##### Table of Contents





As filed with the Securities and Exchange Commission on
    May 13, 2009
     SECURITIES AND EXCHANGE
    COMMISSION
 Washington, D.C.
    20549
 Form 20-F
  o

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

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2008ORo

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

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

The Netherlands(Translation of
    registrants
    name into English)

(Jurisdiction of
    incorporation
    or organization)  39, Chemin du Champ des
    Filles
 1228 Plan-Les-Ouates
 Geneva
 Switzerland
 (Address of principal executive
    offices)
  Carlo Bozotti
 39, Chemin du Champ des
    Filles
 1228 Plan-Les-Ouates
 Geneva
 Switzerland
 Tel: +41 22 929 29 29
 Fax: +41 22 929 29 88
 ( Name,
    Telephone,
    E-mail
    and/or Facsimile number and Address of Company Contact
    Person)
  Securities registered or to be registered pursuant to
    Section 12(b) of the Act:
  Title of Each Class:

Name of Each Exchange on Which Registered:Common shares, nominal value 1.04 per share

New York Stock Exchange   Securities registered or to be
    registered pursuant to Section 12(g) of the Act:
    None
  Securities for which there is a
    reporting obligation pursuant to Section 15(d) of the Act:
    None
    874,276,833 common shares at
    December 31, 2008
   Yes þ     No
    o
    Yes o    No
    þ
   Yes þ     No
    o
   Yes o     No
    o
  12b-2
 Large
    accelerated
    filer þ
    Accelerated
    filer o
    Non-accelerated
    filer o
    Smaller reporting
    company o (Do not check if a smaller
    reporting company)
    U.S. GAAP þ

International Financial Reporting Standards as issued o

Other oby the International Accounting Standards Board     Item 17 o    Item 18 o
  Rule 12b-2
  Yes o    No
    þ




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##### 






TABLE OF
    CONTENTS
   
 PRESENTATION OF FINANCIAL AND OTHER
    INFORMATION


2PART I


4Item 1.


Identity of Directors, Senior Management and Advisers


4Item 2.


Offer Statistics and Expected Timetable


4Item 3.


Key Information


4Item 4.


Information on the Company


24Item 5.


Operating and Financial Review and Prospects


59Item 6.


Directors, Senior Management and Employees


110Item 7.


Major Shareholders and Related Party Transactions


132Item 8.


Financial Information


141Item 9.


Listing


145Item 10.


Additional Information


152Item 11.


Quantitative and Qualitative Disclosures About Market Risk


171Item 12.


Description of Securities Other Than Equity Securities


174PART II


175Item 13.


Defaults, Dividend Arrearages and Delinquencies


175Item 14.


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


175Item 15.


Controls and Procedures


175Item 16A.


Audit Committee Financial Expert


176Item 16B.


Code of Ethics


176Item 16C.


Principal Accountant Fees and Services


177Item 16D.


Exemptions from the Listing Standards for Audit Committees


178Item 16E.


Purchases of Equity Securities by the Issuer and Affiliated
    Purchasers


178Item 16F.


Change in Registrants Certifying Accountant


178Item 16G.


Corporate Governance


178PART III


182Item 17.


Financial Statements


182Item 18.


Financial Statements


182Item 19.


Exhibits


182EX-4.3EX-4.4EX-8.1EX-12.1EX-12.2EX-13.1EX-15.1EX-15.2   1




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PRESENTATION
    OF FINANCIAL AND OTHER INFORMATION  Form 20-F Form 20-F),
    non-U.S. GAAP
  Form 20-F
    CAUTIONARY
    NOTE REGARDING FORWARD-LOOKING STATEMENTS
  Form 20-F
  
    Volatility in demand in the key application markets and from key
    customers served by our products, and changes in customer order
    patterns, including order cancellations, all of which generate
    uncertainties and make it extremely difficult to accurately
    forecast and plan our future business activities and to operate
    our manufacturing facilities at sufficient levels to cover fixed
    operating costs;
    significant differences in the gross margins we achieve compared
    to expectations, based on changes in revenue levels, product mix
    and pricing, capacity utilization and unused capacity charges,
    excess or obsolete inventory, manufacturing yields, changes in
    unit costs, impairments of long-lived assets (including
    manufacturing, assembly/test and intangible assets), and the
    timing, execution and associated costs for the announced
    transfer of manufacturing from facilities designated for
    closure, including phase-out and
    start-up
    costs;
    the impact of intellectual property claims by our competitors or
    other third parties, and our ability to obtain required licenses
    on reasonable terms and conditions;
    the outcome of ongoing litigation as well as any new litigation
    to which we may become a defendant; 2




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
    the current volatility in the financial markets and overall
    economic uncertainty increases the risk that the actual amounts
    potentially realized upon a future sale of our debt and equity
    investments could differ significantly from the fair values
    currently assigned to them;
    the depth and length of the current financial crisis will have a
    negative impact on our financial performance which, in turn, may
    lead to negative financial results, additional restructuring
    measures, further impairments as well as new initiatives
    designed to protect our liquidity and financial strength, which
    may impact our ability to pursue new investment opportunities,
    secure financing or pay dividends;
    our ability to successfully integrate the acquisitions we
    pursue, in particular the merger of ST-NXP Wireless with
    Ericsson Mobile Platforms (EMP) to
    form ST-Ericsson,
    which may prove even more challenging in the current difficult
    economic environment;
    we hold significant non-marketable equity investments in
    Numonyx, our joint venture in the flash memory market segment,
    and in ST-Ericsson, our joint venture in the wireless segment.
    Additionally, we are a guarantor for certain Numonyx debt.
    Therefore, declines in these market segments could result in
    significant impairment charges, restructuring charges and
    gains/losses on equity investments;
    our ability to manage in an intensely competitive and cyclical
    industry, where a high percentage of our costs are fixed and are
    incurred in currencies other than U.S. dollars, as well as
    our our ability to execute our restructuring initiatives in
    accordance with our plans if unforeseen events require
    adjustments or delays in implementation;
    the effects of hedging, which we practice in order to minimize
    the impact of variations between the U.S. dollar and the
    currencies of the other major countries in which we have our
    operating infrastructure, especially the Euro, in the currently
    very volatile currency environment;
    our ability in an intensively competitive environment to secure
    customer acceptance and to achieve our pricing expectations for
    high-volume supplies of new products in whose development we
    have been, or are currently, investing;
    the ability to maintain solid, viable relationships with our
    suppliers and customers in the event they are unable to maintain
    a competitive market presence due, in particular, to the effects
    of the current economic environment;
    changes in the political, social or economic environment,
    including as a result of military conflict, social unrest
    and/or
    terrorist activities, as well as natural events such as severe
    weather, health risks, epidemics or earthquakes in the countries
    in which we, our key customers or our suppliers,
    operate; and
    changes in our overall tax position as a result of changes in
    tax laws or the outcome of tax audits, and our ability to
    accurately estimate tax credits, benefits, deductions and
    provisions and to realize deferred tax assets.  Form 20-F Form 20-F
  and/or
 3




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PART I  Item 1.
    Identity
    of Directors, Senior Management and Advisers    Item 2.
    Offer
    Statistics and Expected Timetable    Item 3.
    Key
    Information  Selected
    Financial Data
  Form 20-F,
  Form 20-F.
  Year Ended December 31,2008


2007


2006


2005


2004(In millions except per share and ratio data)Consolidated Statements of Income Data:Net sales

$
9,792


$
9,966


$
9,838


$
8,876


$
8,756Other revenues


50



35



16



6



4Net revenues


9,842



10,001



9,854



8,882



8,760Cost of sales


(6,282
)


(6,465
)


(6,331
)


(5,845
)


(5,532
)Gross profit


3,560



3,536



3,523



3,037



3,228Operating expenses:Selling, general and administrative


(1,187
)


(1,099
)


(1,067
)


(1,026
)


(947
)Research and development(1)


(2,152
)


(1,802
)


(1,667
)


(1,630
)


(1,532
)Other income and expenses, net(2)


62



48



(35
)


(9
)


10Impairment, restructuring charges and other related closure costs


(481
)


(1,228
)


(77
)


(128
)


(76
)Total operating expenses


(3,758
)


(4,081
)


(2,846
)


(2,793
)


(2,545
)Operating income (loss)


(198
)


(545
)


677



244



683Other-than-temporary impairment charge on financial assets


(138
)


(46
)










Interest income (expense), net


51



83



93



34



(3
)Earnings (loss) on equity investments


(553
)


14



(6
)


(3
)


(4
)Unrealized gain on financial assets


15















Loss on extinguishment of convertible debt


















(4
)Income (loss) before income taxes and minority interests


(823
)


(494
)


764



275



672Income tax benefit (expense)


43



23



20



(8
)


(68
)Income (loss) before minority interests


(780
)


(471
)


784



267



604Minority interests


(6
)


(6
)


(2
)


(1
)


(3
)Net income (loss)


(786
)

$
(477
)

$
782


$
266


$
601 4




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##### Table of Contents



Year Ended December 31,2008


2007


2006


2005


2004(In millions except per share and ratio data)Earnings (loss) per share (basic)

$
(0.88
)

$
(0.53
)

$
0.87


$
0.30


$
0.67Earnings (loss) per share (diluted)

$
(0.88
)

$
(0.53
)

$
0.83


$
0.29


$
0.65Number of shares used in calculating earnings per share (basic)


892.0



898.7



896.1



892.8



891.2Number of shares used in calculating earnings per share (diluted)


892.0



898.7



958.5



935.6



935.1Consolidated Balance Sheet Data (end of period):Cash and cash equivalents(3)

$
1,009


$
1,855


$
1,659


$
2,027


$
1,950Marketable securities


651



1,014



764







Short-term deposits










250







Restricted cash


250



250



218







Non-current marketable securities


242



369











Total assets


13,913



14,272



14,198



12,439



13,800Short-term debt (including current portion of long-term debt)


143



103



136



1,533



191Long-term debt (excluding current portion)(2)


2,554



2,117



1,994



269



1,767Shareholders equity(4)


8,156



9,573



9,747



8,480



9,110Common stock and capital surplus


3,480



3,253



3,177



3,120



3,074Other Data:Dividends per share(5)

$
0.36


$
0.30


$
0.12


$
0.12


$
0.12Capital expenditures(6)


983



1,140



1,533



1,441



2,050Net cash provided by operating activities


1,722



2,188



2,491



1,798



2,342Depreciation and amortization(6)


1,366



1,413



1,766



1,944



1,837Debt-to-equity ratio(7)


0.33



0.23



0.22



0.21



0.21Net financial position: resources (debt)(7)

$
(545
)

$
1,268


$
761


$
225


$
(8
)Net financial position to total shareholders equity
    ratio(7)


(0.07
)


0.132



0.078



0.026



(0.001
)     (1)
    
    Our reported research and development expenses are mainly in the
    areas of product design, technology and development, and do not
    include marketing design center costs, which are accounted for
    as selling expenses, or process engineering, pre-production and
    process-transfer costs, which are accounted for as cost of
    sales. As of 2008, our R&D expenses are net of certain tax
    credits.(2)
    
    Other income and expenses, net includes, among other
    things: funds received through government agencies for research
    and development expenses; the costs incurred for new
    start-up and
    phase-out activities not involving saleable production; foreign
    currency gains and losses; gains on sales of tangible assets and
    non-current assets; and the costs of certain activities relating
    to intellectual property.(3)
    
    On November 16, 2000, we issued $2,146 million initial
    aggregate principal amount of Zero Coupon Senior Convertible
    Bonds due 2010 (the 2010 Bonds), for net proceeds of
    $1,458 million; in 2003, we repurchased on the market
    approximately $1,674 million aggregate principal amount at
    maturity of 2010 Bonds. During 2004, we completed the repurchase
    of our 2010 Bonds and repurchased on the market approximately
    $472 million aggregate principal amount at maturity for a
    total amount paid of $375 million. In August 2003, we
    issued $1,332 million principal amount at issuance of our
    convertible bonds due 2013 (our 2013 Convertible
    Bonds) with a negative yield of 0.5% that resulted in a
    higher principal amount of $1,400 million and net proceeds
    of $1,386 million. During 2004, we repurchased all of our
    outstanding Liquid Yield Option Notes due 2009 (our 2009
    LYONs) for a total amount of cash paid of
    $813 million. In February 2006, we issued Zero Coupon
    Senior Convertible Bonds due 2016 (our 2016 Convertible
    Bonds) representing total gross proceeds of
    $974 million. In March 2006, we issued
    500 million Floating Rate Senior Bonds due 2013 (our
    2013 Senior Bonds). In August 2006, as a result of
    almost all of the holders of our 2013 Convertible 5




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Bonds exercising their August 4, 2006 put option, we
    repurchased $1,397 million aggregate principal amount of
    the outstanding convertible bonds at a conversion ratio of
    $985.09 per $1,000 aggregate principal amount at issuance
    resulting in a cash disbursement of $1,377 million.(4)
    
    In 2001, we repurchased 9,400,000 common shares for
    $233 million, and in 2002, we repurchased an additional
    4,000,000 shares for $115 million. In 2008, we
    repurchased 29,520,220 of our shares, for a total cost of
    $313 million. We reflected this purchase at cost as a
    reduction of shareholders equity. The repurchased shares
    have been designated for allocation under our share-based
    compensation programs as nonvested shares, including the plans
    as approved by the 2005, 2006, 2007 and 2008 annual general
    shareholders meetings, and those which may be attributed
    in the future. As of December 31, 2008,
    6,889,748 shares were transferred to employees upon vesting
    of such stock awards.(5)
    
    Dividend per share represents the yearly dividend as approved by
    our annual general meeting of shareholders, which relates to the
    prior years accounts.(6)
    
    Capital expenditures are net of certain funds received through
    government agencies, the effect of which is to reduce our cash
    used in investing activities and to decrease depreciation.(7)
    
    Net financial position: resources (debt) is representing the
    balance between our total financial resources and our total
    financial debt. Our total financial resources include cash and
    cash equivalents, current and non-current marketable securities,
    short-term deposits and restricted cash, and our total financial
    debt include bank overdrafts, current portion of long-term debt
    and long-term debt, as represented in our consolidated balance
    sheet. Our net financial position to total shareholders
    equity ratio is a
    non-U.S.
    GAAP financial measure. The most directly comparable U.S. GAAP
    financial measure is considered to be Debt-to-Equity
    Ratio. However, the Debt-to-Equity Ratio measures gross
    debt relative to equity, and does not reflect our current cash
    position. We believe that our net financial position to total
    shareholders equity ratio is useful to investors as a
    measure of our financial position and leverage. The ratio is
    computed on the basis of our net financial position divided by
    total shareholders equity. For more information on our net
    financial position, see Item 5. Operating and
    Financial Review and Prospects  Liquidity and Capital
    Resources  Capital Resources  Net
    financial position. Our computation of net debt (cash) to
    total shareholders equity ratio may not be consistent with
    that of other companies, which could make comparability
    difficult.  Risk
    Factors
  Risks
    Related to the Semiconductor Industry
  The
    semiconductor industry has been significantly impacted by the
    deteriorating global economic situation, and the prospects of a
    prolonged recession could have a further material impact on our
    business, financial condition and operating
    results.
    
    significant declines in sales;
    significant reductions in selling prices;
    the resulting significant impact on our gross margins and
    profitability;
    increased volatility
    and/or
    declines in our share price;
    increased volatility or adverse movements in foreign currency
    exchange rates;
    delays in, or curtailment of, purchasing decisions by our
    customers or potential customers either as a result of overall
    economic uncertainty or as a result of their inability to access
    the liquidity necessary to engage in purchasing initiatives or
    new product development;
    underloading of wafer fabrication plants (fabs); 6




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
    decreased valuations of our equity investments;
    increased credit risk associated with our customers or potential
    customers, particularly those that may operate in industries
    most affected by the economic downturn, such as
    automotive; and
    impairment of goodwill or other assets.    The
    semiconductor industry may also be impacted by changes in the
    political, social or economic environment, including as a result
    of military conflict, social unrest and/or terrorist activities,
    as well as natural events such as severe weather, health risks,
    epidemics or earthquakes in the countries in which we, our key
    customers and our suppliers, operate.
    
    negative economic developments in foreign economies and
    instability of foreign governments, including the threat of war,
    terrorist attacks or civil unrest;
    epidemics such as disease outbreaks, pandemics and other health
    related issues;
    changes in laws and policies affecting trade and investment,
    including through the imposition of new constraints on
    investment and trade; and
    varying practices of the regulatory, tax, judicial and
    administrative bodies.  The
    semiconductor industry is cyclical and downturns in the
    semiconductor industry can negatively affect our results of
    operations and financial condition.
  and/or
    Reduction
    in demand and/or an increase in production capacity for
    semiconductor products may lead to overcapacity, which in turn
    may require us to make decisions that could result in temporary
    or permanent plant closures, asset impairments, restructuring
    charges, inventory write-offs and workforce and overhead cost
    reductions.
     7




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and/or and/or
  Competition
    in the semiconductor industry is intense, and we may not be able
    to compete successfully if our product design technologies,
    process technologies and products do not meet market
    requirements.
    
    price;
    technical performance;
    product features;
    product system compatibility;
    product design and technology;
    timely introduction of new products;
    product availability;
    manufacturing yields; and
    sales and technical support.    and/or
     8




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Semiconductor
    and other products that we design and manufacture are
    characterized by rapidly changing technology and new product
    introductions, and our success depends on our ability to develop
    and manufacture complex products cost- effectively and to scale
    and acquire the necessary intellectual property
    (IP).
          The
    competitive environment of the semiconductor industry may lead
    to further measures to improve our competitive position and cost
    structure, which in turn may result in loss of revenues, asset
    impairments and/or capital losses.
    and/or
 9




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and/or
  Risks
    Related to Our Operations
  Market
    dynamics are driving us to a strategic repositioning, which has
    led us to enter into significant joint ventures.
    ST-Ericsson
    Future
    acquisitions or divestitures may adversely affect our
    business.
       10




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
    diversion of managements attention;
    insufficient intellectual property rights or potential
    inaccuracies in the ownership of key IP;
    assumption of potential liabilities, disclosed or undisclosed,
    associated with the business acquired, which liabilities may
    exceed the amount of indemnification available from the seller;
    potential inaccuracies in the financials of the business
    acquired;
    that the businesses acquired will not maintain the quality of
    products and services that we have historically provided;
    whether we are able to attract and retain qualified management
    for the acquired business; and
    whether we are able to retain customers of the acquired entity.    
    diversion of managements attention;
    loss of activities and technologies that may have complemented
    our remaining businesses or operations;
    loss of important services provided by key employees that are
    assigned to divested activities; and
    social issues or restructuring costs linked to divestitures and
    closures.    In
    difficult market conditions, our high fixed costs adversely
    impact our results.
    The
    competitive environment of the semiconductor industry has led to
    industry consolidation and we may face even more intense
    competition from newly merged competitors or we may seek to
    acquire a competitor in order to improve our market
    share.
   11




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Our
    financial results can be adversely affected by fluctuations in
    exchange rates, principally in the value of the U.S.
    dollar.
    Euro-denominated
    Because
    we have our own manufacturing facilities, our capital needs are
    high compared to competitors who do not produce their own
    products.
   12




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We may
    also need additional funding in the coming years to finance our
    investments or to purchase other companies or technologies
    developed by third parties or to refinance our maturing
    indebtedness.
  and/or
  Our
    research and development efforts are increasingly expensive and
    dependent on alliances, and our business, results of operations
    and prospects could be materially adversely affected by the
    failure or termination of such alliances, or failure to find new
    partners in such alliance and/or in developing new process
    technologies in line with market requirements.
  300-mm System-on-Chip
    and/or
 13




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Our
    operating results may vary significantly from quarter to quarter
    and annually and may differ significantly from our expectations
    or guidance.
      
    performance of our key customers in the markets they serve;
    order cancellations or reschedulings by customers;
    excess inventory held by customers leading to reduced bookings
    or product returns by key customers;
    manufacturing capacity and utilization rates;
    restructuring and impairment charges;
    losses on equity investments;
    fluctuations in currency exchange rates, particularly between
    the U.S. dollar and other currencies in jurisdictions where
    we have activities;
    intellectual property developments;
    changes in distribution and sales arrangements;
    failure to win new design projects;
    manufacturing performance and yields;
    product liability or warranty claims;
    litigation;
    acquisitions or divestitures;
    problems in obtaining adequate raw materials or production
    equipment on a timely basis;
    property loss or damage or interruptions to our business,
    including as a result of fire, natural disasters or other
    disturbances at our facilities or those of our customers and
    suppliers that may exceed the amounts recoverable under our
    insurance policies; and
    changes in the market value or yield of the financial
    instruments in which we invest our liquidity.   14




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Our
    business is dependent in large part on continued growth in the
    industries and segments into which our products are sold and on
    our ability to attract and retain new customers. A market
    decline in any of these industries or our inability to attract
    new customers could have a material adverse effect on our
    results of operations.
    
    spending levels of telecommunications equipment, industrial
    and/or
    automotive applications;
    reduced demand resulting from a drop in consumer confidence
    and/or a
    deterioration of general economic conditions;
    development of new consumer products or applications requiring
    high semiconductor content;
    evolving industry standards; and
    the rate of adoption of new or alternative technologies.        Disruptions
    in our relationships with any one of our key customers, and/or
    material changes in their financial condition, could adversely
    affect our results of operations.
   15




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Our
    operating results can also vary significantly due to impairment
    of goodwill and other intangible assets incurred in the course
    of acquisitions, as well as to impairment of tangible assets due
    to changes in the business environment.
      Because
    we depend on a limited number of suppliers for raw materials and
    certain equipment, we may experience supply disruptions if
    suppliers interrupt supply, increase prices or experience
    material adverse changes in their financial
    condition.
  just-in-time
 16




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If our
    outside contractors fail to perform, this could adversely affect
    our ability to exploit growth opportunities.
    Our
    manufacturing processes are highly complex, costly and
    potentially vulnerable to impurities, disruptions or inefficient
    implementation of production changes that can significantly
    increase our costs and delay product shipments to our
    customers.
     17




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We may
    be faced with product liability or warranty
    claims.
    We
    depend on patents to protect our rights to our
    technology.
    and/or
    Some
    of our production processes and materials are environmentally
    sensitive, which could expose us to liability and increase our
    costs due to environmental regulations and laws or because of
    damage to the environment.
      
