has served as Corporate Vice President,
Asia/Pacific Region since July 1995. After graduating in Electrical and
Electronics Engineering from the Ecole Breguet Paris, Mr. Marquet began his
career in the French National Research Organisation and later joined Alcatel. In
1969, he joined Philips Components. He remained at Philips until 1978, when he
joined Ericsson, eventually becoming President of Ericsson's French operations.
In 1985, Mr. Marquet joined Thomson Semiconducteurs as Vice President Sales and
Marketing, France. Thereafter, Mr. Marquet served as Vice President Sales and
Marketing for France and Benelux, and Vice President Asia Pacific and Director
of Sales and Marketing for the region.

          Pier Angelo Martinotti has served as Corporate Vice President, General
Manager New Ventures Group since 1994. A graduate in Electronic Engineering from
the Polytechnical University of Turin, Mr. Martinotti began his career at the
Company in 1965 as an Application and Marketing Engineer. In 1968, he joined
Motorola Semiconductors in the area of strategic marketing in Europe, and in
1975 became the Marketing (Sales) Director for Europe. From 1986 to 1990, Mr.
Martinotti was Chief Executive Officer of Innovative Silicon Technology, a
former subsidiary of the Company. Mr. Martinotti was appointed Director of
Corporate Strategic Planning in 1990.

          Joel Monnier has served as Corporate Vice President, Director of
Central Research and Development since 1989. After graduating in Electrical
Engineering from the Institut National Polytechnique of Grenoble, Ecole
Nationale Superieure de Radio Electricite, Mr. Monnier obtained a doctoral
degree in microelectronics at LETI/CENG. He began his career in the
semiconductor industry in 1968 as a researcher with CENG, and subsequently
joined the research and development laboratories of Texas Instruments in
Villeneuve Loubet, France and Houston, Texas, eventually becoming Engineering
Manager and Operation Manager at Texas Instruments. Mr. Monnier joined
Thomson-CSF in 1983 as head of the research and manufacturing unit of Thomson
Semiconducteurs. In 1987, he was appointed Vice President and Corporate Director
of Manufacturing.

          Piero Mosconi has served as Corporate Vice President, Treasurer since
1987. After graduating in accounting from Monza in 1960, Mr. Mosconi joined the
faculty at the University of Milan. Mr. Mosconi worked with an Italian bank
before joining the Foreign Subsidiaries Department at SGS Microelettronica in
1964 and becoming Corporate Director of Finance in 1980.

          Richard Pieranunzi has served as Corporate Vice President, Americas
Region since August 1996. Mr. Pieranunzi received his BSEE from the University
of Rhode Island, and started his career in process engineering. Later, he joined
Motorola's international marketing organization, including in Europe where he
held management positions in sales and strategic marketing and applications. Mr.
Pieranunzi joined SGS Semiconducteurs in 1981 as Marketing and Sales Manager
and, upon the formation of the Company in 1987, he became Vice President
Marketing and Sales for the U.S. organization. For three years, Mr. Pieranunzi
headed the Company's Corporate Strategic Marketing and Corporate Key Account
programs.


                                       58

<PAGE>



          Aldo Romano has served as Corporate Vice President, General Manager
Telecommunications, Peripherals and Automotive Group (formerly Dedicated
Products Group) since 1987. Mr. Romano is also Managing Director of the
Company's Italian subsidiary. A graduate in Electronic Engineering from the
University of Padua in 1963, Mr. Romano joined SGS Microelettronica in 1965 as a
designer of linear ICs, becoming head of the linear IC design laboratory in 1968
and head of Marketing and Applications in 1976. Mr. Romano became Director of
the Bipolar IC Division (which has evolved into the Dedicated Products Group) in
1980.

          Giordano Seragnoli has served as Corporate Vice President, General
Manager Subsystems Products Group since 1987 and since 1994, Director for
Worldwide Back-end Manufacturing. After graduating in Electrical Engineering
from the University of Bologna, Mr. Seragnoli joined the Thomson Group as RF
Application Designer in 1962 and joined SGS Microelettronica in 1965.
Thereafter, Mr. Seragnoli served in various capacities within the Company,
including Strategic Marketing Manager and Subsystems Division Manager,
Subsystems Division Manager (Agrate), Technical Facilities Manager, Subsystems
Division Manager and Back-End Manager.