    European Directive 2002/96/EC (WEEE Directive),
    which imposes a take back obligation on
    manufacturers for the financing of the collection, recovery and
    disposal of electrical and electronic equipment. 18




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Because of unclear statutory definitions and interpretations in
    individual member states, we are unable at this time to
    determine in detail the consequences of this directive for us.  
    European Directive 2002/95/EC (ROHS Directive),
    which banned the use of lead and some flame retardants in
    electronic components as of July 2006.
    European Directive 2003/87/EC, which established a scheme for
    greenhouse gas allowance trading.
    Regulation 1907/2006 of December 18, 2006, which
    requires the registration, evaluation, authorization and
    restriction of a large number of chemicals (REACH).
    The REACH pre-registration process started on June 1, 2008.      Loss
    of key employees could hurt our competitive
    position.
    We
    operate in many jurisdictions with highly complex and varied tax
    regimes. Changes in tax rules or the outcome of tax assessments
    and audits could cause a material adverse effect on our
    results.
      and/or
 19




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##### Table of Contents



We are
    required to prepare Consolidated Financial Statements using both
    International Financial Reporting Standards (IFRS)
    in addition to our Consolidated Financial Statements prepared
    pursuant to Generally Accepted Accounting Principles in the
    United States (U.S. GAAP) and dual reporting may
    impair the clarity of our financial reporting.
        If our
    internal control over financial reporting fails to meet the
    requirements of Section 404 of the Sarbanes-Oxley Act, it
    may have a materially adverse effect on our stock
    price.
  Form 20-F.
  The
    lack of public funding available to us, changes in existing
    public funding programs or demands for repayment may increase
    our costs and impact our results of operations.
  and/or and/or 2008-2012) 12-inch
   20




---



##### Table of Contents



project-by-project
  The
    interests of our controlling shareholders, which are in turn
    controlled respectively by the French and Italian governments,
    may conflict with investors interests.
      Our
    shareholder structure and our preference shares may deter a
    change of control.
   21




---



##### Table of Contents



Our
    direct or indirect shareholders may sell our existing common
    shares or issue financial instruments exchangeable into our
    common shares at any time. In addition, substantial sales by us
    of new common shares or convertible bonds could cause our common
    share price to drop significantly.
          Because
    we are a Dutch company subject to the corporate law of the
    Netherlands, U.S. investors might have more difficulty
    protecting their interests in a court of law or otherwise than
    if we were a U.S. company.
   22




---



##### Table of Contents



Removal
    of our common shares from the CAC 40 on Euronext Paris, the
    S&P/MIB on the Borsa Italiana or the Philadelphia Stock
    Exchange Semiconductor Sector Index (SOX) could
    cause the market price of our common shares to drop
    significantly.
   23




---



##### Table of Contents



Item 4.
    Information
    on the Company  History
    and Development of the Company
  75006-5039
  Business
    Overview
       24




---



##### Table of Contents



System-in-Package
    
    Application Specific Groups (ASG), comprised of four
    product lines: Home Entertainment & Displays Group
    (HED), Mobile, Multi-media &
    Communications Group (MMC), Automotive Products
    Group (APG) and Computer Peripherals Group
    (CPG);
    Industrial and Multi-segment Sector (IMS), comprised
    of Analog, Power, and Micro-Electro-Mechanical Systems
    (APM) segment, and Microcontrollers, non-Flash,
    non-volatile Memory and Smartcard products
    (MMS); and
    Flash Memories Group (FMG). As of March 31,
    2008, following the creation with Intel and Francisco Partners
    of Numonyx, a new independent semiconductor company from the key
    assets of our and Intels Flash memory business (FMG
    deconsolidation), we ceased reporting under the FMG
    segment.      
    Automotive, Consumer, Computer and Communication Infrastructure
    Product Groups (ACCI), comprised of three product
    lines:  
    Home Entertainment & Displays (HED), which
    now includes the Imaging division;
    Automotive Products Group (APG); and
    Computer and Communication Infrastructure (CCI),
    which now includes the Communication Infrastructure division.  
    Industrial and Multi-segment Products Sector (IMS),
    comprised of:  
    Analog, Power and Micro-Electro-Mechanical Systems
    (APM); and
    Microcontrollers, non-Flash, non-volatile Memory and Smartcard
    products (MMS).  
    Wireless Products Sector (WPS), comprised of three
    product lines:  
    Wireless Multi Media (WMM);
    Connectivity & Peripherals
    (C&P); and
    Cellular Systems (CS). 25




---



##### Table of Contents



Results
    of Operations
    Year Ended December 31,2008


2007


2006(In millions)Net revenues by product segments:Automotive Consumer Computer and Communication Infrastructure
    Product Groups (ACCI)

$
4,129


$
3,944


$
4,122Industrial and Multi-segment Products Sector (IMS)


3,329



3,138



2,842Wireless Products Sector (WPS)(1)


2,030



1,495



1,273Others(2)


55



60



47Net revenues excluding Flash Memories Group
    (FMG)


9,543



8,637



8,284Flash Memories Group (FMG)(3)


299



1,364



1,570Total consolidated net revenues

$
9,842


$
10,001


$
9,854     (1)
    
    WPS revenues in 2008 included a $491 million contribution
    from the NXP wireless business.(2)
    
    Includes revenues from the sale of subsystems and other products
    not allocated to product segments.(3)
    
    FMG revenues are related to the first quarter of 2008 only.  Year Ended December 31,2008


2007


2006(In millions)Net revenues by product lines:Home Entertainment & Displays (HED)

$
1,585


$
1,402


$
1,602Automotive Products Group (APG)


1,460



1,419



1,356Computer and Communication Infrastructure (CCI)


1,077



1,123



1,164Others


7







Automotive Consumer Computer and Communication Infrastructure
    Product Groups (ACCI)


4,129



3,944



4,122Analog Power and Micro-Electro-Mechanical Systems
    (APM)


2,393



2,313



2,085Microcontrollers, non-Flash, non-volatile Memory and Smartcard
    products (MMS)


936



825



757Industrial and Multi-segment Products Sector
    (IMS)


3,329



3,138



2,842Wireless Multi Media (WMM)


1,293



1,288



1,210Connectivity & Peripherals (C&P)(1)


416



207



63Cellular Systems (CS)(1)


321







Wireless Products Sector (WPS)


2,030



1,495



1,273Others


55



60



47Flash Memories Group (FMG)


299



1,364



1,570Total consolidated net revenues

$
9,842


$
10,001


$
9,854     (1)
    
    WPS revenues in 2008 included a $491 million contribution
    from the NXP wireless business. 26




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##### Table of Contents



Year Ended December 31,2008


2007


2006(In millions)Net Revenues by Location of Order Shipment:(1)Europe

$
2,804


$
3,159


$
3,073North America


1,160



1,176



1,232Asia Pacific


2,201



1,874



2,084Greater China


2,492



2,750



2,552Japan


512



475



400Emerging Markets(2)


673



567



513Total

$
9,842


$
10,001


$
9,854     (1)
    
    Net revenues by location of order shipment are classified by the
    location of the customer invoiced. For example, products ordered
    by
    U.S.-based
    companies to be invoiced to Asia Pacific affiliates are
    classified as Asia Pacific revenues. In addition, the comparison
    among the different periods may be affected by shifts in order
    shipment from one location to another, as requested by our
    customers.(2)
    
    Emerging Markets included markets such as India, Latin America,
    the Middle East and Africa, Europe (non-EU and non-EFTA
    (European Free Trade Association)) and Russia. As of
    January 1, 2009, Emerging Markets has been reallocated to
    the Europe, North America and Asia Pacific organizations.    Year Ended December 31,2008


2007


2006(As percentage of net revenues)Net Revenues by Location of Order Shipment:(1)Europe


28.5
%


31.6
%


31.2
%North America


11.8



11.8



12.5Asia Pacific


22.4



18.7



21.1Greater China


25.3



27.5



25.9Japan


5.2



4.7



4.1Emerging Markets(2)


6.8



5.7



5.2Total


100.0
%


100.0
%


100.0
%     (1)
    
    Net revenues by location of order shipment are classified by
    location of customer invoiced. For example, products ordered by
    U.S.-based
    companies to be invoiced to Asia Pacific affiliates are
    classified as Asia Pacific revenues. Furthermore, the comparison
    among the different periods may be affected by shifts in order
    shipment from one location to another, as requested by our
    customers.(2)
    
    Emerging Markets included markets such as India, Latin America,
    the Middle East and Africa, Europe (non-EU and non-EFTA) and
    Russia. As of January 1, 2009, Emerging Markets has been
    reallocated to the Europe, North America and Asia Pacific
    organizations.  Strategy
   27




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##### Table of Contents




    the changing long-term structural growth of the overall market
    for semiconductor products, which has moved from double-digit
    average growth rate to single-digit average growth rate over the
    last several years;
    the strong development of new emerging applications in areas
    such as wireless communications, solid-state storage, digital
    TV, video products and games as well as for medical and
    technology applications;
    the importance of the Asia Pacific region, particularly China
    and other emerging countries, which represent the fastest
    growing regional markets;
    the importance of convergence between wireless, consumer and
    computer applications, which drives customer demand to seek new
    system-level, turnkey solutions from semiconductor suppliers;
    the evolution of the customer base from original equipment
    manufacturers (OEM) to a mix of OEM, electronic
    manufacturing service providers (EMS) and original
    design manufacturers (ODM);
    the expansion of available manufacturing capacity through
    third-party providers; and
    the recent consolidation process, accelerated by current
    economic conditions, which may lead to further strategic
    repositioning and reorganization amongst industry players.    Broad, balanced market exposure.
  Product innovation.
    Customer-based initiatives.
 28




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##### Table of Contents



Global integrated manufacturing
    infrastructure.
  Reduced asset intensity.
  Research and development (R&D)
    leadership.
  Integrated presence in key regional
    markets.
  Product quality excellence.
  Sustainable Excellence and Compliance.
  Creating Shareholder Value.
 29




---



##### Table of Contents



Products
    and Technology
      
    Automotive Consumer, Computer and Communication Infrastructure
    (ACCI);
    Industrial and Multisegment Sector (IMS); and
    Wireless Product Sector (WPS).    ACCI
        Home
    Entertainment and Displays Group
    Home Video Division. Pay-TV
 30




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##### Table of Contents



Interactive System Solutions
    Division. best-in-class
  TV & Monitor Division.
    Audio Division. thin-TV
  Imaging Division. low-and-high
  Computer
    Peripherals Group and Communications Infrastructure
    Group
  Data Storage Division. 140-2
 31




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##### Table of Contents



Computer System Division. tm ®
  Microfluidics Division.
  BCD Power Division.
  Communication Infrastructure
    Division.
  Automotive
    Products Group
  32-bit
  Powertrain and Safety Division. tm
   32




---



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Car Body Division.
  Car Radio and Multi-media
    Division.
    Digital Broadcast Radio
    Division. tm
  Industrial
    and Multi-segment Sector
     33




---



##### Table of Contents



APM
  Power MOSFET Division. tm tm tm
  Power Bipolar, IGBT and RF
    Division. tm
  ASD and IPAD Division. tm
  Linear and Interface Division.
 34




---



##### Table of Contents



class-D
  Industrial and Power Conversion
    Division. best-in-class 200 best-in-class step-up best-in-class
  Advanced Analog and Mixed Signal
    Division.
 35




---



##### Table of Contents



Micro-Electro-Mechanical Systems
    (MEMS) and Sensors, Transceivers and Healthcare
    Division.
      MMS
  Microcontroller Division.
  Memory Division. 1-Kb 1-Mb 256-Kbit, 512-Kbit 1-Mbit
  Smartcard IC Division. pay-TV
 36




---



##### Table of Contents



Incard Division.
  Wireless
    Products Sector
      Wireless
    Multi Media
  Wireless Multi Media Division.
      Connectivity &
    Peripherals
  Connectivity & Peripherals
    Division.
 37




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® ramping-up
  Cellular
    Systems
  Cellular Systems Division.
  Strategic
    Alliances with Customers and Industry Partnerships
    300-mm 300-mm
  Laboratoire dElectronique et de Technologie de
    lInformation
   38




---



##### Table of Contents



Customers
    and Applications
      TelecommunicationsCustomers:

Alcatel-Lucent
    Cisco
    Ericsson
    Finisar

Huawei
    LG Electronics
    Logitech
    Motorola

Nokia
    Nortel Networks
    Research in Motion
    Samsung

Sharp
    Siemens
    SIRF 
    Sony EricssonApplications:

Camera modules/mobile imaging
    Cellular telephones
    Central office switching systems
    Data transport
    Infrastructure (wireless/wireline)



Internet access (XDSL)
    Portable multi-media
    Telephone terminals
    (wireline/wireless)
    Wireless connectivityComputer PeripheralsCustomers:

Agilent
    Apple
    Canon
    Dell

Delta
    Hewlett-Packard
    Hitachi
    Intel

Kingston
    Lexmark
    Microsoft
    Samsung

Seagate
    Taiwan-Liteon
    Western Digital
    XilinxApplications:

Data storage
    Monitors and displays
    Microfluidics/print-head cartridges



Power management
    Printers
    WebcamsAutomotiveCustomers:

Bosch
    Continental
    Delphi
    Denso

Harman
    Hella
    Hitachi
    Kostal

Lear
    Marelli
    Panasonic
    Pioneer

TRW
    Valeo
    Visteon
    Sirius Satellite RadioApplications:

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

GPS multimedia
    Radio/satellite radio
    Telematics
    Vehicle stability control 39




---



##### Table of Contents



ConsumerCustomers:

ADB
    AOC
    Bose Corporation
    Echostar

Garmin
    General Satellite
    LG Electronics
    Nintendo

Philips
    Sagem Connunications
    Samsung
    Scientific Atlanta

Skyworth
    Sony
    Thomson
    UECApplications:

Audio processing (CD, DVD, Hi-Fi)
    Digital/analog TVs
    Digital cameras
    Digital music players
    Displays



DVDs
    Imaging
    Set-top boxes
    VCRsIndustrial/Other ApplicationsCustomers:

American Power Conversion
    Autostrade
    Delta
    Emerson

FNMT
    Gemalto
    General Electric
    Interpay

Giesecke & Devrient
    Nagra
    NDS
    Nintendo

Philips
    Siemens
    Taiwan-Liteon
    VodafoneApplications:

Battery chargers
    Smartcard ICs
    Intelligent power switches
    Industrial automation/control
    systems
    Lighting systems



MEMS
    Motor controllers
    Power supplies
    Switch mode power supplies     Sales,
    Marketing and Distribution
         40




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just-in-time
              and/or
   41




---



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Research
    and Development
            Year Ended December 31,2008

2007

2006(In millions, except percentages)Expenditures

$
2,152


$
1,802


$
1,667As a percentage of net revenues


21.9
%


18.0
%


16.9
%        42




---



##### Table of Contents




    Repatriate to Crolles the core CMOS technologies jointly
    developed at IBM in East Fishkill (USA).
    Accelerate the development and the number of differentiated
    technologies for SoC so as to be able to supply amongst the
    worlds leading prototypes ICs, thereby develop a strategy of
    advanced differentiated products to compete with Asia foundries.
    Develop libraries and perform transversal R&D on the
    methods and tools necessary to develop complex ICs using these
    technologies.
    Perform advanced technology research linked to the conception of
    CMOS nano electric functionalities advance devices on 300mm
    wafers.
    Pervade local, national and European territories, taking
    advantage of nano-electronic diffusion technologies to further
    promote innovation in various application sectors.  system-on-chip
  2008-2012.
     43




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
    HW/SW platform based designs
    On Chip Infrastructure
    Standard Interface Subsystems
    Functional Verification
    Design prototyping               44




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tm
  tm tm
             45




---



##### Table of Contents



Property,
    Plants and Equipment
    Location

Products

TechnologiesFront-end facilitiesCrolles1, France

Application-specific products, image sensors

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

Application-specific products and leading edge logic products

Fab: 300-mm research and development on deep sub-micron
    (90-nm and
    below) CMOS and differentiated SoC technology development, TSV
    pilot linePhoenix, Arizona
    (entering the final stages of closure)

Application-specific products and microcontrollers

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

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

Fab 1: 200-mm BCD, nonvolatile memories, MEMS
    Fab 2: 200-mm, embedded Flash, research and development on
    nonvolatile memories and BCD technologies and Flash (which
    services Numonyx)Rousset, France

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

Fab 1: 200-mm CMOS, Smartcard, embedded Flash, imagingCatania, Italy

Power transistors, Smart Power ICs and nonvolatile memories

Fab 1: 150-mm Power metal-on silicon oxide semiconductor process
    technology(MOS),VIPowertm,

MO-3 and Pilot Line RF Fab 2: 200-mm, Smartcard, EEPROM BCD,
power MOS and Flash (which services Numonyx)Tours, France

Protection thyristors, diodes and ASD power transistors, IPAD

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

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

Fab 1: 125-mm, power MOS, bipolar, power Fab 2: 150-mm bipolar,
    power MOS and BCD, EEPROM, Smartcard, Micros, CMOS logicFab 3: 150 mm Microfluidic, MEMS, BCD, BiCMOS, CMOSBack-end facilitiesMuar, Malaysia

Application-specific and standard products, microcontrollers,
    Flash

A portion of the plant (building K) has been contributed to
    NumonyxKirkop, Malta

Application-specific productsToa Payoh, Singapore

Power ICs and optical packages, under reconversion into an EWS
    centerBouskoura, Morocco

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

Nonvolatile memories, discrete and standard productsLonggang, China
    (under qualification)

Discrete and standard productsCalamba, Philippines(3)

Application Specific Products     (1)
    
    Operated jointly with NXP Semiconductors and Freescale
    Semiconductor. The agreement terminated at the end of 2007. 46




---



##### Table of Contents



(2)
    
    Jointly operated with SHIC, a subsidiary of Shenzhen Electronics
    Group.(3)
    
    Operated by ST but contributed to the ST-Ericsson joint venture.  200-mm 200-mm
  300-mm
      300-mm
    and/or
   47




---



##### Table of Contents



Intellectual
    Property
    and/or
      Backlog
   48




---



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and/or and/or
    just-in-time build-ups.
      Competition
       49




---



##### Table of Contents



Organizational
    Structure and History
        Percentage OwnershipLegal Seat

Name

(Direct or Indirect)Australia  Sydney

STMicroelectronics PTY Ltd


100Belgium  Leuven

NF Belgium NV*


80Belgium  Zaventem

STMicroelectronics Belgium N.V.*


80Belgium  Zaventem

Proton World International N.V.


100Brazil  Sao Paolo

STMicroelectronics Ltda


100Brazil  Sao Paulo

Incard do Brazil Ltda


50Canada  Ottawa

STMicroelectronics (Canada), Inc.


100Canada  Thorn hill

Genesis Microchip (Canada) Co.


100China  Shenzhen

Shenzhen STS Microelectronics Co. Ltd


60China  Shenzhen

STMicroelectronics (Shenzhen) Co. Ltd


100China  Shenzhen

STMicroelectronics (Shenzhen) Manufacturing Co.  Ltd


100China  Shenzhen

STMicroelectronics (Shenzhen) R&D Co. Ltd


100China  Shanghai

STMicroelectronics (Shanghai) Co. Ltd


100China  Shanghai

STMicroelectronics (Shanghai) R&D Co. Ltd


100China  Shanghai

Shanghai Blue Media Co. Ltd


65China  Shanghai

STMicroelectronics (China) Investment Co. Ltd


100China  Shanghai

Shanghai NF Wireless Trading Co. Ltd*


80China  Shanghai

Shanghai NF Wireless Technology Co. Ltd*


80China  Beijing

STMicroelectronics (Beijing) R&D Co. Ltd


100China  Beijing

Beijing T3G Technology Co. Ltd*


80Czech Republic  Prague

STMicroelectronics Design and Application s.r.o.


100Czech Republic  Prague

STN Wireless Sro*


80Finland  Lohja

STMicroelectronics OY*


80Finland  Helsinki

STMicroelectronics R&D OY*


80France  Crolles

STMicroelectronics (Crolles 2) SAS


100France  Montrouge

STMicroelectronics S.A.


100France  Paris

ST-NXP Wireless France SAS*


80France  Rousset

STMicroelectronics (Rousset) SAS


100France  Tours

STMicroelectronics (Tours) SAS


100France  Grenoble

STMicroelectronics (Grenoble 2) SAS


100France  Grenoble

STMicroelectronics Wireless SAS*


80 50




---



##### Table of Contents



Percentage OwnershipLegal Seat

Name

(Direct or Indirect)Germany  Grasbrunn

STMicroelectronics GmbH


100Germany  Grasbrunn

STMicroelectronics Design and Application GmbH


100Germany  Grasbrunn

NXP Falcon Germany GmbH*


80Holland  Amsterdam

STMicroelectronics Finance B.V.


100Holland  Luchtaven

ST Wireless (holding) NV*


80Holland  Eindhoven

NXP Wireless Holding 1 BV*


80Holland  Eindhoven

NXP Wireless Holding 2 BV*


80Hong Kong  Hong Kong

STMicroelectronics LTD


100India  Noida

STMicroelectronics Pvt Ltd


100India  Noida

STMicroelectronics (Wireless) Private Limited*


80India  New Delhi

STMicroelectronics Marketing Pvt Ltd


100India  Bangalore

Genesis Microchip (India) Pvt Ltd


100India  Bangalore

NF Wireless India Pvt Ltd*


80Ireland  Dublin

NXP Falcon Ireland Ltd*


80Israel  Netanya

STMicroelectronics Ltd


100Italy  Catania

CO.RI.M.ME.


100Italy  Aosta

DORA S.p.a.


100Italy  Agrate Brianza

ST Incard S.r.l.


100Italy  Naples

STMicroelectronics Services S.r.l.


100Italy  Agrate Brianza

STMicroelectronics S.r.l.


100Italy  Agrate Brianza

ST Wireless Italy Srl*


80Japan  Tokyo

STMicroelectronics KK


100Japan  Tokyo

NF Wireless Japan KK*


80Japan  Tokyo

Genesis Japan KK


100Korea  Seoul

ST-NXP Wireless Korea Ltd*


80Malaysia  Kuala Lumpur

STMicroelectronics Marketing SDN BHD


100Malaysia  Muar

STMicroelectronics SDN BHD


100Malaysia  Muar

STMicroelectronics (Wireless) SDN.BHD*


80Malta  Kirkop

STMicroelectronics Ltd


100Mexico   Guadalajara

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


100Mexico   Guadalajara

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


100Morocco  Rabat

Electronic Holding S.A.


100Morocco  Casablanca

STMicroelectronics S.A.


100Morocco  Rabat

STMicroelectronics Wireless Maroc SAS*


80Philippines  Calamba

NF Philippines, Inc.*


80Singapore  Ang Mo Kio

STMicroelectronics ASIA PACIFIC Pte Ltd


100Singapore  Ang Mo Kio

STMicroelectronics Pte Ltd


100Singapore  Ang Mo Kio

ST Wireless Asia Pac Pte Ltd*


80Singapore  Singapore

NF Singapore Pte Ltd*


80Spain  Madrid

STMicroelectronics S.A.


100Sweden  Kista

STMicroelectronics A.B.


100Sweden  Stockholm

ST Wireless AB*


80Switzerland  Geneva

STMicroelectronics S.A.


100Switzerland  Geneva

INCARD SA


100Switzerland  Geneva

INCARD Sales and Marketing SA


100Switzerland  Geneva

ST Wireless SA*


80Switzerland  Zurich

ST-NXP Wireless (Holding) AG*


80Taiwan  Taipei

NF Taiwan Ltd*


80Turkey  Istanbul

STMicroelectronics Elektronik Arastirma ve Gelistirme Anonim
    Sirketi*


80United Kingdom  Marlow

STMicroelectronics Limited


100United Kingdom  Marlow

STMicroelectronics (Research & Development) Limited


100United Kingdom  Bristol

Inmos Limited


100United Kingdom  Bristol

STMicroelectronics Wireless Ltd*


80United Kingdom  Reading

Synad Technologies Limited


100 51




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Percentage OwnershipLegal Seat

Name

(Direct or Indirect)United Kingdom  Southampton

NF UK, Ltd*


80United States  Carrollton

STMicroelectronics Inc.


100United States  Carrollton

ST-NXP Wireless Inc.*


80United States  Carrollton

Genesis Microchip Inc, A Delaware Corporation


100United States  Carrollton

Genesis Microchip (Del) Inc.


100United States  Carrollton

Genesis Microchip LLC


100United States  Carrollton

Genesis Microchip Limited Partnership


100United States  Carrollton

Sage Inc.


100United States  Carrollton

Faroudja Inc.


100United States  Carrollton

Faroudja Laboratories Inc.


100United States  Wilmington

STMicroelectronics (North America) Holding, Inc.


100United States  Wilsonville

The Portland Group, Inc.


100EQUITY INVESTMENTSItaly  Caivano

INGAM Srl


20The Netherlands  Rotterdam

Numonyx Holding BV


48.6South Korea  Yongin-si

ATLab Inc.


8.1Singapore  The Curie

Veredus Laboratories Pte Ltd


41.2     *
    
    These entities are related to the joint venture with NXP, and as
    of February 1, 2009, they have been transferred to
    ST-Ericsson, in which we own 50%.  Public
    Funding
          2001-2008
 52




---



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and/or
  300-mm
  inter alia
   53




---



##### Table of Contents



system-on-chip
  2008-2012.
          Elements of Financial Statements
  300-mm
 54




---



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and/or
  Suppliers
      just-in-time
    Environmental
    Matters
     55




---



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2008-2010. 2005-2007, 2 2008-2012, 2005-2007. (2003-2006), 1998-2001 (2007-2010), 2
      Industry
    Background
  The
    Semiconductor Market
   56




---



##### Table of Contents



quarter-by-quarter
    Worldwide Semiconductor Sales(1)


Compound Annual Growth Rates(2)2008


2007


2006


1998


1988


04-08


07-08


06-07


88-08


98-08


88-98In billions


Expressed as percentagesIntegrated Circuits and Sensors

$
213.8


$
222.9


$
214.8


$
109.1


$
35.9



3.9
%


(4.1
)%


3.8
%


9.3
%


7.0
%


11.8
%Analog, Sensors and Actuators


40.7



41.6



42.3



19.1



7.2



3.0



(2.2
)


(1.7
)


9.0



7.9



10.2Digital Logic


126.7



123.5



114.1



67.0



17.8



6.0



2.6



8.2



10.3



6.6



14.2Memory:DRAM


24.0



31.3



33.8



14.0



6.3



(2.7
)


(23.0
)


(7.4
)


6.9



5.5



8.3Others


22.3



26.6



24.7



9.0



4.6



10.6



(16.0
)


7.7



8.2



9.5



6.9Total Memory


46.3



57.9



58.5



23.0



10.9



2.7



(20.0
)


(1.1
)


7.5



7.2



7.7Total Digital


173.0



181.4



172.6



90.0



28.7



4.1



(4.6
)


5.1



9.4



6.8



12.1Discrete


16.9



16.8



16.6



11.9



7.0



1.7



0.7



1.3



4.5



3.6



5.5Optoelectronics


17.9



15.9



16.3



4.6



2.1



6.9



12.6



(2.3
)


11.3



14.6



8.1TAM

$
248.6


$
255.6


$
247.7


$
125.6


$
45.0



3.9
%


(2.8
)%


3.2
%


9.3
%(3)


7.0
%(3)


10.8
%(3)Europe


38.2



41.0



39.9



29.4



8.1



(0.8
)


(6.6
)


2.7



8.1



2.7



13.8Americas


37.9



42.3



44.9



41.4



13.4



(0.8
)


(10.5
)


(5.7
)


5.3



(0.9
)


11.9Asia Pacific


124.0



123.5



116.5



28.9



5.4



8.7



0.4



6.0



17.0



15.7



18.3Japan


48.5



48.8



46.4



25.9



18.1



1.4



(0.7
)


5.2



5.1



6.5



3.7TAM

$
248.6


$
255.6


$
247.7


$
125.6


$
45.0



3.9
%


(2.8
)%


3.2
%


9.3
%(3)


7.0
%(3)


10.8
%(3)Of which SAM

$
155.3


$
151.7


$
144.4


$
79.7


$
35.1



5.3
%


2.4
%


5.1
%


7.7
%


6.9
%


8.6
%     (1)
    
    Source: WSTS. 57




---



##### Table of Contents



(2)
    
    Calculated using end points of the periods specified.(3)
    
    Calculated on a comparable basis, without information with
    respect to actuators as they were not included in the indicator
    before 2003.    Semiconductor
    Classifications
                 58




---



##### Table of Contents



Item 5.
    Operating
    and Financial Review and Prospects  Overview
  The following discussion should be read in conjunction with
    our Consolidated Financial Statements and Notes thereto included
    elsewhere in this
    Form 20-F.
    The following discussion contains statements of future
    expectations and other forward-looking statements within the
    meaning of Section 27A of the Securities Act of 1933, or
    Section 21E of the Securities Exchange Act of 1934, each as
    amended, particularly in the sections  Critical
    Accounting Policies Using Significant Estimates,
     Business Outlook and
     Liquidity and Capital Resources 
    Financial Outlook. Our actual results may differ
    significantly from those projected in the forward-looking
    statements. For a discussion of factors that might cause future
    actual results to differ materially from our recent results or
    those projected in the forward-looking statements in addition to
    the factors set forth below, see Cautionary Note Regarding
    Forward-Looking Statements and Item 3, Key
    Information  Risk Factors. We assume no
    obligation to update the forward-looking statements or such risk
    factors.
  Critical
    Accounting Policies Using Significant Estimates
   59




---



##### Table of Contents



Revenue recognition.
     60




---



##### Table of Contents



No. 00-21, (EITF 00-21).
  Goodwill and purchased intangible assets.
  Impairment of goodwill.
 61




---



##### Table of Contents



Intangible assets subject to
    amortization.
  Property, plant and equipment. 300-mm 300-mm
 62




---



##### Table of Contents



300-mm 300-mm
      Inventory.
    Asset disposal.
 63




---



##### Table of Contents



Restructuring charges.
  Share-based compensation.
  Earnings (loss) on Equity Investments.
  Financial assets.
 64




---



##### Table of Contents



Income taxes.
    Patent and other intellectual property litigation or
    claims. and/or Form 20-F,
    and/or
 65




---



##### Table of Contents



Pension and Post Retirement Benefits.
  Other claims.
  Fiscal
    Year 2008
    2008
    Business Overview
           66




---



##### Table of Contents



step-up
  step-up
        start-up
   67




---



##### Table of Contents



step-up
          
    The negative pricing trend;
    The additional impairment and other restructuring charges
    related to our ongoing programs;
    The impairment loss recorded on our equity investment in Numonyx;
    The weakening of the U.S. dollar exchange rate;
    The one-time items related to the purchase accounting for
    acquisitions; and
    The other-than-temporary loss on financial assets.    
    Our improved product mix, which contributed to our
    revenues; and
    The improvements in our manufacturing performance. 68




---



##### Table of Contents



First
    Quarter 2009 Results
      catch-up
          Business
    Outlook
   69




---



##### Table of Contents




    We will be focused on improving our competitiveness as we
    execute our plan to develop ST-Ericsson following its creation
    in the first quarter;
    We are working to reduce our costs by over $700 million in
    2009 with respect to our fourth quarter 2008 cost base. To reach
    such targets, we are pursuing a combination of initiatives, such
    as ongoing restructuring activities and new programs focused on
    resizing our manufacturing operations and streamlining expenses.
    Such actions are expected to affect approximately 4,500 jobs
    worldwide in 2009.
    We continue to advance our lighter asset strategy focused on
    careful management of our capital investments. As a result, we
    have set a capex budget of approximately $500 million for
    2009, which represents a 50% reduction, approximately, compared
    to 2008.    These are forward-looking statements that are subject to
    known and unknown risks and uncertainties that could cause
    actual results to differ materially; in particular, refer to
    those known risks and uncertainties described in
    Cautionary Note Regarding Forward-Looking Statements
    and Item 3. Key Information  Risk
    Factors herein.
  Other
    Developments
       70




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##### Table of Contents



ST-Ericsson,
  inter alia
  
    The reappointment for a three-year term, expiring at the end of
    our 2011 Annual General Meeting of Shareholders, of Carlo
    Bozotti as the sole member of the Managing Board and the
    Companys President and Chief Executive Officer;
    The reappointment for a three-year term, expiring at the end of
    our 2011 Annual General Meeting of Shareholders, for the
    following members of the Supervisory Board: Mr. Gérald
    Arbola, Mr. Tom de Waard, Mr. Didier Lombard and
    Mr. Bruno Steve;
    The appointment for a three-year term, expiring at the end of
    our 2011 Annual General Meeting of Shareholders, as a member of
    the Supervisory Board of Mr. Antonino Turicchi;
    The distribution of a cash dividend of $0.36 per share, paid in
    four equal quarterly installments to shareholders of record in
    the month of each quarterly payment (our shares traded
    ex-dividend on May 19, 2008, August 18, 2008,
    November 24, 2008 and February 23, 2009;
    Authorization to repurchase up to 30 million of our issued
    share capital under certain limitations and in accordance with
    applicable law; and
    The reappointment for a two-year term, expiring at the end of
    our 2010 Annual General Meeting of Shareholders, of
    PricewaterhouseCoopers Accountants N.V. as our external auditors.   71




---



##### Table of Contents



inter alia
  
    The distribution of a cash dividend of US$0.12 per common share,
    to be paid in four equal installments, on May 25, 2009,
    August 24, 2009, November 23, 2009 and
    February 22, 2010. Payment of an installment will be made
    to those deriving their rights from our common shares at the
    aforementioned dates;
    The reappointment for a three-year term, expiring at the 2012
    Annual General Meeting, for the following members of the
    Supervisory Board: Mr. Doug Dunn and Dr. Didier
    Lamouche; and
    The maximum number of restricted Share Awards under
    our existing
    5-year
    Employee Unvested Share Award Plan
    (2008-2012)
    of 30,500,000, which includes any Unvested Stock Awards granted
    to our President and CEO as part of his compensation, with the
    maximum number of restricted shares in 2009 to be
    6,100,000.  Results
    of Operations
  Segment
    Information
        
    Application Specific Groups (ASG), comprised of four
    product lines: Home Entertainment & Displays Group
    (HED), Mobile, Multi-media &
    Communications Group (MMC), Automotive Products
    Group (APG) and Computer Peripherals Group
    (CPG);  
    Industrial and Multi-segment Sector (IMS), comprised
    of the former Micro, Power, Analog (MPA) segment,
    non-Flash memory and Smartcard products and
    Micro-Electro-Mechanical Systems (MEMS); and 72




---



##### Table of Contents




    Flash Memories Group (FMG). As of March 31,
    2008, following the creation with Intel of Numonyx, a new
    independent semiconductor company from the key assets of our and
    Intels Flash memory business (FMG
    deconsolidation), we ceased reporting under the FMG
    segment.      
    Automotive, Consumer, Computer and Communication Infrastructure
    Product Groups (ACCI), comprised of three product
    lines:  
    Home Entertainment & Displays (HED), which
    now includes the Imaging division;
    Automotive Products Group (APG); and,
    Computer and Communication Infrastructure (CCI),
    which now includes the Communication Infrastructure division.  
    Industrial and Multi-segment Products Sector (IMS),
    comprised of:  
    Analog Power and Micro-Electro-Mechanical Systems
    (APM); and
    Microcontrollers, non-Flash, non-volatile Memory and Smartcard
    products (MMS).  
    Wireless Products Sector (WPS), comprised of three
    product lines:  
    Wireless Multi Media (WMM);
    Connectivity & Peripherals
    (C&P); and
    Cellular Systems (CS).           73




---



##### Table of Contents



start-up
  Year Ended December 31,2008


2007


2006(In millions)Net revenues by product segments:Automotive Consumer Computer and Communication Infrastructure
    Product Groups (ACCI)

$
4,129


$
3,944


$
4,122Industrial and Multi-segment Products Sector (IMS)


3,329



3,138



2,842Wireless Products Sector (WPS)(1)


2,030



1,495



1,273Others(2)


55



60



47Net revenues excluding Flash Memories Group
    (FMG)


9,543



8,637



8,284Flash Memories Group (FMG)(3)


299



1,364



1,570Total consolidated net revenues

$
9,842


$
10,001


$
9,854     (1)
    
    WPS revenues in 2008 included a $491 million contribution
    from the NXP wireless business.(2)
    
    Includes revenues from the sale of subsystems and other products
    not allocated to product segments.(3)
    
    FMG revenues are related to the first quarter of 2008 only.    Year Ended December 31,2008


2007


2006(In millions)Net revenues by product lines:Home Entertainment & Displays (HED)

$
1,585


$
1,402


$
1,602Automotive Products Group (APG)


1,460



1,419



1,356Computer and Communication Infrastructure (CCI)


1,077



1,123



1,164Others


7







Automotive Consumer Computer and Communication Infrastructure
    Product Groups (ACCI)


4,129



3,944



4,122Analog Power and Micro-Electro-Mechanical Systems
    (APM)


2,393



2.313



2,085Microcontrollers, non-Flash, non-volatile Memory and Smartcard
    products (MMS)


936



825



757Industrial and Multi-segment Products Sector
    (IMS)


3,329



3,138



2,842Wireless Multi Media (WMM)


1,293



1,288



1,210Connectivity & Peripherals (C&P)


416



207



63Cellular Systems (CS)(1)


321







Wireless Products Sector (WPS)


2,030



1,495



1,273Others


55



60



47Flash Memories Group (FMG)


299



1,364



1,570Total consolidated net revenues

$
9,842


$
10,001


$
9,854     (1)
    
    CS includes the largest part of the revenues contributed by NXP
    Wireless and, as such, there are no comparable numbers available
    for 2006 and 2007. C&P also partly benefited from NXP
    wireless contribution.  74




---



##### Table of Contents



Year Ended December 31,2008


2007


2006(In millions)Operating income (loss) by product segments:Automotive Consumer Computer and Communication Infrastructure
    Product Groups (ACCI)

$
107


$
198


$
272Industrial and Multi-segment Products Sector (IMS)


459



469



441Wireless Products Sector (WPS)


(70
)


105



167Operating income of product segments excluding FMG


496



772



880Others(1)


(710
)


(1,266
)


(150
)Operating income (loss) excluding FMG


(214
)


(494
)


730Flash Memories Group (FMG)


16



(51
)


(53
)Total consolidated operating income (loss)

$
(198
)

$
(545
)

$
677     (1)
    
    Operating income (loss) of Others includes items
    such as impairment, restructuring charges and other related
    closure costs,
    start-up
    costs, and other unallocated expenses such as: strategic or
    special R&D programs, acquired IP R&D and other
    non-recurrent purchase accounting items, certain corporate level
    operating expenses, certain patent claims and litigation, and
    other costs that are not allocated to the product segments, as
    well as operating earnings or losses of the Subsystems and Other
    Products Group, including, beginning in the second quarter of
    2008, the remaining FMG costs. Others also included
    non-recurring purchase accounting items.  Year Ended December 31,2008


2007


2006(As percentage of net revenues)Operating income (loss) by product segments:Automotive Consumer Computer and Communication Infrastructure
    Product Groups (ACCI)


2.6
%


5.0
%


6.6
%Industrial and Multi-segment Products Sector (IMS)


13.8



14.9



15.5Wireless Products Sector (WPS)


(3.4
)


7.0



13.1Others(2)










Flash Memories Group (FMG)(1)


5.4



(3.7
)


(3.4
)Total consolidated operating income (loss)(3)


(2.0
)%


(5.4
)%


6.9
%     (1)
    
    As a percentage of net revenues per product group.(2)
    
    As a percentage of total net revenues. Includes operating income
    (loss) from sales of subsystems and other income (costs) not
    allocated to product segments.(3)
    
    As a percentage of total net revenues.  75




---



##### Table of Contents



Year Ended December 31,2008


2007


2006(In millions)Reconciliation to consolidated operating income (loss):Operating income of product segments excluding FMG

$
496


$
772


$
880Operating income (loss) of FMG


16



(51
)


(53
)Strategic and other research and development programs


(24
)


(20
)


(12
)Acquired IP R&D and other non-recurring purchase accounting
    items(1)


(185
)






Start-up
    costs


(16
)


(24
)


(57
)Impairment, restructuring charges and other related closure costs


(481
)


(1,228
)


(77
)Seniority awards






(21
)


Other non-allocated provisions(2)


(4
)


27



(4
)Total operating loss Others(3)


(710
)


(1,266
)


(150
)Total consolidated operating income (loss)

$
(198
)

$
(545
)

$
677     (1)
    
    Non-recurring purchase accounting items are related to Genesis
    business combination, with an IP R&D charge for
    $21 million, and the wireless business acquisition from NXP
    with charges for $164 million, composed of $76 million
    as IP R&D and $88 million as inventory
    step-up.(2)
    
    Includes unallocated income and expenses such as certain
    corporate level operating expenses and other costs that are not
    allocated to the product segments.(3)
    
    Operating income (loss) of Others includes items
    such as impairment, restructuring charges and other related
    closure costs,
    start-up
    costs, and other unallocated expenses such as: strategic or
    special R&D programs, acquired IP R&D and other
    non-recurrent purchase accounting items, certain corporate level
    operating expenses, certain patent claims and litigation, and
    other costs that are not allocated to the product segments, as
    well as operating earnings or losses of the Subsystems and Other
    Products Group, including, beginning in the second quarter of
    2008, the remaining FMG costs.  Net
    revenues by location of order shipment and by market
    segment
    Year Ended December 31,2008


2007


2006(In millions)Net Revenues by Location of Order Shipment:(1)Europe

$
2,804


$
3,159


$
3,073North America(2)


1,160



1,176



1,232Asia Pacific


2,201



1,874



2,084Greater China


2,492



2,750



2,552Japan


512



475



400Emerging Markets(1)(2)


673



567



513Total

$
9,842


$
10,001


$
9,854     (1)
    
    Net revenues by location of order shipment are classified by
    location of customer invoiced. For example, products ordered by
    U.S.-based
    companies to be invoiced to Asia Pacific affiliates are
    classified as Asia Pacific revenues. Furthermore, the comparison
    among the different periods may be affected by shifts in order
    shipment from one location to another, as requested by our
    customers. 76




---



##### Table of Contents



(2)
    
    Emerging Markets include markets such as India, Latin America,
    the Middle East and Africa, Europe (non-EU and non-EFTA) and
    Russia. As of January 1, 2009, Emerging Markets has been
    reallocated to the Europe, North America and Asia Pacific
    organizations.    Year Ended December 31,2008


2007


2006(As percentage of net revenues)Net Revenues by Location of Order Shipment:(1)Europe


28.5
%


31.6
%


31.2
%North America


11.8



11.8



12.5Asia Pacific


22.4



18.7



21.1Greater China


25.3



27.5



25.9Japan


5.2



4.7



4.1Emerging Markets(2)


6.8



5.7



5.2Total


100.0
%


100.0
%


100.0
%Net Revenues by Market Segment Application(3):Automotive


14.7
%


15.2
%


14.9
%Consumer


16.6



16.9



16.5Computer


15.6



16.0



16.6Telecom


36.5



36.6



37.6Industrial and Other


16.6



15.3



14.4Total


100.0
%


100.0
%


100.0
%     (1)
    
    Net revenues by location of order shipment are classified by
    location of customer invoiced. For example, products ordered by
    U.S.-based
    companies to be invoiced to Asia Pacific affiliates are
    classified as Asia Pacific revenues. Furthermore, the comparison
    among the different periods may be affected by shifts in order
    shipment from one location to another, as requested by our
    customers.(2)
    
    Emerging Markets include markets such as India, Latin America,
    the Middle East and Africa, Europe (non-EU and non-EFTA) and
    Russia. As of January 1, 2009, Emerging Markets has been
    reallocated to the Europe, North America and Asia Pacific
    organizations.(3)
    
    The above table estimates, within a variance of 5% to 10% in the
    absolute dollar amount, the relative weighting of each of our
    target segments. 77




---



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Year Ended December 31,2008


2007


2006(As percentage of net revenues)Net sales


99.5
%


99.7
%


99.8
%Other revenues


0.5



0.3



0.2Net revenues


100.0



100.0



100.0Cost of sales


(63.8
)


(64.6
)


(64.2
)Gross profit


36.2



35.4



35.8Selling, general and administrative


(12.1
)


(11.0
)


(10.8
)Research and development


(21.9
)