          Keizo Shibata has served as Corporate Vice President and President of
the Company's Japanese subsidiary since 1992. Mr. Shibata obtained bachelors and
masters degrees in Engineering from Osaka University and has 31 years of
experience in the semiconductor industry. Prior to joining the Company, Mr.
Shibata was employed with Toshiba Corporation since 1964 in various capacities.
From 1987 to 1988, Mr. Shibata served as Chairman of both World Semiconductor
Trade Statistics and the Trade Policy Committee of the Electric Industry
Association of Japan.

          Enrico Villa has served as Corporate Vice President, Region Five since
January 1, 1998. Mr. Villa has served in various capacities within the Company
since 1968 after obtaining a degree in Business Administration from the
University of Genoa and has 30 years of experience in the semiconductor
industry. He is currently a member of the European Electronics Component
Association ("EECA") for which he is now Chairman of the European Semiconductor
Council as well as Chairman for Europe at the Joint Steering Committee of the
World Semiconductor Council.

          As is common in the semiconductor industry, the Company's success
depends to a significant extent upon, among other factors, the continued service
of its key senior executives and research and development, engineering,
marketing, sales, manufacturing, support and other personnel, and on its ability
to continue to attract, retain and motivate qualified personnel. The competition
for such employees is intense, and the loss of the services of any of these key
personnel without adequate replacement or the inability to attract new qualified
personnel could have a material adverse effect on the Company. The Company does
not maintain insurance with respect to the loss of any of its key personnel.


                 Item 11: Compensation of Directors and Officers

          The aggregate cash compensation payable for 1998 to the members of the
Supervisory Board by the Company was approximately $240,000. The amount of cash
compensation for 1998 paid to the executive officers of the Company and members
of the Management Board as a group by the Company and its subsidiaries was
approximately $7.5 million.

          In 1989, the Company established a Corporate Executive Incentive
Program (the "EIP") that entitles selected executives and members of the
Management Board to a yearly bonus based upon the individual performance of such
executives. The maximum bonus awarded under the EIP is based upon a percentage
of the executive's or member's salary and is adjusted to reflect the overall
performance of the Company. The participants in the EIP must satisfy certain
personal objectives that are focused on customer service, profit, cash flow and
market share.

          The executive officers and the Management Board were also covered in
1998 under certain group life and medical insurance programs provided by the
Company. The aggregate additional amount set aside by the Company in 1998 to
provide pension, retirement or similar benefits for executive officers and the
Management Board of the Company as a group is estimated to have been
approximately $3.3 million.


                                       59

<PAGE>




     Item 12: Options to Purchase Securities from Registrant or Subsidiaries

Stock Option Plans

          The following description of the Company's stock options plans does
not include adjustments for the 2:1 stock split effected on June 16, 1999.

          As of June 10, 1999, options to purchase up to an aggregate of 18,000
Common Shares were outstanding under the Company's first stock option plan (the
"1989 Stock Option Plan"). Such options are fully vested and are exercisable at
the original issue price, as adjusted to reflect the 40:1 stock split effected
in connection with the Initial Public Offering, of NLG 25 per share. Of such
outstanding options, 8,000 are held by executive officers of the Company as a
group. All options outstanding under the 1989 Stock Option Plan expire December
18, 1999.

          On October 20, 1995, the shareholders of the Company approved
resolutions authorizing the Supervisory Board for a period of five years to
adopt and administer a new stock option plan which provides for the granting to
managers and professionals of the Company of options to purchase up to a maximum
of 5.5 million Common Shares (the "1995 Stock Option Plan"). The Company has
granted a total of 2,495,500 options pursuant to the 1995 Stock Option Plan as
follows:

          o        The Company granted options to purchase 1,200,000 Common
                   Shares with an exercise price per Common Share of $36.25,
                   half of which vested and became exercisable on March 1, 1999
                   and half of which will vest and become exercisable on March
                   1, 2000. All such options will expire on March 1, 2004. As of
                   June 10, 1999, 893,215 options were outstanding.

          o        The Company granted options to purchase 645,500 Common Shares
                   with an exercise price per Common Share of $85.375, which
                   will vest and become exercisable on September 12, 2001 and
                   will expire on September 12, 2005. As of June 10, 1999,
                   638,575 options were outstanding.

          o        The Company granted options to purchase 650,000 Common Shares
                   with an exercise price per Common Share of $72.1875, which
                   will vest and become exercisable on July 28, 2002 and will
                   expire on July 28, 2006. As of June 10, 1999, 648,265 options
                   were outstanding.