(18.0
)


(16.9
)Other income and expenses, net


0.6



0.5



(0.4
)Impairment, restructuring charges and other related closure costs


(4.8
)


(12.3
)


(0.8
)Operating income (loss)


(2.0
)


(5.4
)


6.9Other-than-temporary
    impairment charge on financial assets


(1.4
)


(0.4
)


Interest income, net


0.5



0.8



0.9Earnings (loss) on equity investments


(5.6
)


0.1



(0.1
)Unrealized gain on financial assets


0.1







Income (loss) before income taxes and minority interests


(8.4
)


(4.9
)


7.7Income tax (expense) benefit


0.5



0.2



0.2Income (loss) before minority interests


(7.9
)


(4.7
)


7.9Minority interests


(0.1
)


(0.1
)


Net income (loss)


(8.0
)%


(4.8
)%


7.9
%   2008 vs.
    2007
    Net
    Revenues
  Year Ended December 31,2008


2007


% Variation(Audited, in millions)Net sales

$
9,792


$
9,966



(1.8
)%Other revenues


50



35



Net revenues

$
9,842


$
10,001



(1.6
)%       year-over-year
 78




---



##### Table of Contents



Gross
    profit
  Year Ended December 31,2008


2007


% Variation(Audited, in millions)Cost of sales

$
(6,282
)

$
(6,465
)


2.8
%Gross profit

$
3,560


$
3,536



0.7
%Gross margin (as a percentage of net revenues)


36.2
%


35.4
%   step-up step-up year-over-year
  Selling,
    general and administrative expenses
  Year Ended December 31,2008


2007


% Variation(Audited, in millions)Selling, general and administrative expenses

$
(1,187
)

$
(1,099
)


(8.0
)%As a percentage of net revenues


(12.1
)%


(11.0
)%


     Research
    and development expenses
  Year Ended December 31,2008


2007


% Variation(Audited, in millions)Research and development expenses

$
(2,152
)

$
(1,802
)


(19.5
)%As a percentage of net revenues


(21.9
)%


(18.0
)%


    79




---



##### Table of Contents



Other
    income and expenses, net
  Year Ended December 31,2008


2007(Audited,in millions)Research and development funding

$
83


$
97Start-up/phase-out
    costs


(17
)


(24
)Exchange gain (loss) net


20



1Patent litigation costs


(14
)


(18
)Patent pre-litigation costs


(10
)


(10
)Gain on sale of non-current assets


4



Other, net


(4
)


2Other income and expenses, net

$
62


$
48As a percentage of net revenues


0.6
%


0.5
%   start-up
  Impairment,
    restructuring charges and other related closure
    costs
  Year Ended December 31,2008


2007(Audited,in millions)Impairment, restructuring charges and other related closure costs

$
(481
)

$
(1,228
)     
    $216 million originated by the FMG assets disposal which
    required the recognition of $190 million as an additional
    loss and $26 million as restructuring and other related
    disposal costs; this additional loss was the result of revised
    terms of the transaction from those expected at
    December 31, 2007;
    $164 million incurred as part of our ongoing 2007
    restructuring initiatives which include the closure of our fabs
    in Phoenix and Carrollton (USA) and of our back-end facilities
    in Ain Sebaa (Morocco);
    $19 million as impairment charges on goodwill and certain
    financial investments; and
    $82 million for other previously and newly announced
    restructuring plans, consisting primarily of voluntary
    termination benefits and early retirement arrangements in some
    of our European locations.   80




---



##### Table of Contents



Operating
    loss
  Year Ended December 31,2008


2007(Audited,in millions)Operating loss

$
(198
)

$
(545
)As a percentage of net revenues


(2.0
)%


(5.4
)%     step-up
    Year Ended December 31,2008


2007(Audited,in millions)Operating loss, as reported

$
(198
)

$
(545
)Adding back:   Cost of sales: NXP inventory
    step-up

$
88



0   Research and development: IP R&D

$
97



0   Impairment and restructuring charges


481



1,228Operating result, pro forma

$
468


$
683      81




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##### Table of Contents



Interest
    income, net
  Year Ended December 31,2008


2007(Audited,in millions)Interest income, net

$
51


$
83     Other-than-temporary
    impairment charges on financial assets
  Year Ended December 31,2008


2007(Audited, in millions)Other-than-temporary
    impairment charges on financial assets

$
(138
)

$
(46
)   Other-than-temporary.
  available-for-sale
  Other-than-temporary Other-than-temporary and/or
 82




---



##### Table of Contents



Earnings
    (loss) on equity investments
  Year Ended December 31,2008


2007(Audited,in millions)Earnings (loss) on equity investments

$
(553
)

$
14     Income
    tax benefit
  Year Ended December 31,2008


2007(Audited,in millions)Income tax benefit

$
43


$
23       Net
    loss
  Year Ended December 31,2008


2007(Audited,in millions)Net loss

$
(786
)

$
(477
)As a percentage of net revenues


(8.0
)%


(4.8
)%     2007 vs.
    2006
  year-over-year
 83




---



##### Table of Contents



Net
    revenues
  Year Ended December 31,2007


2006


% Variation(In millions)Net sales

$
9,966


$
9,838



1.3
%Other revenues


35



16



Net revenues

$
10,001


$
9,854



1.5
%             Gross
    profit
  Year Ended December 31,2007


2006


% Variation(In millions)Cost of sales

$
(6,465
)

$
(6,331
)


(2.1
)%Gross profit

$
3,536


$
3,523



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


35.4
%


35.8
%


   year-over-year,
 84




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##### Table of Contents



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


2006


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

$
(1,099
)

$
(1,067
)


(3.0
)%As a percentage of net revenues


(11.0
)%


(10.8
)%


-     Research
    and development expenses
  Year Ended December 31,2007


2006


% Variation(In millions)Research and development expenses

$
(1,802
)

$
(1,667
)


(8.1
)%As a percentage of net revenues


(18.0
)%


(16.9
)%


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


2006(In millions)Research and development funding

$
97


$
54Start-up
    costs


(24
)


(57
)Exchange gain (loss), net


1



(9
)Patent litigation costs


(18
)


(22
)Patent pre-litigation costs


(10
)


(7
)Gain on sale of Accent subsidiary






6Gain on sale of non-current assets, net


2



2Other, net






(2
)Other income and expenses, net

$
48


$
(35
)As a percentage of net revenues


0.5
%


(0.4
)%   start-up
 85




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##### Table of Contents



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


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

$
(1,228
)

$
(77
)     
    a pre-tax impairment loss estimated at $1,106 million
    booked for the planned disposal of the FMG assets held for sale,
    an additional pre-tax $1 million impairment charge on
    certain specific equipment that could not be transferred as part
    of FMG deconsolidation and for which no alternative future use
    could be found in the Company and an additional pre-tax
    $5 million of other related disposal costs;
    an amount of $73 million related to the severance costs and
    impairment charge booked in relation to the 2007 manufacturing
    restructuring plan of our manufacturing activities which is
    on-going;
    a charge of $29 million generated by our
    150-mm
    restructuring plan which has been completed;
    a charge of approximately $9 million for employee benefits
    relating to our headcount restructuring plan;
    an impairment charge of $3 million related to an equity
    investment carried at cost; and
    an impairment charge of $2 million related to certain
    technologies without alternative future use.
    In 2006, we incurred $77 million of impairment,
    restructuring charges and other related closure costs, including
    $45 million relating to our headcount restructuring plan,
    $22 million relating to our
    150-mm
    restructuring plan, and an impairment charge of approximately
    $10 million recorded pursuant to subsequent decisions to
    discontinue adoption of Tioga related technologies in certain
    products.  Operating
    income (loss)
  Year Ended December 31,2007


2006


% Variation(In millions)Operating income (loss)

$
(545
)

$
677



As a percentage of net revenues


(5.4
)%


6.9
%      86




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##### Table of Contents



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


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

$
83


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


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

$
(46
)

$
0   Other-than-temporary.
  Earning
    (loss) on equity investments
  Year Ended December 31,2007


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

$
14


$
(6
)   ramp-up
  Income
    tax benefit (expense)
  Year Ended December 31,2007


2006(In millions)Income tax benefit (expense)

$
23


$
20      87




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Net
    income (loss)
  Year Ended December 31,2007


2006(In millions)Net income (loss)

$
(477
)

$
782     Quarterly
    Results of Operations
  period-to-period
    year-over-year
   88




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Net
    revenues
  Three Months Ended


% VariationDec 31, 2008


Sept 27, 2008


Dec 31, 2007


Sequential


Year-Over-Year(Unaudited)


(Unaudited)(Unaudited)(In millions)Net sales

$
2,264


$
2,687


$
2,733



(15.7
)%


(17.2
)%Other revenues


12



9



9







Net revenues

$
2,276


$
2,696


$
2,742



(15.6
)%


(17.0
)%   Year-over-year
    comparison
          Sequential
    comparison
         89




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##### Table of Contents



Gross
    profit
  Three Months Ended


% VariationDecember 31, 2008


September 27, 2008


December 31, 2007


Sequential


Year-Over-Year(Unaudited, in millions)Cost of sales

$
(1,454
)

$
(1,737
)

$
(1,731
)


16.3
%


16.0
%Gross profit


822



959


$
1,011



(14.3
)%


(18.7
)%Gross margin (as a percentage of net revenues)


36.1
%


35.6
%


36.9
%   year-over-year step-up year-over-year
    Selling,
    general and administrative expenses
  Three Months Ended


% VariationDecember 31, 2008


September 27, 2008


December 31, 2007


Sequential


Year-Over-Year(Unaudited, in millions)Selling, general and administrative expenses

$
(304
)

$
(297
)

$
(295
)


(2.7
)%


(3.0
)%As percentage of net revenue


(13.4
)%


(11.0
)%


(10.8
)%   year-over-year
      Research
    and development expenses
  Three Months Ended


% VariationDecember 31, 2008


September 27, 2008


December 31, 2007


Sequential


Year-Over-Year(Unaudited, in millions)Research and development expenses

$
(572
)

$
(602
)

$
(480
)


5.1
%


(19.2
)%As percentage of net revenues


(25.1
)%


(22.3
)%


(17.5
)%   year-over-year
 90




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##### Table of Contents



Other
    income and expenses, net
  Three Months EndedDecember 31, 2008


September 27, 2008


December 31, 2007(Unaudited, in millions)Research and development funding

$
19


$
21


$
36Start-up/phase-out
    costs


(7
)


(3
)


(5
)Exchange gain (loss) net






9



5Patent litigation costs


(3
)


(4
)


(3
)Patent pre-litigation costs


(2
)


(3
)


(3
)Gain on sale of non-current assets










2Other, net


(1
)


(3
)


(4
)Other income and expenses, net


6



17



28As a percentage of net revenues


0.3
%


0.6
%


1.0
%   start-up
  Impairment,
    restructuring charges and other related closure
    costs
  Three Months EndedDecember 31, 2008


September 27, 2008


December 31, 2007(Unaudited, in millions)Impairment, restructuring charges and other related closure costs

$
(91
)

$
(22
)

$
(279
)As a percentage of net revenues


(4.0
)%


(0.8
)%


(10.2
)%     
    $29 million related to one-time termination benefits to be
    paid at the closure of our Carrollton, Texas and Phoenix,
    Arizona sites, as well as other charges;
    $2 million impairment costs associated with an investment
    in a minority participation;
    $9 million charges related to the FMG
    deconsolidation; and
    $51 million related to other ongoing and newly committed
    restructuring plans, consisting primarily of voluntary
    termination benefits and early retirement arrangements in some
    of our European locations.   91




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Operating
    income (loss)
  Three Months EndedDecember 31, 2008


September 27, 2008


December 31, 2007(Unaudited, in millions)Operating income (loss)

$
(139
)

$
55


$
(15
)In percentage of net revenues


(6.1
)%


2.1
%


(0.6
)%   Year-over-year
    basis
    Sequentially
        step-up
  Three Months EndedDecember 31, 2008


September 27, 2008


December 31, 2007(Unaudited, in millions)Operating loss, as reported

$
(139
)

$
55


$
(15
)Adding back:   Cost of sales: NXP inventory
    step-up


31



57



0   Research and development: IP R&D


0



76



0   Impairment and restructuring charges


91



22



279Operating result, pro forma

$
(17
)

$
210


$
264  92




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##### Table of Contents



year-over-year
  Interest
    income, net
  Three Months EndedDecember 31, 2008


September 27, 2008


December 31, 2007(Unaudited, in millions)Interest income, net

$
3


$
8


$
25     Other-than-temporary
    impairment charges on financial assets
  Three Months EndedDecember 31, 2008


September 27, 2008


December 31, 2007(Unaudited, in millions)Other-than-temporary
    impairment charges on financial assets

$
(55
)

$
(14
)

$
(46
)   available-for-sale other-than-temporary
    Earnings
    (loss) on equity investments
  Three Months EndedDecember 31, 2008


September 27, 2008


December 31, 2007(Unaudited, in millions)Earnings (loss) on equity investments

$
(204
)

$
(344
)

$
2       Income
    tax benefit
  Three Months EndedDecember 31, 2008


September 27, 2008


December 31, 2007(Unaudited, in millions)Income tax benefit

$
9


$
15


$
55    93




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##### Table of Contents



Net
    income (loss)
  Three Months EndedDecember 31, 2008


September 27, 2008


December 31, 2007(Unaudited, in millions)Net income (loss)

$
(366
)

$
(289
)

$
20As percentage of net revenues


(16.1
)%


(10.7
)%


0.7
%     other-than-temporary other-than-temporary
  Impact of
    Changes in Exchange Rates
    non-U.S. dollar
   94




---



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95




---



##### Table of Contents



Impact of
    Changes in Interest Rates
    held-for-trading
      Liquidity
    and Capital Resources
  Form 20-F,
   96




---



##### Table of Contents



other-than-temporary
        available-for-sale
 97




---



##### Table of Contents



Other-than-temporary Other-than-temporary
  and/or
      Liquidity
        Year Ended December 31,2008


2007


2006(In millions)Net cash from operating activities

$
1,722


$
2,188


$
2,491Net cash used in investing activities


(2,417
)


(1,737
)


(3,057
)Net cash from (used) in financing activities


(67
)


(296
)


132Effect of change in exchange rates


(84
)


41



66Net cash increase (decrease)

$
(846
)

$
196


$
(368
)   Net cash from operating activities.
 98




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##### Table of Contents



Net cash used in investing activities.
  Net cash used in financing activities.
  Net operating cash flow.
  Year Ended December 31,2008


2007


2006(In millions)Net cash from operating activities

$
1,722


$
2,188


$
2,491Net cash used in investing activities


(2,417
)


(1,737
)


(3,057
)Payment for purchase and proceeds from sale of marketable
    securities (current and non-current), short-term deposits and
    restricted cash, net


(351
)


389



1,232Net operating cash flow

$
(1,046
)

$
840


$
666     Capital
    Resources
  Net
    financial position
   99




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##### Table of Contents



Year Ended December 31,2008


2007


2006(In millions)Cash and cash equivalents, net of bank overdrafts

$
989


$
1,855


$
1,659Marketable securities, current


651



1,014



764Short-term deposits










250Restricted cash


250



250



218Marketable securities, non-current


242



369



Total financial resources


2,132



3,488



2,891Current portion of long-term debt


(123
)


(103
)


(136
)Long-term debt


(2,554
)


(2,117
)


(1,994
)Total financial debt


(2,677
)


(2,220
)


(2,130
)Net financial position

$
(545
)

$
1,268


$
761          100




---



##### Table of Contents



Total


2009


2010


2011


2012


2013


ThereafterLong-term debt (including current portion)

$
2,677


$
123


$
173


$
1,153


$
116


$
816


$
296     Moodys Investors


Standard &Service


PoorsZero Coupon Senior Convertible Bonds due 2013


WR(1
)


A-Zero Coupon Senior Convertible Bonds due 2016


Baa1



A-Floating Rate Senior Bonds due 2013


Baa1



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


2009


2010


2011


2012


2013


ThereafterOperating leases(2)

$
423


$
89


$
68


$
61


$
52


$
61


$
92Purchase obligations(2)


516



409



68



39of which:Equipment and other asset purchase


150



150Foundry purchase


106



106Software, technology licenses and design


260



153



68



39Other obligations(2)


359



163



86



53



48



7



2Long-term debt obligations (including current portion)(3)(4)(5)
    of which:


2,677



123



173



1,153



116



816



296Capital leases(3)


15



6



6



2











1Pension obligations(3)


332



35



36



26



31



32



172Other non-current liabilities(3)


350



11



57



17



86



8



171Total

$
4,657


$
830


$
488


$
1,349


$
333


$
924


$
733     (1)
    
    Contingent liabilities which cannot be quantified are excluded
    from the table above.(2)
    
    Items not reflected on the Consolidated Balance Sheet at
    December 31, 2008.(3)
    
    Items reflected on the Consolidated Balance Sheet at
    December 31, 2008.(4)
    
    See Note 17 to our Consolidated Financial Statements at
    December 31, 2008 for additional information related to
    long-term debt and redeemable convertible securities.(5)
    
    Year of payment is based on maturity before taking into account
    any potential acceleration that could result from a triggering
    of the change of control provisions of the 2016 Convertible
    Bonds and the 2013 Senior Bonds. 101




---



##### Table of Contents



102




---



##### Table of Contents



Off-Balance
    Sheet Arrangements
      Financial
    Outlook
  300-mm
   103




---



##### Table of Contents



Impact of
    Recently Issued U.S. Accounting Standards
  (a) Accounting pronouncements effective in 2008
  Fair Value Measurements
  The Fair Value Option for
    Financial Assets and Financial Liabilities  Including
    an amendment of FASB Statement No. 115
  No. 06-11, Accounting for Income Tax Benefits of Dividends on
    Share-Based Payment Awards (EITF 06-11).
 104




---



##### Table of Contents



paid-in-capital. EITF 06-11 EITF 06-11 EITF 06-11
  No. 07-3, Accounting for Advance Payments for Goods or Services to Be
    Used in Future Research and Development Activities (EITF 07-3). EITF 07-3 EITF 07-3 EITF 07-3
  No. 07-6, Accounting for the Sale of Real Estate When the Agreement
    Includes a Buy-Sell Clause (EITF 07-6). buy-sell EITF 07-6 EITF 07-6 EITF 07-6
  Written Loan Commitments Recorded
    at Fair Value Through Earnings
  Year-End Help for Expensing
    Employee Stock Options
  (b) Accounting pronouncements expected to impact our
    operations that are not yet effective and have not been adopted
    early by us
  Business
    Combinations Noncontrolling Interests in Consolidated Financial
    Statements, an amendment of ARB No. 51
 105




---



##### Table of Contents



Disclosures about Derivative
    Instruments and Hedging Activities
  The Hierarchy of Generally Accepted
    Accounting Principles The Meaning of
    Present Fairly in Conformity With Generally Accepted Accounting
    Principles
 106




---



##### Table of Contents



No. 08-6, Equity Method Investment Accounting Considerations (EITF 08-6). EITF 08-6 EITF 08-6 states EITF 08-6 EITF 08-6 EITF 08-6
  No. 08-7, Accounting for Defensive Intangible Assets (EITF 08-7). EITF 08-7 EITF 08-7 states EITF 08-7 EITF 08-7 EITF 08-6 EITF 08-7 EITF 08-7
  (c) Accounting pronouncements that are not yet effective
    and are not expected to impact our operations:
  a. EITF 07-1, Accounting for Collaborative Arrangements
  b.
    EITF 07-4,
    Application of the Two {d208} Class Method under
    FAS 128 to Master Limited Partnerships  c. Accounting for Financial
    Guarantee Insurance Contracts
  d.
    EITF 07-5,
    Determining Whether an Instrument (or an Embedded Feature) Is
    Indexed to an Entitys Own Stock  e. EITF 08-3, Accounting by Lessees for Maintenance Deposits under Lease
    Agreements
  f.
    EITF 08-5,
    Issuers Accounting for Liabilities Measured at Fair
    Value with a Third-Party Credit Enhancement  g.
    EITF 08-8,
    Accounting for an Instrument (or an Embedded Feature) with a
    Settlement Amount that is Based on the Stock of an Entitys
    Consolidated Subsidiary  Equity
    investments
  Numonyx
   107




---



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and/or
       108




---



##### Table of Contents



Statement of Income Information:Net sales


1,165Gross profit


266Net income (loss)


(129
)Financial Position Information:Current assets


1,614Noncurrent assets


1,412Current liabilities


512Noncurrent liabilities


860Net worth


1,654   Hynix
    ST Joint Venture
     109




---



##### Table of Contents



Veredus
    ATLab
      Backlog
    and Customers
      Item 6.
    Directors,
    Senior Management and Employees  Directors
    and Senior Management
    Supervisory
    Board
   110




---



##### Table of Contents



Name(1)

Position

Year Appointed(2)


Term Expires


AgeAntonino Turicchi

Chairman


2008
(3)


2011



43Gérald Arbola

Vice-Chairman


2004



2011



60Raymond Bingham

Member


2007



2010



63Douglas Dunn

Member


2001



2009



64Didier Lamouche

Member


2006



2009



49Didier Lombard

Member


2004



2011



67Alessandro Ovi

Member


2007



2010



65Bruno Steve

Member


1989



2011



67Tom de Waard

Member


1998



2011



62     (1)
    
    Mr. Matteo del Fante was a Supervisory Board member until
    the end of our 2008 annual shareholders meeting, at which
    time he was succeeded by Mr. Antonino Turicchi.(2)
    
    As a member of the Supervisory Board.(3)
    
    Mr. Turicchi was also a Supervisory Board member from
    2005-2007.      http://www.st.com/stonline/company/governance/index.htm.
    Biographies
   111




---



##### Table of Contents



112




---



##### Table of Contents



113




---



##### Table of Contents



Supervisory
    Board Committees
  Membership and Attendance.
  NominationandCorporateAudit


Compensation


Strategic


Governance


Ad HocNumber of Meetings Attended in 2008(1)

Full Board


Committee


Committee


Committee


Committee


CommitteeAntonino Turicchi(2)


8







3



1



1



1Gérald Arbola


15







6



3



3Raymond Bingham


15



10







1



Matteo del Fante(2)


7



6



3



2



2Douglas Dunn


15



9







3







1Didier Lamouche


14



10















1Didier Lombard


15







5



2



3Alessandro Ovi


15











3



Bruno Steve


15



5



6



2



3Tom de Waard


15



12



6







3     (1)
    
    Includes meetings attended by way of conference call.(2)
    
    Mr. Matteo del Fante was a Supervisory Board member until
    the end of our 2008 annual shareholders meeting, at which
    time he was succeeded by Mr. Antonino Turicchi.  Audit Committee.
       114




---



##### Table of Contents



Form 20-F,
          Compensation Committee.
     115




---



##### Table of Contents



Strategic Committee.
      5-year
    Nominating and Corporate Governance
    Committee.
      Secretariat and Controllers.
 116




---



##### Table of Contents



Managing
    Board
       117




---



##### Table of Contents



5-year
  Executive
    Officers
     118




---



##### Table of Contents



Years inSemi-Years with


ConductorName

Position

Company


Industry


AgeExecutive CommitteeCarlo Bozotti, Chairman

President and Chief Executive Officer


32



32



56Alain Dutheil, Vice Chairman

Chief Operating Officer


25



39



63Georges Auguste

Executive Vice President, Quality, Education and Sustainable
    Development


22



34



59Orio Bellezza

Executive Vice President and General Manager, Front-End
    Manufacturing


25



25



49Laurent Bosson(1)

Executive Vice President, Front-end Technology and Manufacturing


25



25



66Jean-Marc Chery

Executive Vice President and Chief Technology Officer


24



24



48Andrea Cuomo

Executive Vice President and General Manager, Sales &
    Marketing, Europe, Middle East and Africa


25



25



54Carlo Ferro

Executive Vice President, Chief Financial Officer


9



9



48Otto Kosgalwies

Executive Vice President, Infrastructure and Services


25



25



53Philippe Lambinet

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


22



22



51Carmelo Papa

Executive Vice President and General Manager, Industiral
    Multi-segment Sector


26



26



59Jeffrey See

Executive Vice President, Central Packaging and Test
    Manufacturing


39



39



63Tommi Uhari(2)

Executive Vice President, Mobile, Multi-media &
    Communications


2



16



37Enrico Villa(1)

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


41



41



67Executive StaffGian Luca Bertino

Corporate Vice President, Computer and Communications
    Infrastructure


11



22



49Ugo Carena

Corporate Vice President, Automotive Products Group


11



31



65Marco Luciano Cassis

Corporate Vice President, Japan Region


21



21



45Patrice Chastagner

Corporate Vice President, Human Resources


24



24



61Claude Dardanne

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


27



30



56Alisia Grenville

Corporate Vice President, Chief Compliance Officer


1



1



41François Guibert

Corporate Vice President, Asia Pacific Region


28



31



55Reza Kazerounian(3)

Corporate Vice President, North America Region


24



24



51Robert Krysiak

Corporate Vice President and General Manager, Greater China
    Region


26



26



54 119




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##### Table of Contents



Years inSemi-Years with


ConductorName

Position

Company


Industry


AgeLoïc Lietar

Corporate Vice President, Corporate Business Development


24



24



46Mario Licciardello(4)

Corporate Vice President, Flash Memory Group


43



43



67Pierre Ollivier

Corporate Vice President and General Counsel


18



18



53Carlo Ottaviani

Corporate Vice President, Communications


44



44



65Thierry Tingaud(5)

Corporate Vice President, Emerging Markets Region


24



24



49     (1)
    
    Retired in 2008.(2)
    
    Mr. Uhari is now the Senior Vice President, Products, of
    ST-Ericsson.(3)
    
    As of April 2009, Mr. Kazerounian is no longer with the
    Company.(4)
    
    Mr. Licciardello is currently the Chief Operating Officer
    of Numonyx.(5)
    
    As of February 2009, Mr. Tingaud is the Vice-President of
    Strategic Planning of ST-Ericsson.    Biographies
    of our Current Executive Officers
  Executive
    Committee
     120




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Asia-Pacific Front-End ST-Ericssons
     121




---



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start-up (125-mm)
  Executive
    Staff
     122




---



##### Table of Contents



123




---



##### Table of Contents



16/32/64
         124




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##### Table of Contents



Compensation
    Supervisory Board Member

Directors FeesAntonino Turicchi(1)


144,250Gérald Arbola


161,500Raymond Bingham


94,625Matteo del Fante(1)


23,250Douglas Dunn


97,625Didier Lamouche


88,500Didier Lombard


98,250Alessandro Ovi


81,875Bruno Steve


109,000Tom de Waard(2)


164,750Total


1,063,625     (1)
    
    Mr. Matteo del Fante was a Supervisory Board member until
    our 2008 annual shareholders meeting, at which time he was
    succeeded by Mr. Antonino Turicchi.(2)
    
    Compensation, including attendance fees of $2,000 per meeting of
    our Supervisory Board or committee thereof, was paid to Clifford
    Chance LLP.    inter alia,
  Sole Member of Our Managing Board and President and CEO

Salary(2)


Bonus(1)


Non-cash Benefits(3)


TotalCarlo Bozotti

$
917,253


$
663,948


$
972,932


$
2,554,133     (1)
    
    The bonus paid to the sole member of our Managing Board and
    President and CEO during the 2008 financial year was approved by
    the Compensation Committee, and approved by the Supervisory
    Board in respect of the 2007 financial year, based on
    fulfillment of a number of pre-defined objectives for 2007.(2)
    
    Our Supervisory Board, upon the recommendation of our
    Compensation Committee, approved an annual salary for 2008 for
    our Managing Board and President and CEO of $700,000, with an
    exchange rate for the salary paid in Euro fixed at 1.00 to
    $1.20 and an exchange rate for the salary paid in Swiss Francs
    of approximately CHF 1.00 to $0.90.(3)
    
    Including stock awards, employer social contributions, company
    car allowance and miscellaneous allowances.   125




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126




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##### Table of Contents



Share
    Ownership
    Stock
    Awards and Options
  and/or and/or
    
    amended grants pursuant to the 2005 stock-based compensation
    plan for Supervisory Board members and professionals at our 2007
    annual shareholders meeting;
    adopted our 2006 and 2007 nonvested Stock Award Plan for
    Executives and Key Employees (the Employee USA Plan)
    with the goal of enhancing our ability to retain key employees
    and motivate them to work to create shareholder value and, in
    addition, approved vesting conditions linked to our future
    performance and continued service with us; and
    approved our 2008 nonvested Stock Award Plan for Executives and
    Key Employees, under which directors, managers and selected
    employees may be granted stock awards upon the fulfillment of
    restricted criteria, such as those linked to our performance and
    continued service with us.    inter alia,
  Employee
    and Managing Board Stock-Based Compensation Plans
  1995 Stock Option Plan.
   127




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##### Table of Contents



2001 Stock Option Plan.
      1995 Plan
    (Employees)
    October 20, 1995
    (outstanding grants)
  Special Grant

Tranche 5

Special Grant

Tranche 6

Special Grant

Tranche 7Date of Supervisory Board Meeting

24-Jan-00

16-Jun-00

18-Sep-00

11-Dec-00

18-Dec-00

1-Mar-01Total Number of Shares which may be purchased

150,000

5,331,250

70,000

2,019,640

26,501

113,350Vesting Date

24-Jan-03

16-Jun-02

18-Sep-02

11-Dec-02

18-Dec-02

1-Mar-03Expiration Date

24-Jan-08

16-Jun-08

18-Sep-08

11-Dec-08

18-Dec-08

1-Mar-09Exercise Price

$55.25

$62.01

$52.88

$50.69

$44.00

$31.65Terms of Exercise

50% on

32% on

32% on

32% on

32% on

32% on24-Jan-03

16-Jun-02

18-Sep-02

11-Dec-02

18-Dec-02

1-Mar-0350% on

32% on

32% on

32% on

32% on

32% on24-Jan-04

16-Jun-03

18-Sep-03

11-Dec-03

18-Dec-03

1-Mar-0436% on

36% on

36% on

36% on

36% on16-Jun-04

18-Sep-04

11-Dec-04

18-Dec-04

1-Mar-05Number of Shares to be acquired with Outstanding Options as of
    March 31, 2009

0

0

0

0

0

0Held by Managing Board/Executive Officers

0

0

0

0

0

0  128




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##### Table of Contents



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

Tranche 2

Tranche 3

Tranche 4

Tranche 5

Tranche 6

Tranche 7Date of the grant

27-Apr-01

4-Sep-01

1-Nov-01

2-Jan-02

25-Jan-02

25-Apr-02

26-Jun-02Total Number of Shares which may be purchased

9,521,100

16,000

61,900

29,400

3,656,103

9,708,390

318,600Vesting Date

27-Apr-03

4-Sep-03

1-Nov-03

2-Jan-04

25-Jan-03

25-Apr-04

26-Jun-04Expiration Date

27-Apr-11

4-Sep-11

1-Nov-11

2-Jan-12

25-Jan-12

25-Apr-12

26-Jun-12Exercise Price

$39.00

$29.70

$29.61

$33.70

$31.09

$31.11

$22.30Terms of Exercise

32% on

32% on

32% on

32% on

50% on

32% on

32% on27-Apr-03

4-Sep-03

1-Nov-03

2-Jan-04

25-Jan-03

25-Apr-04

26-Jun-0432% on

32% on

32% on

32% on

50% on

32% on

32% on27-Apr-04

4-Sep-04

1-Nov-04

2-Jan-05

25-Jan-04

25-Apr-05

26-Jun-0536% on
    27-Apr-05

36% on
    4-Sep-05

36% on
    1-Nov-05

36% on
    2-Jan-06



36% on
    25-Apr-06

36% on
    26-Jun-06Number of Shares to be acquired with Outstanding Options as of
    March 31, 2009

7,517,820

7,000

43,750

19,900

2,793,151

7,888,398

135,606Held by Managing Board/Executive Officers

339,500

0

0

0

133,225

351,030

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

Tranche 9

Tranche 10

Tranche 11

Tranche 12

Tranche 13

Tranche 14

Tranche 15

Tranche 16

Tranche 17Date of the grant

1-Aug-02

17-Dec-02

14-Mar-03

3-Jun-03

24-Oct-03

2-Jan-04

26-Apr-04

1-Sep-04

31-Jan-05

17-Mar-05Total Number of Shares which may be purchased

24,500

14,400

11,533,960

306,850

135,500

86,400

12,103,490

175,390

29,200

13,000Vesting Date

1-Aug-04

17-Dec-04

14-Mar-05

3-Jun-05

24-Oct-05

2-Jan-06

26-Apr-06

1-Sep-06

31-Jan-07

17-Mar-07Expiration Date

1-Aug-12

17-Dec-12

14-Mar-13

3-Jun-13

24-Oct-13

2-Jan-14

26-Apr-14

1-Sep-14

31-Jan-15

17-Mar-15Exercise Price

$20.02

$21.59

$19.18

$22.83

$25.90

$27.21

$22.71

$17.08

$16.73

$17.31Terms of Exercise

32% on

32% on

32% on

32% on

32% on

32% on

32% on

32% on

32% on

32% on1-Aug-04

17-Dec-04

14-Mar-05

3-Jun-05

24-Oct-05

2-Jan-06

26-Apr-06

1-Sep-06

31-Jan-07

17-Mar-0732% on

32% on

32% on

32% on

32% on

32% on

32% on

32% on

32% on

32% on1-Aug-05

17-Dec-05

14-Mar-06

3-Jun-06

24-Oct-06

2-Jan-07

26-Apr-07

1-Sep-07

31-Jan-08

17-Mar-0836% on

36% on

36% on

36% on

36% on

36% on

36% on

36% on

36% on

36% on1-Aug-06

17-Dec-06

14-Mar-07

3-Jun-07

24-Oct-07

2-Jan-08

14-Mar-08

1-Sep-08

31-Jan-09

17-Mar-09Number of Shares to be acquired with Outstanding Options as of
    March 31, 2009

13,100

14,400

9,542,571

173,650

119,150

15,200

10,168,310

112,466

17,300

13,100Held by Managing Board/ Executive Officers

0

0

419,700

0

31,000

0

507,000

0

0

0   2006
    nonvested Stock Award Plan
    2007
    nonvested Stock Award Plan
   129




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##### Table of Contents



2008
    nonvested Stock Award Plan
          Supervisory
    Board Stock Option Plans
  1999 Stock Option Plan for members and professionals of our
    Supervisory Board.
  2002 Stock Option Plan for members and professionals of our
    Supervisory Board. 2002-2005),
  1999 and
    2002 Plans
    (for Supervisory Board Members and Professionals)
    (outstanding grants)
  Date of Annual

May 31, 1999

March 27, 2002Shareholders Meeting

Tranche 2

Tranche 3

Tranche 1

Tranche 2

Tranche 3Date of the grant

16-Jun-00

27-Apr-01

25-Apr-02

14-Mar-03

26-Apr-04Total Number of Shares which may be purchased

103,500

112,500

132,000

132,000

132,000Vesting Date

16-Jun-01

27-Apr-02

25-May-02

14-Apr-03

26-May-04Expiration Date

16-Jun-08

27-Apr-11

25-Apr-12

14-Mar-13

26-Apr-14Exercise Price

$62.01

$39.00

$31.11

$19.18

$22.71Terms of Exercise

All exercisable

All exercisable

All exercisable

All exercisable

All exercisableafter 1 year

after 1 year

after 1 year

after 1 year

after 1 yearNumber of Shares to be acquired with Outstanding Options as of
    March 31, 2009

0

90,000

108,000

108,000

132,000     2005, 2006 and 2007 Stock-based Compensation for members and
    professionals of the Supervisory Board.
 130




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##### Table of Contents



2005


2006


2007Total number of Shares outstanding


0



14,000



90,000Expiration date


25-Oct-15



29-Apr-16



28-Apr-17   2008, 2009 and 2010 Stock-based Compensation for members and
    professionals of the Supervisory Board.
  Employees
    At December 31,2008


2007


2006France


8,920



10,560



10,660Italy


8,120



10,090



10,320Rest of Europe


1,070



1,730



1,580United States


3,020



3,120



3,280Malta and Morocco


5,760



6,990



7,330Asia


17,640



19,690



18,600ST-NXP Wireless


7,280







Total


51,810



52,180



51,770   At December 31,2008


2007


2006Research and development


11,900



10,570



10,300Marketing and Sales


2,670



2,870



2,850Manufacturing


32,290



33,520



33,420Administration and General Services


2,470



2,570



2,600Divisional Functions


2,480



2,650



2,600Total


51,810



52,180



51,770  131




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##### Table of Contents



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

Number


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


250,704,754



27.5Public


494,721,710



54.3Brandes Investment Partners(1)


79,686,369



8.8Capital World Investors


49,164,000



5.4Treasury shares


36,030,472



3.9Total


910,307,305



100     (1)
    
    According to information filed February 12, 2009 on
    Schedule 13G, Brandes Investment Partners shares in
    our company are beneficially owned by the following group of
    entities: Brandes Investment Partners, L.P., Brandes Investment
    Partners, Inc., Brandes Worldwide Holdings, L.P., Charles H.
    Brandes, Glenn R. Carlson and Jeffrey A. Busby.     132




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##### Table of Contents



Common Shares OwnedNumber


%December 31, 2008


250,704,754



27.5December 31, 2007


250,704,754



27.5December 31, 2006


250,704,754



27.5       
    (1)
    
    FT1CI owns 50% of ST Holding and indirectly holds 125,352,377 of
    the Companys common shares.(2)
    
    CDP and Finmeccanica own 50% of ST Holding and indirectly hold
    91,644,941 and 33,707,436 of the Companys common shares,
    respectively. CDP owns 30% of ST Holding, while Finmeccanica
    owns 20% of ST Holding based on voting rights.(3)
    
    ST Holding II owns 27.5% of the Companys shares, the
    Public owns 54.3% of the Companys shares and the Company
    holds 4.0% as Treasury Shares.   133




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##### Table of Contents



Shareholders
    Agreements
  STH
    Shareholders Agreement
    
    the decision of our French Shareholder and Italian Shareholders
    to equally align their respective equity participation in our
    Company, held through STH, through an agreed sale by
    Finmeccanica to FT1CI of 26,034,141 of our common shares or
    approximately 2.85% of our share capital;
    the fact that CEA, a company owned and controlled by the French
    State and the controlling shareholder of Areva financed the
    acquisition of the shares being purchased by FT1CI from
    Finmeccanica and, upon such acquisition, also became a party to
    the STH Shareholders Agreement;
    the decision to extend for a further three year period until
    March 17, 2011 the balancing period as defined under the
    STH Shareholders Agreement (see below under
    Corporate Governance); and
    the decision to increase from 9.5% to 10.5% the minimum voting
    stakes to be held respectively by our French Shareholder and
    Italian Shareholders (see below under Corporate
    Governance).      Restructuring
    of the Holding Companies
   134




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##### Table of Contents



Standstill
    Corporate
    Governance
         135




---



##### Table of Contents



and/or and/or
      de-merger,
  and/or
     136




---



##### Table of Contents



Disposals
    of our Common Shares
      Re-adjusting
    and Re-balancing options
  re-balance
  50 50
  Change of
    Control Provision
    Non-competition
   137




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##### Table of Contents



Deadlock
    Preference
    Shares
        Other
    Shareholders Agreements
  Italian
    Shareholders Pact
     138




---



##### Table of Contents



French
    Shareholders Pact
    Statutory
    Considerations
  Commissaire
    du Gouvernement Contrôleur dEtat No. 94-214,
    (società per azioni).
  Related
    Party Transactions
     139




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##### Table of Contents



December 31,


December 31,


December 31,2008


2007


2006Sales & other services


325



272



118Research and development expenses


(63
)


(68
)


(43
)Other purchases


(77
)


(85
)


(70
)Other income and expenses


(7
)


(11
)


(21
)Accounts receivable


63



44



20Accounts payable


65



40



20Other assets






2



          140




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##### Table of Contents



Item 8.
    Financial
    Information  Financial
    Statements
  Form 20-F.
  Legal
    Proceedings
  and/or
      04-04379JF). 04-04379JF.
  and/or
 141




---



##### Table of Contents



No. 337-TA-605.
   142




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##### Table of Contents



Other
    Matters
      Risk
    Management and Insurance
        
    Property damage and business interruption;
    General liability and product liability;
    Directors and officers liability; and
    Transportation risks.     143




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##### Table of Contents



Reporting
    Obligations in International Financial Reporting Standards
    (IFRS)
        Dividend
    Policy
            
    On May 14, 2008, our shareholders adopted the payment of a
    quarterly cash dividend with respect to the year ended
    December 31, 2007 of $0.36, which was paid in four equal
    installments to Dutch Registry Shareholders of record on
    May 19, 2008, August 18, 2008, November 26, 2008
    and February 25, 2009 and New York Registry Shareholders of
    record on May 21, 2008, August 20, 2008,
    November 26, 2008 and February 25, 2009.
    On April 26, 2007, our shareholders adopted the payment of
    a cash dividend with respect to the year ended December 31,
    2006 of $0.30 payable to Dutch Registry Shareholders of record
    on May 21, 2007 and New York Registry Shareholders of
    record on May 23, 2007. This dividend was approximately 34%
    of our earnings in 2006.
    On April 27, 2006, our shareholders adopted the payment of
    a cash dividend with respect to the year ended December 31,
    2005 of $0.12 per share payable to Dutch Registry Shareholders
    of record on May 22, 2006 144




---



##### Table of Contents



and New York Registry Shareholders of record on May 24,
    2006. This dividend was approximately 40% of our earnings in
    2005.  
    On March 18, 2005, our shareholders adopted the payment of
    a cash dividend with respect to the year ended December 31,
    2004 of $0.12 per share payable to Dutch Registry Shareholders
    of record on May 23, 2005 and New York registry
    shareholders of record on May 25, 2005. This dividend was
    approximately 18% of our earnings in 2004.
    On April 23, 2004, our shareholders adopted the payment of
    a cash dividend with respect to the year ended December 31,
    2003 of $0.12 per share payable to Dutch Registry shareholders
    of record on May 21, 2004 and New York registry
    shareholders of record on May 26, 2004. This dividend was
    approximately 42% of our earnings for 2003.    Item 9.
    Listing  Trading
    History of the Companys Shares
             145




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##### Table of Contents



Euronext
    Paris
  Average Daily Trading VolumesNumber of





Price RangesCalendar Period

Shares


Capital


High


Low()


()


()Annual Information for the Past Five Years2004


5,368,569



92,993,241



23.81



13.252005


5,367,485



72,641,065



15.81



10.832006


5,748,008



78,944,778



16.56



11.342007


5,430,551



71,352,748



15.61



9.702008


7,490,827



54,414,076



9.89



4.52Quarterly Information for the Past Two Years2007First quarter


5,449,082



79,245,186



15.31



13.57Second quarter


5,431,749



76,484,553



15.61



13.82Third quarter


5,350,203



69,229,782



14.64



11.58Fourth quarter


5,492,462



60,666,271



12.19



9.702008First quarter


7,813,598



62,410,156



9.89



6.21Second quarter


8,068,187



61,286,480



8.70



6.55Third quarter


8,051,382



62,656,909



9.49



6.17Fourth quarter


6,036,775



35,239,921



7.66



4.522009First quarter


4,304,943



17,004,198



5.29



2.97Monthly Information for the Past 18 Months2007December


4,488,617



46,194,961



10.83



9.702008January


8,385,124



71,620,389



9.89



7.55February


7,788,533



64,644,823



8.73



7.74March


7,222,249



49,966,560



7.92



6.21April


8,119,723



57,849,334



7.77



6.59May


7,483,465



61,189,803



8.70



7.64June


8,540,402



63,441,764



8.43



6.55July


6,991,035



47,517,154



7.34



6.17August


7,035,147



58,166,264



9.10



7.07September


10,130,095



83,418,569



9.49



6.80October


9,212,472



60,384,547



7.66



5.71November


4,842,241



28,511,117



6.97



5.00December


3,733,636



18,051,773



5.23



4.522009January


4,296,645



19,242,628



5.29



3.92February


3,893,448



15,709,089



4.50



3.40March


4,724,735



16,060,879



3.96



2.97April


5,582,074



26,027,536



5.24



3.67May (through
    May 4th,

    2009)


4,540,241



4,540,241



5.3



4.97      146




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##### Table of Contents



Borsa
    Italiana (Milan)
  Average Daily TradingVolumesNumber of





Price RangesCalendar Period

Shares


Capital


High


Low()