As of June 10, 1999, of the total options outstanding under the 1995 Stock
Option Plan, 626,050 options were held by executive officers as a group.

          In June 1996, the general meeting of shareholders approved the
granting of options to members and professionals of the Supervisory Board to
purchase approximately 72,000 Common Shares of the Company over a period of
three years, beginning in 1996. The following options have been granted:

          o        The Company granted to members and professionals of the
                   Supervisory Board options to purchase 33,000 Common Shares
                   with an exercise price per Common Share of $54.00, which
                   expire on October 22, 2004. As of June 10, 1999, 23,000
                   options were outstanding.

          o        The Company granted to members and professionals of the
                   Supervisory Board options to purchase 15,000 Common Shares
                   with an exercise price per Common Share of $85.375, which
                   expire on September 12, 2005. As of June 10, 1999, 13,500
                   options were outstanding.



                                       60

<PAGE>



          o        The Company granted to members and professionals of the
                   Supervisory Board options to purchase 15,000 Common Shares
                   with an exercise price per Common Share of $72.1875, which
                   expire on July 28, 2006. As of June 10, 1999, 15,000 options
                   were outstanding.

Employee Stock Plan

          In 1998, the Company implemented an Employee Stock Plan under which
employees have subscribed for a total of 288,299 Common Shares at a 12% discount
from the public offering price used in the Share Offering ($72.1875 per Common
Share). These Shares were subject to a six-month holding period which expired on
December 10, 1998.


             Item 13: Interest of Management in Certain Transactions

          One of the Company's key customers is Thomson Multimedia. Thomson
Multimedia and Thomson-CSF were indirect shareholders of the Company until
October 1997 and are both controlled by Thomson S.A. The Company sells a broad
range of products to Thomson Multimedia, including dedicated products,
microcontrollers and semicustom devices, for use in televisions, videocassette
recorders and satellite receiver systems. The Company believes that all of the
products that it sells to Thomson Multimedia are sold on commercial terms no
less favorable to the Company than could be obtained with non-affiliated
parties. The Company has also formed a Groupement d'Interet Economique ("GIE")
with Thomson Multimedia to conduct joint research and development on advanced
television products, including digital television products. The Company and
Thomson Multimedia share equally the funding of the joint venture's designers,
engineers and managers.

          The Company has formed a joint venture research and development center
with CNET in the form of a GIE. CNET is a research laboratory that is wholly
owned by France Telecom, one of the indirect shareholders of the Company. See
"Item 1: Description of Business--Research and Development" and "Item 4: Control
of Registrant." The research center is housed at the Company's Crolles, France
manufacturing facility, and is developing submicron process technologies. The
joint venture between the Company and CNET was created in 1990 before France
Telecom became an indirect shareholder of the Company.

          The Company has signed an agreement providing for a research and
development cooperation with GRESSI, the research and development GIE formed by
CNET and LETI, a research laboratory that is a department of CEA- Industrie, the
parent of one of the indirect shareholders of the Company. See "Item 4: Control
of Registrant." The objectives of the cooperation is to develop basic know-how
on innovative aspects of VLSI technology evolution which can be transferred to
industrial applications, and to address the development of innovative process
steps and process modules to be used in future generations of VLSI products. The
cooperation agreement was based upon a multi-year plan through 1998, of which
the Company bore half of the total cost. The cooperation with GRESSI was
superseded, as of January 1, 1999, by a tripartite cooperation arrangement
between the Company, CNET and LETI, within the framework of an extended GIE
named Centre Commun de Microelectronique de Crolles. This cooperation is
directed towards sub 0.18 micron technologies with a view to preparing the
technology to begin production of 12-inch wafers and associated wafer
fabrication processes. The tripartite cooperation is intended to last until the
end of 2002 and the related contractual arrangements are in the process of being
finalized.

       The Company participates in certain programs sponsored by the French and
Italian governments for the funding of research and development and
industrialization through direct grants as well as low interest financing. See
"Item 1: Description of Business--State Support for the Semiconductor Industry."
The shareholders of ST Holding, the corporate parent of the Company's majority
shareholder, are controlled, directly or indirectly, by the governments of the
Republics of France and Italy. See "Item 4: Control of Registrant."

       Sales to shareholders of the Company and their affiliates totalled $5.6
million in 1998.


                                       61

<PAGE>



                                     PART II

               Item 14: Description of Securities to be Registered

       Not applicable.


                                    PART III

                     Item 15: Default Upon Senior Securities

       None.


           Item 16: Changes in Securities and Changes in Security for
                    Registered Securities and Use of Proceeds

       On May 31, 1999, the Company's shareholders approved a 2:1 stock split
and simultaneous redenomination of the par value of each Common Share to
Euro 3.12. The changes became effective June 16, 1999. Shareholders
authorized the creation of 180,000,000 Preference Shares which would entitle a
holder to full voting rights at any meeting of shareholders and to a
preferential right to dividends and designated the Supervisory Board as the
corporate body authorized to issue the Preference Shares. See "Item 4: Control
of Registrant -- Shareholder Agreements." After these changes in the Company's
authorized share capital, its share capital was Euro 1,809,600,000, consisting
of 400,000,000 Common Shares and 180,000,000 Preference Shares of Euro 3.12
nominal value each.

                                     PART IV

                          Item 17: Financial Statements

       Not applicable.

                          Item 18: Financial Statements

       See "Item 19: Financial Statements and Exhibits" for a list of financial
statements filed pursuant to this Item 18.


                   Item 19: Financial Statements and Exhibits

       With the exception of the items incorporated by reference elsewhere in
this annual report, the 1998 Annual Report is not deemed to be filed as part of
this annual report.


(a)    Financial Statements

       The financial statements, together with the report thereon of
       PricewaterhouseCoopers NV dated January 25, 1999, appearing on pages
       41-56 and 58 of the 1998 Annual Report are incorporated herein by
       reference.




                                       62

<PAGE>





<TABLE>
<CAPTION>

                                                                               Reference Page
                                                                          ------------------------
                                                                                       1998 Annual
                                                                                        Report to
                                                                          Form 20-F    Shareholders
                                                                          ---------    ------------
<S>                                                                       <C>           <C>
    Financial Statements:
    Report of Independent Accountants for Years Ended
      December 31, 1998, 1997 and 1996.............................                         58
    Consolidated Statement of Income for the Years Ended
      December 31, 1998, 1997 and 1996.............................           --            41
    Consolidated Balance Sheet as of December 31, 1998 and 1997..             --            42
    Consolidated Statement of Cash Flows for the Years Ended
      December 31, 1998, 1997 and 1996.............................           --            43
    Consolidated Statement of Shareholders' Equity for the Years
      Ended December 31, 1998, 1997 and 1996.......................           --            44
    Notes to Consolidated Financial Statements...................                           45
    Financial Statement Schedules:
    For each of the three years in the period ended December 31, 1998
      Schedule II  Valuation and Qualifying Accounts...............           S-1           --
    All other schedules are omitted because they are not applicable or the
      required information is shown in the financial statements or notes
      thereto.
    Report of Independent Accountants on Financial Statement Schedule         S-2           --
</TABLE>


(b) Exhibits


    3.(i)  Articles of Association, as amended as of June 16, 1999, of the
           Company

    10     Option Agreement, signed May 31, 1999 between the Company and
           STMicroelectronics Holding II B.V.

    21     Subsidiaries of the Company (see Note 3 to the Consolidated Financial
           Statements)

    23    Consent of PricewaterhouseCoopers NV

          Pages 27 to 56 and 58 of the 1998 Annual Report, submitted as a Report
          on Form 6-K by STMicroelectronics N.V. on June 30, 1999.