()


()Annual Information for the past five years2004


15,563,346



269,570,814



23.81



13.252005


15,530,038



210,190,100



15.82



10.822006


10,316,084



141,689,828



16.55



11.332007


7,485,654



98,885,773



15.60



9.802008


7,194,358



52,370,415



9.90



4.52Quarterly Information for the past two years2007First quarter


9,719,941



140,442,674



15.32



13.63Second quarter


7,925,067



115,156,104



15.60



13.82Third quarter


6,479,636



83,424,814



14.64



11.57Fourth quarter


5,785,437



63,752,010



12.16



9.802008First quarter


8,127,085



64,600,327



9.90



6.21Second quarter


8,238,711



62,326,503



8.69



6.55Third quarter


8,080,320



62,475,791



9.50



6.17Fourth quarter


4,271,603



24,830,416



7.66



4.522009First quarter


4,684,540



18,251,262



5.29



2.97Monthly Information for the past 18 months2007December


4,887,232



50,380,846



10.81



9.802008January


10,071,980



86,256,895



9.90



7.65February


6,982,043



57,925,024



8.73



7.75March


7,140,553



49,413,382



7.93



6.21April


8,308,719



59,132,772



7.77



6.56May


8,253,457



67,468,476



8.70



7.64June


8,137,962



60,473,973



8.44



6.55July


7,589,829



51,635,916



7.35



6.17August


7,898,607



65,185,228



9.11



7.08September


8,758,459



72,107,600



9.50



6.70October


6,327,113



41,402,428



7.66



5.68November


3,411,346



19,925,492



6.95



5.00December


2,761,473



13,391,689



5.59



4.522009January


3,902,013



17,479,162



5.29



3.92February


4,308,788



17,383,807



4.51



3.42March


5,842,820



19,890,819



3.96



2.97April


7,841,101



36,474,844



5.26



3.67May (through
    May 4th,

    2009)


6,328,552



6,328,552



5.3



4.99      147




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##### Table of Contents



New York
    Stock Exchange
  Average Daily Trading VolumesNumber of





Price RangesCalendar Period

Shares


Capital


High


Low(US$)


(US$)


(US$)Annual Information for the past five years2004


1,573,811



33,794,900



29.90



16.362005


1,087,913



18,288,128



19.47



13.962006


1,069,476



18,428,607



19.90



14.552007


1,823,514



32,857,113



20.84



14.222008


2,615,829



28,015,734



14.35



5.90Quarterly Information for the past two years2007First quarter


1,749,667



33,161,930



20.18



17.97Second quarter


2,131,057



41,749,439



20.84



18.55Third quarter


1,954,249



34,467,683



20.17



15.85Fourth quarter


1,462,470



23,333,942



17.36



14.222008First quarter


2,820,620



33,477,056



14.35



9.88Second quarter


2,644,859



31,194,168



13.56



10.33Third quarter


2,836,136



32,884,996



13.74



9.75Fourth quarter


2,171,570



16,580,957



10.46



5.92009First quarter


1,766,603



9,078,223



7.15



3.73Monthly Information for the past 18 months2007December


1,314,994



19,640,756



15.78



14.222008January


2,171,989



27,444,626



14.35



11.42February


2,773,272



33,843,628



12.97



11.39March


3,549,012



38,075,570



11.91



9.88April


2,680,234



29,986,950



11.93



10.39May


2,926,867



37,098,732



13.56



11.41June


2,324,903



26,857,054



12.86



10.33July


3,002,264



32,229,307



11.63



10.02        148




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##### Table of Contents



Market
    Information
  Euronext
  General
  tm
    Euronext
    Paris
  Premier Marché, Second
    Marché Nouveau Marché
  Premier Marché
  
    compartment A comprises the companies with market
    capitalizations above 1 billion;
    compartment B comprises the companies with market
    capitalizations from 150 million and up to and
    including 1 billion; and
    compartment C comprises the companies with market
    capitalizations below 150 million.    (Continu Fixing) Continu, Continu
   149




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##### Table of Contents



Continu Continu Autorité des marchés
    financiers
  Service à
    Réglement Différé (date de liquidation)
          Securities
    Trading in Italy
   150




---



##### Table of Contents



vis-à-vis
       151




---



##### Table of Contents



Item 10.
    Additional
    Information  Memorandum
    and Articles of Association
  Applicable
    non-U.S.
    Regulations
  Applicable
    Dutch Legislation
      (Wet op het financieel
    toezicht)
  (Autoriteit Financiële
    Markten)
       152




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##### Table of Contents



Applicable
    French Legislation
    Article 222-8 Article 222-9 Article 223-20
  Article 223-14
  Articles 241-1 241-6 Articles 611-1 632-1
    Premier, Second Nouveau Marché
    articles 231-1 237-13
  Applicable
    Italian Legislation
     153




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##### Table of Contents



Articles
    of Association
  Purposes
    of the Company (Article 2)
    Company
    and Trade Registry
  (Kamer van Koophandel en Fabrieken voor Amsterdam)
  Supervisory
    Board and Managing Board
    
    power to vote on proposals, arrangements or contracts in which
    such member is directly interested;
    power, in the absence of an independent quorum, to vote on
    compensation to themselves or any members of the Supervisory
    Board; or
    borrowing powers exercisable by the directors and how such
    borrowing powers can be varied.      Compensation
    of our Managing Board (Article 12)
    Compensation
    of our Supervisory Board (Article 23)
  and/or
  Information
    from our Managing Board to our Supervisory Board
    (Article 18)
   154




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##### Table of Contents




    our operational and financial objectives;
    our strategy designed to achieve the objectives; and
    the parameters to be applied in relation to our strategy,
    inter alia,regarding financial ratios.    Adoption
    of Annual Accounts and Discharge of Management and Supervision
    Liability (Article 25)
      Distribution
    of Profits (Articles 37, 38, 39 and 40)
        Shareholders
    Meetings, Attendance at Shareholders Meetings and Voting
    Rights
  Notice
    Convening the Shareholders Meeting (Articles 25, 26,
    27, 28 and 29)
   155




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##### Table of Contents



Attendance
    at Shareholders Meetings and Voting Rights
    (Articles 32, 33 and 34)
    inter alia,
   156




---



##### Table of Contents



and/or
         157




---



##### Table of Contents



Authority
    of our Shareholders Meeting (Articles 12, 16, 19, 25,
    28 and 41)
    (dochtermaatschappij) (dochtermaatschappij)
    Quorum
    and Majority (Articles 4, 13 and 32)
      Disclosure
    of Holdings under Dutch Law
       158




---



##### Table of Contents



Share
    Capital as of December 31, 2008
           159




---



##### Table of Contents



Non-issued
    Authorized Share Capital as of December 31, 2008
    Other
    Securities Giving Access to Our Share Capital as of
    December 31, 2008
    Securities
    Not Representing Our Share Capital
    Issuance
    of Shares, Preemptive Rights and Preference Shares
    (Article 4)
        and/or and/or
   160




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##### Table of Contents



Changes
    to Our Share Capital and Stock Option Grants
  Cumulative





Nominal Value


Amount ofNominal


Amount of


Cumulative


of Increase/


Issue


Cumulative Number of


Value


Capital


Number of


Reduction in


Premium


Issue PremiumYear

Transaction

Shares


(Euro)


(Euro)


Shares


Capital


(Euro)


(Euro)March 29, 2003

Exercise of options


91,146



1.04



937,055,288



901,014,700



94,792



404,011



1,676,187,762June 28, 2003

Exercise of options
    and employee stock
    purchases


217,490



1.04



937,281,478



901,232,190



226,190



2,075,922



1,678,263,684September 27, 2003

Exercise of options


903,283



1.04



938,220,892



902,135,473



939,414



10,857,587



1,689,121,271December 31, 2003

Exercise of options


634,261



1.04



938,880,523



902,769,734



659,631



4,458,391



1,693,579,662March 27, 2004

Exercise of options


1,964,551



1.04



940,923,656



904,734,285



2,043,133



9,048,811



1,702,628,473June 26, 2004

Exercise of options


84,740



1.04



941,011,786



904,819,025



88,130



1,640,712



1,704,269,185September 25, 2004

Exercise of options


65,990



1.04



941,080,416



904,885,015



68,630



605,542



1,704,874,727September 25, 2004

Bonds conversion


101



1.04



941,080,521



904,885,116



105



7,006



1,704,881,733December 31, 2004

Exercise of options


422,120



1.04



941,519,525



905,307,236



439,005



4,021,536



1,708,903,269December 31, 2004

LYONs conversion


1,761



1.04



941,521,357



905,308,997



1,831



46,225



1,708,949,494April 2, 2005

Exercise of options


63,270



1.04



941,587,158



905,372,267



65,801



571,525



1,709,521,019April 2, 2005

LYONs conversion


59



1.04



941,587,219



905,372,326



61



1,448



1,709,522,467June 2, 2005

Exercise of options


145,454



1.04



941,738,491



905,517,780



151,272



1,436,236



1,710,958,703October 1, 2005

Exercise of options


2,079,369



1.04



943,901,035



907,597,149



2,162,544



21,629,617



1,732,651,320December 31, 2005

Exercise of options


227,130



1.04



944,137,250



907,824,279



236,215



2,062,234



1,734,713,554April 1, 2006

Exercise of options


201,340



1.04



944,346,644



908,025,619



209,394



2,360,525



1,737,074,079July 1, 2006

Exercise of options


1,398,210



1.04



945,800,782



909,423,829



1,454,138



9,009,053



1,746,083,132September 30, 2006

Exercise of options


731,904



1.04



946,561,962



910,155,733



761,180



8,447,102



1,754,530,234December 31, 2006

Exercise of options


2,200



1.04



946,564,250



910,157,933



2,288



2,420



1,754,532,654March 31, 2007

Exercise of options


26,050



1.04



946,591,342



910,183,983



27,092



352,478



1,754,885,132June 30, 2007

Exercise of options


105,117



1.04



946,700,664



910,289,100



109,322



1,315,306



1,756,200,438September 29, 2007

Exercise of options


4,320



1.04



946,705,157



910,293,420



4,493



54,544



1,756,254,982December 31, 2007

Exercise of options


0



1.04



946,705,157



910,293,420



0



0



1,756,254,982March 30, 2008

Exercise of options


4,885



1.04



946,710,237



910,298,305



5,080



0



1,756,254,982June 28, 2008

Exercise of options


9,000



1.04



946,719,597



910,307,305



9,360



0



1,756,254,982September 27, 2008

Exercise of options


0



1.04



946,719,597



910,307,305



0



0



1,756,254,982December 31, 2008

Exercise of options


0



1.04



946,719,597



910,307,305



0



0



1,756,254,982  161




---



##### Table of Contents



Liquidation
    Rights (Articles 42 and 43)
    Acquisition
    of Shares in Our Own Share Capital (Article 5)
  paid-up called-up
      paid-up
  Changes
    to Our Share Capital, Stock Option Grants and Other
    Matters
    NominalCumulative





Value of


Amount ofNominal


Amount of


Cumulative


Increase/


Issue


CumulativeNumber of


Value


Capital


Number of


Reduction


Premium


Issue PremiumYear

Transaction


Shares


(Euro)


(Euro)


Shares


in Capital


(Euro)


(Euro)December 31, 2005


Conversion of bonds



59



1.04



941,521,418



905,309,056



61



1,448



1,708,950,942December 31, 2005


Exercise of options



2,515,223



1.04



944,137,250



907,824,279



2,615,832



25,762,612



1,734,713,554December 31, 2006


Exercise of options



2,333,654



1.04



946,564,250



910,157,933



2,427,000



19,819,100



1,754,532,654December 31, 2007


Exercise of options



135,487



1.04



946,705,147



910,293,420



140,907



1,722,328



1,756,254,982December 31, 2008


Exercise of options



13,885



1.04



946,719,597



910,307,305



14,440



0



1,756,254,982March 28, 2009


Exercise of options







1.04



946,719,597



910,307,305











1,756,254,982  162




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##### Table of Contents



Employees
    Stock Options
  1995 Plan


2001 Plan


TotalRemaining amount authorized to be granted


0



0



0Amount exercised


14,523,601



141,537



14,665,138Amount cancelled and expired


17,038,340



8,997,874



26,036,214Amount outstanding


0



38,594,772



38,594,772   Employees
    Unvested Share Awards
  2005 Plan


2006 Plan


2007 Plan


2008 Plan


TotalRemaining amount authorized to be granted


0



0



0



326,295



326,295Amount vested


2,580,034



3,171,320



1,189,335



0



6,940,689Amount cancelled


1,579,881



308,676



1,192,641



89,250



3,170,448Amount outstanding


0



1,651,644



3,529,864



5,684,455



10,865,963   Supervisory
    Board and Professionals Stock Options
  Supervisory Board and Professionals1999


2002


TotalRemaining amount authorized to be granted


0



0



0Amount exercised


18,000



0



18,000Amount cancelled and expired


315,000



48,000



363,000Amount outstanding


90,000



348,000



438,000   Supervisory
    Board and Professionals Unvested Share Awards
  Supervisory Board and Professionals2005


2006


2007


2008


TotalRemaining amount authorized to be granted


0



0



0



0



0Amount vested and/or exercised


51,000



37,000



52,500



0



140,500Amount cancelled


15,000



15,000



22,500



22,500



75,000Amount outstanding


0



14,000



90,000



142,500



246,500          163




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##### Table of Contents



Limitations
    on Right to Hold or Vote Shares
    Material
    Contracts
  Numonyx
    ST-NXP
    ST-Ericsson
    Exchange
    Controls
    Taxation
  Dutch
    Taxation
  The following is a general summary and the tax consequences
    as described here may not apply to a holder of common shares.
    Any potential investor should consult his own tax adviser for
    more information about the tax consequences of acquiring, owning
    and disposing of common shares in his particular
    circumstances.
 164




---



##### Table of Contents



Form 20-F.
  Form 20-F.
  Taxes
    on income and capital gains
        (bestuurder) (commissaris)
  Wet inkomstenbelasting 2001)
  Wet op de Vennootschapsbelasting
    1969)
      partner, Wet inkomstenbelasting
    2001 (winstbewijzen)
     165




---



##### Table of Contents



Form 20-F.
    (ondernemer)
  inter alia
  (voorkennis)
    Attribution
    rule
    Dividend
    withholding tax
      
    distributions in cash or in kind, deemed and constructive
    distributions and repayments of capital not recognized as
    paid-in for Dutch dividend withholding tax purposes;
    liquidation proceeds and proceeds of repurchase or redemption of
    shares in excess of the average capital recognized as paid-in
    for Dutch dividend withholding tax purposes;
    the par value of shares issued by us to a holder of common
    shares or an increase of the par value of shares, as the case
    may be, to the extent that it does not appear that a
    contribution, recognized for Dutch dividend withholding tax
    purposes, has been made or will be made; and
    partial repayment of capital, recognized as paid-in for Dutch
    dividend withholding tax purposes, if and to the extent that
    there are net profits (zuivere winst), unless
    (a) the general meeting of our shareholders has 166




---



##### Table of Contents



resolved in advance to make such repayment and (b) the par
    value of the shares concerned has been reduced by an equal
    amount by way of an amendment to our articles of association.  Belastingregeling voor het
    Koninkrijk kortlopende
    genotsrechten op aandelen
                     167




---



##### Table of Contents



Reduction.
  
    3% of the dividends paid by us in respect of which Dutch
    dividend withholding tax is withheld; and
    3% of the qualifying profit distributions grossed up by the
    foreign tax withheld on such distributions received from foreign
    subsidiaries and branches prior to the distribution of the
    dividend by us during the current calendar year and the two
    preceding calendar years (to the extent such distributions have
    not been taken into account previously when applying this test).      Gift
    and inheritance taxes
    
    the donor is, or the deceased was, resident or deemed to be
    resident in the Netherlands for purposes of gift or inheritance
    tax (as the case may be); or
    the common shares are or were attributable to an enterprise or
    part of an enterprise that the donor or deceased carried on
    through a permanent establishment or a permanent representative
    in the Netherlands at the time of the gift or of the death of
    the deceased; or
    the donor made a gift of common shares, then became a resident
    or deemed resident of the Netherlands, and died as a resident or
    deemed resident of the Netherlands within 180 days of the
    date of the gift.  Other
    taxes and duties
  and/or
  United
    States Federal Income Taxation
    
    that is, for U.S. federal income tax purposes, (a) a
    citizen or individual resident of the United States, (b) a
    U.S. domestic corporation or a domestic entity taxable as a
    corporation, (c) an estate the income of which is 168




---



##### Table of Contents



subject to U.S. federal income taxation regardless of its
    source, or (d) a trust if a court within the United States
    can exercise primary supervision over the administration of the
    trust and one or more U.S. persons are authorized to
    control all substantial decisions of the trust;  
    that owns, directly, indirectly or by attribution, less than 10%
    of our voting power or outstanding share capital;
    that holds the common shares as capital assets;
    whose functional currency for U.S. federal income tax
    purposes is the U.S. dollar;
    that is a resident of the United States and not also a resident
    of the Netherlands for purposes of the U.S./NL Income Tax Treaty;
    that is entitled, under the limitation on benefits
    provisions contained in the U.S./NL Income Tax Treaty, to the
    benefits of the U.S./NL Income Tax Treaty; and
    that does not have a permanent establishment or fixed base in
    the Netherlands.      Form 20-F,
  Dividends
  U.S.-source
   169




---



##### Table of Contents



non-U.S. corporation non-U.S. corporation non-U.S. corporation non-U.S. corporation
  Sale,
    Exchange or Other Disposition of Common Shares
  U.S.-source
  Passive
    Foreign Investment Company Status
    U.S.
    Information Reporting and Backup Withholding
   170




---



##### Table of Contents



Form W-9. Non-U.S. holders non-U.S. status Form W-8BEN) U.S.-related
  Documents
    on Display
  Form 20-F Form 20-F Form 20-F.
    1-800-SEC-0330 http://www.sec.gov
      Item 11.
    Quantitative
    and Qualitative Disclosures About Market Risk   171




---



##### Table of Contents



and/or
       172




---



##### Table of Contents



Fair Value atDecember 31,Total


2009


2010


2011


2012


2013


Thereafter


2008Assets:Cash and cash equivalents

$
1,009


























$
1,009Average interest rate


1.23
%Current marketable securities

$
651


























$
651Average interest rate


3.97
%Non current marketable securities

$
242


























$
242Average interest rate


4.46
%Short-term depositsAverage interest rateRestricted Cash

$
250


























$
250Average interest rate


6.06
%Long-term debt:

$
2,677



123



173



1,153



116



816



296


$
2,435Average interest rate


2.38
%   Amounts in Millionsof U.S. DollarsLong-term debt by currency as of December 31, 2008:U.S. dollar


1,139Euro


1,538Total in U.S. dollars

$
2,677   Amounts in Millionsof U.S. DollarsLong-term debt by currency as of December 31, 2007:U.S. dollar


1,313Euro


907Total in U.S. dollars

$
2,220  173




---



##### Table of Contents



FORWARD
    CONTRACTS AND CURRENCY OPTIONS AS AT DECEMBER 31, 2008
  Notional Amount


Average Rate


Fair ValueBuy

EUR

Sell

USD


1,031



1.4



23Buy

USD

Sell

EUR


2



1.4



0Buy

USD

Sell

CAD


8



1.3



0Buy

JPY

Sell

EUR


3



120.7



0Buy

INR

Sell

USD


24



49.5



0Buy

USD

Sell

JPY


37



90.5



0Buy

SGD

Sell

USD


96



1.5



3Buy

MYR

Sell

USD


12



3.5



0Buy

GBP

Sell

USD


23



1.5



(1
)Buy

SEK

Sell

USD


3



8.2



0Buy

CZK

Sell

USD


1



18.8



0Buy

CHF

Sell

USD


5



1.1



0Buy

USD

Sell

CHF


6



1.0



0Buy

CNY

Sell

USD


16



6.8



01,268







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


Average Rate


Fair ValueBuy

EUR

Sell

USD


483



1.4



12Buy

USD

Sell

CAD


8



1.0



0Buy

JPY

Sell

EUR


9



163.0



0Buy

INR

Sell

USD


28



39.7



0Buy

USD

Sell

JPY


19



112.7



0Buy

JPY

Sell

USD


1



112.5



0Buy

SGD

Sell

USD


108



1.4



0Buy

MYR

Sell

USD


30



3.3



0Buy

GBP

Sell

USD


41



2.0



0Buy

SEK

Sell

USD


8



6.4



0Buy

CZK

Sell

USD


1



18



0Buy

TND

Sell

USD


1



1.2



0737







12   Item 12.
    Description
    of Securities Other Than Equity Securities   174




---



##### Table of Contents



PART II  Item 13.
    Defaults,
    Dividend Arrearages and Delinquencies    Item 14.
    Material
    Modifications to the Rights of Security Holders and Use of
    Proceeds    Item 15.
    Controls
    and Procedures  Disclosure
    Controls and Procedures
  Form 20-F. Form 20-F,
  Form 20-F. Form 6-K Form 20-F.
  Form 20-F,
  Managements
    Report on Internal Control over Financial Reporting
     175




---



##### Table of Contents



Form 20-F.
  Attestation
    Report of the Registered Public Accounting Firm
    Changes
    in Internal Control over Financial Reporting
  Form 20-F
  Item 16A.
    Audit
    Committee Financial Expert  Form 20-F.
  Item 16B.
    Code
    of Ethics  Policy on
    Business Conduct and Ethics
     176




---



##### Table of Contents



http://www.st.com.
  Item 16C.
    Principal
    Accountant Fees and Services      Percentage of





Percentage of2008


Total Fees


2007


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

$
5,384,962



99
%

$
5,758,230



97
%Audit-related fees

$
15,360



0.2
%


194,940



3
%Non-audit FeesTax compliance fees

$
40,880



0.8
%


Other fees










Total

$
5,441,202



100
%

$
5,953,170



100
%     agreed-upon
    Audit
    Committee Pre-approval Policies and Procedures
       177