                                       63

<PAGE>



                                  CERTAIN TERMS


ASD.......................application-specific discrete technology
ASIC......................application-specific IC
ASSP......................application-specific standard product
ATM.......................asynchronous transfer mode
BCD.......................bipolar, CMOS and DMOS process technology
BiCMOS....................bipolar and CMOS process technology
CAD.......................computer aided design
CIM.......................computer integrated manufacturing
CMOS......................complementary metal oxide silicon
DMOS......................diffused metal oxide silicon
DRAMS.....................dynamic random access memory
DSP.......................digital signal processor
EEPROM....................electrically erasable programmable read-only memory
EPROM.....................erasable programmable read-only memory
GPS.......................global positioning system
HCMOS.....................high-speed complementary metal-oxide-silicon
IC........................integrated circuit
IGBT......................insulated gate bipolar transistors
ISDN......................integrated services digital network
Kbit......................kilobit
Mbit......................megabit
MCUs......................microcontrollers units
MIPS......................million instructions per second
MOS.......................metal oxide silicon process technology
MOSFET....................metal oxide silicon field effect transistor
MPEG......................motion picture experts group
NVRAM.....................nonvolatile SRAM
OEM.......................original equipment manufacturer
OTP.......................one-time programmable
PROM......................programmable read-only memory
RAM.......................random access memory
RF........................radio frequency
RISC......................reduced instruction set computing
ROM.......................read-only memory
SAM.......................serviceable available market
SLIC......................subscriber line interface card
SPC.......................statistical process control
SRAM......................static random access memory
STB.......................set-top box
TAM.......................total available market
VLSI......................very large scale integration



                                       64

<PAGE>



                                   SIGNATURES

          Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                               STMICROELECTRONICS N.V.

Date: June 30, 1999


                               By:  /S/   PASQUALE PISTORIO
                                    ---------------------------------
                                    Name: Pasquale Pistorio
                                    Title: President and Chief Executive Officer







                                       65

<PAGE>




                                                STMICROELECTRONICS N.V.
                                           VALUATION AND QUALIFYING ACCOUNTS
                                        (Currency - Thousands of U.S. dollars)

<TABLE>
<CAPTION>

Valuation and qualifying accounts deducted      Balance as                      Charged to                       Balance at
from the related asset accounts                 beginning     Translation        costs and                         end of
                                                of period      adjustment        expenses        Deductions        period
                                                ----------    -----------       ----------      ------------     ----------
<S>                                             <C>           <C>               <C>             <C>               <C>
1998
Inventories..................................   68,182              -             53,955         (68,182)         53,955
Accounts Receivable .........................   15,228              89            (3,741)         (1,082)         10,494
1997
Inventories..................................   45,176              -             68,182         (45,176)         68,182
Accounts Receivable..........................   18,152          (1,902)                7          (1,029)         15,228
1996
Inventories..................................   36,500              -             45,176         (36,500)         45,176
Accounts Receivable..........................   17,881            (514)            1,114            (329)         18,152

</TABLE>






                                      S-1


<PAGE>




                      Report of Independent Accountants on
                          Financial Statement Schedule


          To the Supervisory Board of STMicroelectronics NV

          Our audits of the consolidated financial statements referred to in our
          report dated January 25, 1999 appearing on page 58 of the 1998 Annual
          Report to Shareholders of STMicroelectronics NV (which report and
          consolidated financial statements are incorporated by reference in
          this Annual Report on Form 20-F) also included an audit of the
          financial statement schedule listed in Item 19 of this Form 20-F. In
          our opinion, this financial statement schedule presents fairly, in all
          material respects, the information set forth therein when read in
          conjunction with the related consolidated financial statements.

          PricewaterhouseCoopers NV


          Amsterdam, The Netherlands
          January 25, 1999







                                       S-2


<PAGE>




                                INDEX TO EXHIBITS


          Name                                                          Page
       ----------                                                      ------
3.(i)  Articles of Association, as amended as of June 16, 1999,
       of the Company

10     Option Agreement, signed May 31, 1999 between the Company and
       STMicroelectronics Holding II B.V............................

23     Consent of PricewaterhouseCoopers NV.........................