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##### Table of Contents



Rule 2-01 Regulation S-X.
  Item 16D.
    Exemptions
    from the Listing Standards for Audit Committees    Item 16E.
    Purchases
    of Equity Securities by the Issuer and Affiliated
    Purchasers  Maximum NumberTotal Number of


of Securities thatTotal Number of





Securities Purchased


May yet beSecurities


Average Price Paid


as Part of Publicly


Purchased UnderPeriod

Purchased


per Security


Announced Programs


the Programs2008-01-01
    to 2008-01-31














2008-02-01
    to 2008-02-29














2008-03-01
    to 2008-03-31














2008-04-01
    to 2008-04-30














2008-05-01
    to 2008-05-31














2008-06-01
    to 2008-06-30














2008-07-01
    to 2008-07-31














2008-08-01
    to 2008-08-31














2008-09-01
    to 2008-09-30














2008-10-01
    to 2008-10-31














2008-11-01
    to 2008-11-30














2008-12-01
    to 2008-12-31














       Item 16F.
    Change
    in Registrants Certifying Accountant    Item 16G.
    Corporate
    Governance    
    Our corporate organization under Dutch law that entrusts our
    management to a Managing Board acting under the supervision and
    control of a Supervisory Board totally independent from the
    Managing Board. 178




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##### Table of Contents



Members of our Managing Board and of our Supervisory Board are
    appointed and dismissed by our shareholders.  
    Our early adoption of policies on important issues such as
    business ethics and conflicts of
    interest and strict policies to comply with applicable
    regulatory requirements concerning financial reporting, insider
    trading and public disclosures.
    Our compliance with Dutch securities laws, because we are a
    company incorporated under the laws of the Netherlands, as well
    as our compliance with American, French and Italian securities
    laws, because our shares are listed in these jurisdictions, in
    addition to our compliance with the corporate, social and
    financial laws applicable to our subsidiaries in the countries
    in which we do business.
    Our broad-based activities in the field of corporate social
    responsibility, encompassing environmental, social, health,
    safety, educational and other related issues.
    Our implementation of a non-compliance reporting channel
    (managed by a third party) for issues regarding accounting,
    internal controls or auditing. A special ombudsperson has been
    appointed by the ST Supervisory Board, following the proposal of
    its Audit Committee, to collect all complaints, whatever their
    source, regarding accounting, internal accounting controls or
    auditing matters, as well as the confidential, anonymous
    submission by ST employees of concerns regarding questionable
    accounting or auditing matters.
    Our Principles for Sustainable Excellence (PSE),
    which we distributed to all employees in 2007 and which require
    us to integrate and execute all of our business activities,
    focusing on our employees, customers, shareholders and global
    business partners;
    Our Ethics Committee, also set up in 2007, whose mandate is to
    provide advice to management and employees about our PSE and
    other ethical issues; and
    Our Chief Compliance Officer, who reports directly to the
    Managing Board, acts as Executive Secretary to our Supervisory
    Board and chairs our Ethics Committee.    and/or
 179




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non-U.S. companies
  Form 20-F, Form 20-F and/or Form 20-F.
   180




---



##### Table of Contents



181




---



##### 



PART III  Item 17.
    Financial
    Statements    Item 18.
    Financial
    Statements   
 PageFinancial Statements:Report of Independent Registered Public
    Accounting Firm for Years Ended December 31, 2008, 2007 and
    2006


F-2Consolidated Statements of Income for the Years
    Ended December 31, 2008, 2007 and 2006


F-4Consolidated Balance Sheets as at
    December 31, 2008 and 2007


F-5Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2008, 2007 and 2006


F-6Consolidated Statements of Changes in
    Shareholders Equity for the Years Ended December 31,
    2008, 2007 and 2006


F-7Notes to Consolidated Financial Statements


F-8Numonyx Holdings B.V. Consolidated Financial
    Statements for the Period March 30, 2008 through
    December 31, 2008


F-88Financial Statement Schedule:For each of the three years in the period ended
    December 31, Schedule II Valuation and Qualifying
    Accounts


S-1    Item 19.
    Exhibits  1.1

Amended and Related Articles of Associations of
    STMicroelectronics N.V., dated May 15, 2007, as approved by
    the annual general meeting of Shareholders on April 26,
    2007 (incorporated by reference to
    Form 20-F
    of STMicroelectronics N.V. filed on March 3, 2008).4.1

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

Form of ST Asset Contribution Agreement (incorporated by
    reference to
    Form 6-K
    of STMicroelectronics N.V. filed on August 3, 2007).4.3

Sale and Contribution Agreement between STMicroelectronics N.V.
    and NXP B.V. dated April 10, 2008.4.4

Framework Agreement by and between STMicroelectronics N.V. and
    Telefonaktiebolaget L.M. Ericsson dated August 19, 2008.8.1

Subsidiaries and Equity Investments of the Company.12.1

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

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

Certification of Carlo Bozotti, President and Chief Executive
    Officer of STMicroelectronics N.V., and Carlo Ferro, Executive
    Vice President and Chief Financial Officer of STMicroelectronics
    N.V., pursuant to 18 U.S.C. §1350, as adopted by
    Section 906 of the Sarbanes-Oxley Act of 2002.15.1

Consent of Independent Registered Public Accounting Firm.15.2

Consent of Independent Registered Public Accounting Firm for
    Numonyx Holdings B.V.  182




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##### Table of Contents



CERTAIN
    TERMS
  ADSL
    
    Asymmetrical digital subscriber lineASD
    
    application-specific discrete technologyASIC
    
    application-specific integrated circuitASSP
    
    application-specific standard productBCD
    
    bipolar, CMOS and DMOS process technologyBiCMOS
    
    bipolar and CMOS process technologyCAD
    
    computer aided designCMOS
    
    complementary metal-on silicon oxide semiconductorCODEC
    
    audio coding and decoding functionsCPE
    
    customer premises equipmentDMOS
    
    diffused metal-on silicon oxide semiconductorDRAMs
    
    dynamic random access memoryDSL
    
    digital subscriber lineDSP
    
    digital signal processorEMAS
    
    Eco-Management and Audit Scheme, the voluntary European
    Community scheme for companies performing industrial activities
    for the evaluation and improvement of environmental performanceEEPROM
    
    electrically erasable programmable read-only memoryEPROM
    
    erasable programmable read-only memoryEWS
    
    electrical wafer sortingG-bit
    
    gigabitGPRS
    
    global packet radio serviceGPS
    
    global positioning systemGSM
    
    global system for mobile communicationsGSM/GPRS
    
    European standard for mobile phonesHCMOS
    
    high-speed complementary metal-on silicon oxide semiconductorIC
    
    integrated circuitIGBT
    
    insulated gate bipolar transistorsIPAD
    
    integrated passive and active devicesISO
    
    International Organization for StandardizationK-bit
    
    kilobitLAN
    
    local area networkM-bit
    
    megabitMEMS
    
    micro-electro-mechanical systemMOS
    
    metal-on silicon oxide semiconductor process technology 183




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##### Table of Contents



MOSFET
    
    metal-on silicon oxide semiconductor field effect transistorMPEG
    
    motion picture experts groupODM
    
    original design manufacturerOEM
    
    original equipment manufacturerOTP
    
    one-time programmablePDA
    
    personal digital assistantPFC
    
    power factor correctorPROM
    
    programmable read-only memoryPSM
    
    programmable system memoriesRAM
    
    random access memoryRF
    
    radio frequencyRISC
    
    reduced instruction set computingROM
    
    read-only memorySAM
    
    serviceable available marketSCR
    
    silicon controlled rectifierSLIC
    
    subscriber line interface cardSMPS
    
    switch-mode power supplySoC
    
    system-on-chipSRAM
    
    static random access memorySNVM
    
    serial nonvolatile memoriesTAM
    
    total available marketUSB
    
    universal serial busVIPpowertm

    
    vertical integration powerVLSI
    
    very large scale integrationXDSL
    
    digital subscriber line 184




---



##### Table of Contents



SIGNATURES
  Form 20-F
  STMICROELECTRONICS N.V.Date: May 13, 2009

By:

/s/  Carlo
    BozottiCarlo Bozotti
    President and Chief Executive Officer  185




---



##### 



CONSOLIDATED
    FINANCIAL STATEMENTS
  Index to
    Consolidated Financial Statements
   
 PageFinancial Statements:Report of Independent Registered Public
    Accounting Firm for Years Ended December 31, 2008, 2007 and
    2006


F-2Consolidated Statements of Income for the Years
    Ended December 31, 2008, 2007 and 2006


F-4Consolidated Balance Sheets as at
    December 31, 2008 and 2007


F-5Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2008, 2007 and 2006


F-6Consolidated Statements of Changes in
    Shareholders Equity for the Years Ended December 31,
    2008, 2007 and 2006


F-7Notes to Consolidated Financial Statements


F-8Numonyx Holdings B.V. Consolidated Financial
    Statements for the Period March 30, 2008 through
    December 31, 2008


F-88Financial Statement Schedule:For each of the three years in the period ended
    December 31, Schedule II Valuation and Qualifying
    Accounts


S-1   F-1




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   To the
    Supervisory Board and Shareholders of STMicroelectronics N.V.:
  Form 20-F Internal Control  Integrated
    Framework Form 20-
     F-2




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##### Table of Contents



/s/ Travis Randolph

/s/ Felix RothTravis Randolph

Felix Roth    F-3




---



##### Table of Contents



STMicroelectronics
    N.V.
  CONSOLIDATED
    STATEMENTS OF INCOME
 In
    million of U.S. dollars except per share amounts
  Twelve Months EndedDecember 31,


December 31,


December 31,2008


2007


2006Net sales


9,792



9,966



9,838Other revenues


50



35



16Net revenues


9,842



10,001



9,854Cost of sales


(6,282
)


(6,465
)


(6,331
)Gross profit


3,560



3,536



3,523Selling, general and administrative


(1,187
)


(1,099
)


(1,067
)Research and development


(2,152
)


(1,802
)


(1,667
)Other income and expenses, net


62



48



(35
)Impairment, restructuring charges and other related closure costs


(481
)


(1,228
)


(77
)Operating income (loss)


(198
)


(545
)


677Other -than-temporary impairment charge on financial assets


(138
)


(46
)


Interest income, net


51



83



93Earnings (loss) on equity investments


(553
)


14



(6
)Unrealized gain on financial assets


15







Income (loss) before income taxes and minority interests


(823
)


(494
)


764Income tax benefit


43



23



20Income (loss) before minority interests


(780
)


(471
)


784Minority interests


(6
)


(6
)


(2
)Net income (loss)


(786
)


(477
)


782Earnings (loss) per share (Basic)


(0.88
)


(0.53
)


0.87Earnings (loss) per share (Diluted)


(0.88
)


(0.53
)


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




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##### Table of Contents



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


December 31,2008


2007AssetsCurrent assets :Cash and cash equivalents


1,009



1,855Marketable securities


651



1,014Trade accounts receivable, net


1,064



1,605Inventories, net


1,840



1,354Deferred tax assets


252



205Assets held for sale






1,017Other receivables and assets


685



612Total current assets


5,501



7,662Goodwill


958



290Other intangible assets, net


863



238Property, plant and equipment, net


4,739



5,044Long-term deferred tax assets


373



237Equity investments


510



Restricted cash


250



250Non-current marketable securities


242



369Other investments and other non-current assets


477



1828,412



6,610Total assets


13,913



14,272Liabilities and shareholders equityCurrent liabilities:Bank overdrafts


20



Current portion of long-term debt


123



103Trade accounts payable


847



1,065Other payables and accrued liabilities


996



744Dividends payable to shareholders


79



Deferred tax liabilities


28



11Accrued income tax


125



154Total current liabilities


2,218



2,077Long-term debt


2,554



2,117Reserve for pension and termination indemnities


332



323Long-term deferred tax liabilities


27



14Other non-current liabilities


350



1153,263



2,569Total liabilities


5,481



4,646Minority interests


276



53Common stock (preferred stock: 540,000,000 shares
    authorized, not issued; common stock: Euro 1.04 nominal value,
    1,200,000,000 shares authorized, 910,307,305 shares
    issued, 874,276,833 shares outstanding)


1,156



1,156Capital surplus


2,324



2,097Accumulated result


4,064



5,274Accumulated other comprehensive income


1,094



1,320Treasury stock


(482
)


(274
)Shareholders equity


8,156



9,573Total liabilities and shareholders equity


13,913



14,272   The accompanying notes are an integral part of these audited
    consolidated financial statements
  
 F-5




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##### Table of Contents



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


December 31,


December 31,2008


2007


2006Cash flows from operating activities:Net income (loss)


(786
)


(477
)


782Items to reconcile net income and cash flows from operating
    activities:Depreciation and amortization


1,366



1,413



1,766Amortization of discount on convertible debt


18



18



18Other-than-temporary impairment charge on financial assets


138



46



Unrealized gain on financial assets


(15
)






Other non-cash items


159



109



50Minority interest in net income of subsidiaries


6



6



2Deferred income tax


(69
)


(148
)


(74
)(Earnings) loss on equity investments


553



(14
)


6Impairment, restructuring charges and other related closure
    costs, net of cash payments


371



1,173



1Changes in assets and liabilities:Trade receivables, net


565



2



(104
)Inventories, net


(299
)


24



(161
)Trade payables


(34
)


19



36Other assets and liabilities, net


(251
)


17



169Net cash from operating activities


1,722



2,188



2,491Cash flows from investing activities:Payment for purchase of tangible assets


(983
)


(1,140
)


(1,533
)Payment for purchase of marketable securities






(708
)


(864
)Proceeds from sale of marketable securities


351



101



100Investment in short-term deposits










(903
)Proceeds from matured short-term deposits






250



653Restricted cash






(32
)


(218
)Investment in intangible and financial assets


(91
)


(208
)


(86
)Proceeds from the sale of Accent subsidiary










7Capital contributions to equity investments










(213
)Payment for business acquisitions, net of cash and cash
    equivalents acquired


(1,694
)






Net cash used in investing activities


(2,417
)


(1,737
)


(3,057
)Cash flows from financing activities:Proceeds from issuance of long-term debt


663



102



1,744Repayment of long-term debt


(187
)


(125
)


(1,522
)Increase (decrease) in short-term facilities


20







(12
)Capital increase






2



28Repurchase of common stock


(313
)






Dividends paid


(240
)


(269
)


(107
)Dividends paid to minority interests


(10
)


(6
)


Other financing activities










1Net cash from (used in) financing activities


(67
)


(296
)


132Effect of changes in exchange rates


(84
)


41



66Net cash increase (decrease)


(846
)


196



(368
)Cash and cash equivalents at beginning of the period


1,855



1,659



2,027Cash and cash equivalents at end of the period


1,009



1,855



1,659Supplemental cash information:Interest paid


63



52



29Income tax paid


154



133



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




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##### Table of Contents



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


Capital


Treasury


Accumulated


Comprehensive


ShareholdersStock


Surplus


Stock


Result


income (loss)


EquityBalance as of December 31, 2005


1,153



1,967



(348
)


5,427



281



8,480Capital increase


3



25















28Stock-based compensation expense






29



16



(16
)






29Comprehensive income (loss):Net Income














782







782Other comprehensive income, net of tax


















535



535Comprehensive income






















1,317Dividends, $0.12 per share














(107
)






(107
)Balance as of December 31, 2006


1,156



2,021



(332
)


6,086



816



9,747Cumulative effect of FIN 48 adoption














(8
)






(8
)Capital increase






2















2Stock-based compensation expense






74



58



(58
)






74Comprehensive income (loss):Net Loss














(477
)






(477
)Other comprehensive income, net of tax


















504



504Comprehensive income






















27Dividends, $0.30 per share














(269
)






(269
)Balance as of December 31, 2007


1,156



2,097



(274
)


5,274



1,320



9,573Repurchase of common stock










(313
)










(313
)Issuance of shares by subsidiary






152















152Stock-based compensation expense






75



105



(105
)






75Comprehensive income (loss):Net loss














(786
)






(786
)Other comprehensive loss, net of tax


















(226
)


(226
)Comprehensive loss






















(1,012
)Dividends, $0.36 per share














(319
)






(319
)Balance as of December 31, 2008


1,156



2,324



(482
)


4,064



1,094



8,156   The accompanying notes are an integral part of these audited
    consolidated financial statements
 F-7




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
  1.
    THE
    COMPANY      2.
    ACCOUNTING
    POLICIES    2.1 
    Principles of consolidation
  Consolidation of Variable Interest Entities, an
    Interpretation of ARB No. 51
    2.2 
    Use of estimates
   F-8




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
    2.3 
    Foreign currency
        2.4 
    Financial assets
  The Fair Value Option for
    Financial Assets and Financial Liabilities  Including
    an amendment of FASB Statement No. 115
 F-9




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
      Held-for-trading
    financial assets
  Accounting for
    Derivative Instruments and Hedging Activities
  Available-for-sale
    financial assets
     F-10




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
      2.5 
    Derivative financial instruments and hedging
    activities
          Derivative
    financial instruments classified as held for trading
  Accounting for Derivative Instruments
    and Hedging Activities
  Cash Flow
    Hedges
   F-11




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
        Fair
    Value Hedges
   F-12




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
    2.6 
    Revenue Recognition
    Net
    sales
  Revenue
    Recognition
       F-13




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
  No. 00-21, Revenue Arrangements with Multiple Deliverables (EITF 00-21).
  Other
    revenues
    Funding
    Interest
    on Receivables and Payables
   F-14




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
      2.7 
    Advertising costs
    2.8 
    Research and development
    2.9 
    Start-up
    costs
  Start-up start-up 6-months Start-up
  2.10 
    Income taxes
   F-15




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
      Accounting for Uncertainty in Income Taxes  an
    interpretation of FASB Statement No. 109
  2.11 
    Earnings per share (EPS)
    2.12 
    Cash and cash equivalents
   F-16




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
  2.13  Restricted
    cash
    2.14 
    Trade accounts receivable
    2.15 
    Inventories
      2.16 
    Goodwill
   F-17




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
  2.17 
    Intangible assets
    Trademarks
    and technology licenses
    Contractual
    customer relationships
    Computer
    software
      2.18 
    Property, plant and equipment
      Buildings


33 yearsFacilities & leasehold improvements


5-10 yearsMachinery and equipment


3-10 yearsComputer and R&D equipment


3-6 yearsOther


2-5 years  F-18




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
  300-mm 300-mm 300-mm
         F-19




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
  2.19 
    Investments
      Consolidation of Variable
    Interest Entities, an Interpretation of ARB No. 51
   F-20




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
    2.20 
    Employee benefits
  (a)
    Pension
    obligations    Employers Accounting for
    Defined Benefit Pension and Other Postretirement
    Plans  an amendment of FASB Statements No. 87,
    88, 106 and 132(R)
   F-21




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
    (b)
    Other
    post-employment obligations    (c)
    Termination
    benefits      (d)
    Profit-sharing
    and bonus plans    (e)
    Other
    long-term employee benefits   F-22




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
  (f)
    Share-based
    compensation  Stock
    options
    Nonvested
    shares
        2.21 
    Long-term debt
  (a)
    Convertible
    debt     F-23




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
  (b)
    Bank
    loans and senior bonds      2.22 
    Share capital
      2.23 
    Comprehensive income (loss)
    2.24 
    Provisions
    Guarantors Accounting and Disclosure Requirements for
    Guarantees, Including Indirect Guarantees of Indebtedness of
    Others, an interpretation of FASB Statements No. 5, 57 and
    107 and Rescission of FASB Interpretation No. 34
 F-24




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
    2.25 
    Recent accounting pronouncements
  (a)
    Accounting
    pronouncements effective in 2008  Fair Value Measurements
  The Fair Value Option for Financial Assets and Financial
    Liabilities  Including an amendment of FASB Statement
    No. 115
  No. 06-11, Accounting for Income Tax Benefits of Dividends on
    Share-Based Payment Awards (EITF 06-11).
 F-25




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
  paid-in-capital. EITF 06-11 EITF 06-11 EITF 06-11
  No. 07-3, Accounting for Advance Payments for Goods or Services to Be
    Used in Future Research and Development Activities (EITF 07-3). EITF 07-3 EITF 07-3 EITF 07-3
  No. 07-6, Accounting for the Sale of Real Estate When the Agreement
    Includes a Buy-Sell Clause (EITF 07-6). EITF 07-6 EITF 07-6 EITF 07-6
  Written Loan Commitments Recorded
    at Fair Value Through Earnings
  Year-End Help for Expensing
    Employee Stock Options
  (b)
    Accounting
    pronouncements expected to impact the Companys operations
    that are not yet effective and have not been adopted early by
    the Company  Business Combinations Noncontrolling
    Interests in Consolidated Financial Statements, an amendment of
    ARB No. 51
 F-26




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
    Disclosures about Derivative Instruments and Hedging
    Activities
 F-27




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
    The
    Hierarchy of Generally Accepted Accounting Principles The Meaning of Present Fairly in Conformity
    With Generally Accepted Accounting Principles
  No. 08-6, Equity Method Investment Accounting Considerations (EITF 08-6). EITF 08-6 EITF 08-6 states EITF 08-6 EITF 08-6 EITF 08-6
  No. 08-7, Accounting for Defensive Intangible Assets (EITF 08-7). EITF 08-7 EITF 08-7 states EITF 08-7 EITF 08-7 EITF 08-6 EITF 08-7 EITF 08-7
  (c)
    Accounting pronouncements that are not yet effective and are
    not expected to impact the Companys operations:  
    EITF 07-1,
    Accounting for Collaborative Arrangements
    EITF 07-4,
    Application of the Two-Class Method under FAS 128
    to Master Limited Partnerships
    FAS 163, Accounting for Financial Guarantee Insurance
    Contracts
    EITF 07-5,
    Determining Whether an Instrument (or an Embedded Feature) Is
    Indexed to an Entitys Own Stock F-28




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
   
    EITF 08-3,
    Accounting by Lessees for Maintenance Deposits under Lease
    Agreements
    EITF 08-5,
    Issuers Accounting for Liabilities Measured at Fair
    Value with a Third-Party Credit Enhancement.
    EITF 08-8,
    Accounting for an Instrument (or an Embedded Feature) with a
    Settlement Amount that is Based on the Stock of an Entitys
    Consolidated Subsidiary  3.
    BUSINESS
    COMBINATIONS        step-up ,
 F-29




---



##### Table of Contents



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


Twelve Months EndedDecember 31,


December 31,Pro Forma Statements of Income (Unaudited)

2008


2007In millions of U.S. dollars,except per share amountsNet revenues


10,650



11,654Gross profit


3,880



4,109Operating expenses


(4,185
)


(4,891
)Operating loss


(306
)


(782
)Net loss


(896
)


(737
)Loss per share (basic)


(1.00
)


(0.82
)Loss per share (diluted)


(1.00
)


(0.82
)   F-30




---



##### Table of Contents



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


Twelve Months EndedDecember 31,


December 31,Statements of Income, as Reported

2008


2007In millions of U.S. dollars,except per share amountsNet revenues


9,842



10,001Gross profit


3,560



3,536Operating expenses


(3,758
)


(4,081
)Operating loss


(198
)


(545
)Net loss


(786
)


(477
)Loss per share (basic)


(0.88
)


(0.53
)Loss per share (diluted)


(0.88
)


(0.53
)     4.
    EQUITY
    INVESTMENTS  Numonyx
  Accounting for the impairment or
    disposal of long-term assets
     F-31




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
        Statement of Income Information:Net sales


1,165Gross profit


266Net income (loss)


(129
)Financial Position Information:Current assets


1,614Noncurrent assets


1,412Current liabilities


512Noncurrent liabilities


860Net worth


1,654   Hynix ST
    Joint Venture
   F-32




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
      Veredus
    ATLab
     F-33




---



##### Table of Contents



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


December 31,2008


2007Trade accounts receivable


1,089



1,626Less valuation allowance


(25
)


(21
)Total


1,064



1,605     6.
    INVENTORIES,
    NET    December 31,


December 31,2008


2007Raw materials


76



72Work-in-process


1,124



808Finished products


640



474Total


1,840



1,354       7.
    ASSETS
    HELD FOR SALE   F-34




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
    8.
    OTHER
    RECEIVABLES AND ASSETS    December 31,


December 31,2008


2007Receivables from government agencies


125



143Taxes and other government receivables


238



258Advances to suppliers


3



5Advances to employees


11



9Advances to State and government agencies


69



9Insurance prepayments


6



5Rental prepayments


2



3License and technology agreement prepayments


21



17Other prepaid expenses


35



17Loans and deposits


18



15Accrued income


14



11Interest receivable


16



28Receivables for sale of long-lived assets


1



8Purchased currency options


27



12Foreign exchange forward contracts


10



1Held-for-trading cancellable swaps


34



Sundry debtors within cooperation agreements


29



30Receivables for payments on behalf of Numonyx






26Other current assets


26



15Total


685



612    F-35




---



##### Table of Contents



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





Industrial andInfrastructure


Wireless


MultisegmentProduct


Products


ProductsGroups


Sector


Sector(ACCI)


(WPS)


(IMS)


Other


TotalDecember 31, 2006


41



89



91



2



223Business Combination






58











58Foreign currency translation










9







9December 31, 2007


41



147



100



2



290Business Combination


15



669











684PGI goodwill impairment


(4
)










(2
)


(6
)Incard goodwill impairment










(7
)






(7
)Foreign currency translation


(1
)






(2
)






(3
)December 31, 2008


51



816



91







958      F-36




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
      10.
    OTHER
    INTANGIBLE ASSETS    Gross


Accumulated


NetDecember 31, 2008

Cost


Amortization


CostTechnologies & licences


707



(365
)


342Contractual customer relationships


436



(22
)


414Purchased software


253



(200
)


53Internally developed software


125



(71
)


54Total


1,521



(658
)


863   Gross


Accumulated


NetDecember 31, 2007

Cost


Amortization


CostTechnologies & licences


431



(303
)


128Contractual customer relationships


4



(4
)


Purchased software


230



(179
)


51Internally developed software


124



(65
)


59Total


789



(551
)


238          F-37




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
    Year2009


2312010


2082011


1852012


1232013


65Thereafter


51Total


863   11.
    PROPERTY,
    PLANT AND EQUIPMENT    Gross


Accumulated


NetDecember 31, 2008

Cost


Depreciation


CostLand


89







89Buildings


1,001



(264
)


737Capital leases


68



(53
)


15Facilities & leasehold improvements


3,153



(2,115
)


1,038Machinery and equipment


13,700



(11,037
)


2,663Computer and R&D equipment


528



(440
)


88Other tangible assets


187



(127
)


60Construction in progress


49







49Total


18,775



(14,036
)


4,739   Gross


Accumulated


NetDecember 31, 2007

Cost


Depreciation


CostLand


91







91Buildings


1,036



(344
)


692Capital leases


71



(49
)


22Facilities & leasehold improvements


3,205



(1,975
)


1,230Machinery and equipment


13,938



(11,183
)


2,755Computer and R&D equipment


554



(458
)


96Other tangible assets


185



(128
)


57Construction in progress


101







101Total


19,181



(14,137
)


5,044   step-up
   F-38




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
          12.
    AVAILABLE-FOR-SALE
    FINANCIAL ASSETS         F-39




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
    and/or
   F-40




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
    13.
    SHORT-TERM
    DEPOSITS      14.
    OTHER
    INVESTMENTS AND OTHER NON-CURRENT ASSETS    December 31,


December 31,2008


2007Investments carried at cost


32



25Available-for-sale equity securities


5



5Long-term notes from equity investment


168



Held-for-trading equity securities


7



9Long-term receivables related to funding


8



46Long-term receivables related to tax refund


206



34Debt issuance costs, net


7



11Cancellable swaps designated as fair value hedge






8Deposits and other non-current assets


44



44Total


477



182        F-41




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
       F-42




---



##### Table of Contents



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


December 31,2008


2007Taxes other than income taxes


91



91Accrued payroll


319



300Accrued social charges


146



143Advances received on government funding


44



28Advances from customers


7



10Accounts payable from Numonyx, net


7



Obligations for capacity rights granted to third parties


29



Foreign exchange forward contracts


1



1Purchased currency options


4



Current portion of provision for restructuring


197



43Pension and termination benefits


21



23Warranty and product guarantee provisions


4



4Accrued interest


8



6Royalties


14



20Acquisition-related expenses


17



Other


87



75Total


996



744         16.
    POST-RETIREMENT
    AND OTHER LONG-TERM EMPLOYEES BENEFITS  No. 88-1, (EITF 88-1).
 F-43




---



##### Table of Contents



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


Other Long-Term BenefitsDecember 31,


December 31,


December 31,


December 31,2008


2007


2008


2007Change in benefit obligation:Benefit obligation at beginning of year


590



572



42



3Service cost


20



19



4



3Interest cost


32



28



3



2Employee contributions


3



3







Benefits paid


(35
)


(26
)


(8
)


(1
)Effect of settlement


(5
)


(1
)






Effect of curtailment


(1
)


(7
)






Actuarial (gain) loss


15



(41
)


1



(4
)Transfer in


70







8



Transfer out


(53
)






(5
)


Plan amendment


(3
)


2







31Foreign currency translation adjustment


(46
)


38



(3
)


8Other






3







Benefit obligation at end of year


587



590



42



42Change in plan assets:Plan assets at fair value at beginning of year


278



241







Expected return on plan assets


18



15







Employer contributions


16



16







Employee contributions


2



2







Benefits paid


(11
)


(9
)






Effect of settlement


(2
)


(1
)






Actuarial gain (loss)


(59
)


7







Transfer in


54











Transfer out


(5
)






Foreign currency translation adjustments


(28
)


7







Other


(1
)










Plan assets at fair value at end of year


262



278







Funded status


(325
)


(312
)


(42
)


(42
)Net amount recognized in the balance sheet consisted of the
    following:Non current assets


1



4







Current liabilities


(5
)


(6
)


(2
)


(13
)Non Current liabilities


(321
)


(310
)


(40
)


(29
)Net amount recognized


(325
)


(312
)


(42
)


(42
)  F-44




---



##### Table of Contents



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





Foreign


Net of taxamount as at





currency


amount as atDecember 31,


Tax (expense or


translation


December 31,2008


benefit)


adjustment


2008Net actuarial loss generated in current year


(75
)


14



7



(54
)Amortization of actuarial loss


2











2Net prior service cost arising during period


3



(1
)






2Amortization of prior service cost


2











2Changes in Other comprehensive income


(68
)


13



7



(48
)     Before tax





Foreign


Net of taxamount as at





currency


amount as atDecember 31,


Tax (expense or


translation


December 31,2007


benefit)


adjustment


2007Net actuarial gain generated in year


48



(9
)


(2
)


37Amortization of actuarial gain


(3
)










(3
)Effect of curtailment, net


6











6Net prior service cost arising during period


(2
)










(2
)Amortization of prior service cost


2











2Changes in Other comprehensive income


51



(9
)


(2
)


40     Pension Benefits


Other Long-term BenefitsYear Ended


Year Ended


Year Ended


Year Ended


Year Ended


Year EndedDecember 31,


December 31,


December 31,


December 31,


December 31,


December 31,2008


2007


2006


2008


2007


2006Service cost


20



19



38



4



3



1Interest cost


32



28



25



3



2



Expected return on plan assets


(18
)


(15
)


(13
)










Amortization of unrecognized transition obligation






















Amortization of actuarial net loss (gain)


2



(3
)


4



1



(4
)


Amortization of prior service cost


2



2



(4
)






31



Effect of settlement


(3
)






6











Effect of curtailment


(1
)


(1
)














Net periodic benefit cost


34



30



56



8



32



1  F-45




---



##### Table of Contents



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


December 31,


December 31,Assumptions

2008


2007


2006Discount rate


5.23
%


5.43
%


4.86
%Salary increase rate


3.46
%


3.24
%


2.95
%Expected long-term rate of return on funds for the pension
    expense of the year


5.69
%


6.34
%


6.05
%       Percentage of Plan Assets atTarget allocation


DecemberAsset Category

2008


2008


2007Equity securities


36
%


36
%


54
%Bonds securities remunerating regular interest


37
%


37
%


27
%Real estate


6
%


6
%


9
%Other


21
%


21
%


10
%Total


100
%


100
%


100
%         Years

Pension Benefits


Other Long-term Benefits2009


35



22010


36



22011


26



22012


31



22013


32



3From 2014 to 2018


188



17    F-46




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
    17.
    LONG-TERM
    DEBT    December 31,


December 31,2008


2007Bank loans:5.21% due 2008, floating interest rate at Libor + 0.40%






434.42% due 2009, floating interest rate at Libor + 0.40%


50



504.09% due 2010, floating interest rate at Libor + 1.0%


50



Funding program loans:1.47% (weighted average), due 2009, fixed interest rate


4



130.89% (weighted average), due 2010, fixed interest rate


24



382.77% (weighted average), due 2012, fixed interest rate


10



120.50% (weighted average), due 2013, fixed interest rate


2



0.50% (weighted average), due 2014, fixed interest rate


10



93.24% (weighted average), due 2017, fixed interest rate


72



801.54% due 2014, floating interest rate at Libor + 0.017%


120



2053.56% due 2015, floating interest rate at Libor + 0.026%


65



3.24% due 2016, floating interest rate at Libor + 0.052%


136



1.74% due 2016, floating interest rate at Libor + 0.277%


180



3.20% due 2016, floating interest rate at Libor + 0.173%


200



Capital leases:5.08% (weighted average), due 2011, fixed interest rate


15



22Senior Bonds:3.64%, due 2013, floating interest rate at Euribor + 0.40%


703



736Convertible debt:-0.50% convertible bonds due 2013






21.5% convertible bonds due 2016


1,036



1,010Total long-term debt


2,677



2,220Less current portion


(123
)


(103
)Total long-term debt, less current portion


2,554



2,117  F-47




---



##### Table of Contents



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


December 31,2008


2007U.S. dollar


1,139



1,313Euro


1,538



907Other






Total


2,677



2,220     December 31,20082009


1232010


1732011


1,1532012


1162013


816Thereafter


296Total


2,677      F-48




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
        Credit
    facilities
    18.
    SHAREHOLDERS
    EQUITY  18.1 
    Outstanding shares
     F-49




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
  18.2 
    Preference shares
      18.3 
    Treasury stock
        18.4 
    Stock option plans
   F-50




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
  1996-1998,
  1999-2001,
        Price Per ShareWeightedNumber of Shares


Range


AverageOutstanding at December 31, 2005


60,558,567


$
12.03 - $62.01


$
29.80Options granted:2001 Plan










Supervisory Board Plan










Options expired


(16,832
)

$
12.03


$
12.03Options forfeited


(1,912,584
)

$
12.03 - $62.01


$
30.66Options exercised


(2,303,899
)

$
12.03 - $17.08


$
12.03Outstanding at December 31, 2006


56,325,252


$
12.03 - $62.01


$
30.50Options granted:2001 Plan










Supervisory Board Plan










Options expired


(7,566,170
)

$
24.88


$
24.88Options forfeited


(1,861,960
)

$
16.73- $62.01


$
31.19Options exercised


(131,487
)

$
17.08 - $19.18


$
18.90Outstanding at December 31, 2007


46,765,635


$
16.73 - $62.01


$
31.42Options granted:2001 Plan










Supervisory Board Plan










Options expired


(5,923,552
)

$
44.00 - $62.01


$
59.1Options forfeited


(1,410,650
)

$
16.73 - $62.01


$
27.9Options exercised










Outstanding at December 31, 2008


39,431,433


$
16.73 - $39.00


$
27.3  F-51




---



##### Table of Contents



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


December 31,


December 31,2008


2007


2006Options exercisable


39,431,433



46,765,635



56,325,252Weighted average exercise price

$
27.35


$
31,42


$
30.50       WeightedWeighted


averageOption price


average


remainingNumber of shares

range


exercise price


contractual life142,766


$
16.73 - $17.31


$
17.1



5.820,453,245


$
19.18 - $24.88


$
21.0



4.8194,750


$
25.90 - $29.70


$
27.2



4.218,640,672


$
31.09 - $44.00


$
34.4



2.9   18.5 
    Employee share purchase plans
    18.6 
    Nonvested share awards
     F-52




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
           F-53




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
           F-54




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
         F-55




---



##### Table of Contents



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

Number of Shares


Exercise priceOutstanding as at December 31, 2006


6,876,654


$
0-1.04Awards granted:2006 Employee Plan


215,000


$
02007 Employee Plan


5,776,290


$
02007 Supervisory Board Plan


165,000



1.04Awards forfeited:2005 Employee Plan


(42,619
)

$
02006 Employee Plan


(120,295
)

$
02007 Employee Plan


(73,490
)

$
02007 Supervisory Board Plan


(22,500
)


1.04Awards vested:2005 Employee Plan


(1,039,544
)

$
02005 Supervisory Board Plan


(17,000
)


1.042006 Employee Plan


(1,190,466
)

$
02006 Supervisory Board Plan


(17,000
)


1.04Outstanding as at December 31, 2007


10,510,030


$
0-1.04Awards granted:2007 Employee Plan


135,550


$
02008 Employee Plan


5,723,305


$
02008 Supervisory Board Plan


165,000



1.04Awards forfeited:2005 Employee Plan


(7,900
)

$
02006 Employee Plan


(62,162
)

$
02007 Employee Plan


(141,201
)

$
02008 Employee Plan


(56,185
)

$
02008 Supervisory Board Plan


(22,500
)


1.04Awards cancelled on failed vesting conditions:2007 Employee Plan


(962,703
)

$
0Awards vested:2005 Employee Plan


(903,381
)

$
02005 Supervisory Board Plan


(17,000
)


1.042006 Employee Plan


(1,937,618
)

$
02006 Supervisory Board Plan


(20,000
)


1.042007 Employee Plan


(1,181,630
)

$
02007 Supervisory Board Plan


(52,500
)


1.04Outstanding as at December 31, 2008


11,169,105


$
0-1.04    F-56




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
      2005Employee PlanHistorical share price volatility

27.74%Historical volatility of reference index

25.5%Three-year average dividend yield

0.55%Risk-free interest rates used

4.21%-4.33%     Share-Based
    Payment
         F-57




---



##### Table of Contents



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


December 31,


December 31,2008


2007


2006Cost of sales


15



14



6Selling, general and administrative


37



37



14Research and development


24



22



8Loss on equity investment


2







Total pre-payroll tax and social contribution compensation


78



73



28       18.7 
    Accumulated other comprehensive income (loss)
    Unrealized





MinimumForeign


gain (loss) on


Unrealized


pension


FAS 158


Accumulatedcurrency


available-for-sale


gain (loss) on


liability


adoption


othertranslation


financial assets,


derivatives,


adjustment,


adjustment,


comprehensiveincome (loss)


net of tax


net of tax


net of tax


net of tax


income (loss)Balance as of December 31, 2005


328



0



(13
)


(34
)






281Other comprehensive income (loss)


532







26



34



(57
)


535Balance as of December 31, 2006


860



0



13







(57
)


816Other comprehensive income (loss)


467



(2
)


(1
)






40



504Balance as of December 31, 2007


1,327



(2
)


12







(17
)


1,320Other comprehensive income (loss)


(163
)


(14
)


(1
)






(48
)


(226
)Balance as of December 31, 2008


1,164



(16
)


11







(65
)


1,094     18.8 
    Dividends
   F-58




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
      19.
    EARNINGS
    (LOSS) PER SHARE    Year Ended


Year Ended


Year EndedDecember 31,


December 31,


December 31,2008


2007


2006Basic EPSNet income (loss)


(786
)


(477
)


782Weighted average shares outstanding


891,955,940



898,731,154



896,136,969Basic EPS


(0.88
)


(0.53
)


0.87Diluted EPSNet income (loss)


(786
)


(477
)


782Convertible debt interest, net of tax










17Net income (loss) adjusted


(786
)


(477
)


799Weighted average shares outstanding


891,955,940



898,731,154



896,136,969Dilutive effect of stock options










211,770Dilutive effect of nonvested shares










1,252,996Dilutive effect of convertible debt










60,941,995Number of shares used in calculating diluted EPS


891,955,940



898,731,154



958,543,730Diluted EPS


(0.88
)


(0.53
)


0.83      F-59




---



##### Table of Contents



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


Year Ended


Year EndedDecember 31,


December 31,


December 31,2008


2007


2006Research and development funding


83



97



54Start-up and
    phase-out costs


(17
)


(24
)


(57
)Exchange gain (loss), net


20



1



(9
)Patent litigation costs


(14
)


(18
)


(22
)Patent pre-litigation costs


(10
)


(10
)


(7
)Gain on sale of Accent










6Gain on sale of long-lived assets, net


4



2



2Other, net


(4
)






(2
)Total


62



48



(35
)     Start-up start-up
         F-60




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
  21.
    IMPAIRMENT,
    RESTRUCTURING CHARGES AND OTHER RELATED CLOSURE COSTS    ramp-ups
       F-61




---



##### Table of Contents



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


Other related


related closureYear ended December 31, 2008

Impairment


charges


closure costs


costs2007 restructuring plan


(77
)


(79
)


(8
)


(164
)FMG deconsolidation


(190
)


(2
)


(24
)


(216
)Goodwill annual impairment test


(13
)










(13
)Other restructuring initiatives


(10
)


(75
)


(3
)


(88
)Total


(290
)


(156
)


(35
)


(481
)   Total impairment,restructuringcharges and otherRestructuring


Other related


related closureYear ended December 31, 2007

Impairment


charges


closure costs


costs2007 restructuring plan


(11
)


(62
)






(73
)FMG deconsolidation


(1,107
)






(5
)


(1,112
)Other restructuring initiatives


(5
)


(8
)


(30
)


(43
)Total


(1,123
)


(70
)


(35
)


(1,228
)   Total impairment,restructuringcharges and otherRestructuring


Other related


related closureYear ended December 31, 2006

Impairment


charges


closure costs


costs150mm fab plan


(1
)


(7
)


(14
)


(22
)2005 restructuring initiatives


(1
)


(36
)


(8
)


(45
)Other


(10
)










(10
)Total


(12
)


(43
)


(22
)


(77
)       
    $190 million loss on FMG deconsolidation, consisting of a
    $164 million impairment charge recorded upon disposal in
    the first quarter of 2008 and an additional loss of
    $26 million, which was recorded after disposal as a
    consequence of additional charges borne by the Company in
    relation to the contributed assets. The total loss of the FMG
    deconsolidation amounted to $1,296 million, of which
    $1,106 million was recorded in the year ended
    December 31, 2007.
    $77 million impairment charge on long-lived assets of the
    Companys manufacturing sites in Carrollton, Texas and in
    Phoenix, Arizona, of which $75 million on Phoenix site
    which had previously been designated for closure as part of the
    2007 restructuring plan and that the Company decided in the
    second quarter of 2008 to sell as a going concern. The assets
    are primarily property and other long-lived assets that
    satisfied, as at June 28, 2008, all of the criteria
    required for the held-for-sale status as set forth
    in FAS 144. Consequently, the Company reclassified as
    current assets on the consolidated balance sheet as at
    June 28, 2008 these long-lived assets, which generated an
    impairment charge of $114 million recorded in the first
    half of 2008. Fair value less costs to sell was based on the
    consideration to be received upon the sale, which was expected
    to occur within one year. In the second half of 2008, pursuant
    to a corporate restructuring of F-62




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
  the potential buyer, the sale was no longer deemed to be
    probable. The Company ceased to apply the FAS 144
    held-for-sale model to the Phoenix assets and reclassified the
    assets as held for use as at December 31, 2008. Therefore
    the assets were revalued based on the discounted cash flows
    expected from their use, estimated at $99 million, which
    was higher than the consideration to be received upon the sale.
    An adjustment of $39 million was accordingly recorded in
    the second half of 2008 as a credit to the original impairment
    charge.  
    $13 million impairment on goodwill, pursuant to the
    impairment test on goodwill and indefinite long-lived assets
    performed annually by the Company. This impairment charge
    includes $7 million on goodwill recorded in 2003 on Incard
    smart card business acquisition and $6 million recorded on
    goodwill related to Portland Group Inc. (PGI), an
    entity the Company acquired in 2000 and dedicated to
    compilers & tools for standalone or embedded
    processing platforms;
    $6 million other-than-temporary impairment charges on
    certain equity investments carried at cost. For one investment
    the impairment loss was based on the valuation for the
    underlying investment of a new round of third party financing
    and for the other the impairment loss was based on the value of
    the investment upon liquidation.
    $4 million impairment charge on certain specific equipment
    with no alternative future use within the Company;    
    $1,106 million impairment as a result of the signing of the
    definitive agreement for the FMG deconsolidation and upon
    meeting FAS 144 criteria for assets held for sale, to adjust the
    value of the to-be-contributed assets to fair value less costs
    to sell. Fair value less costs to sell was based on the net
    consideration provided for in the agreement and significant
    estimates.
    $1 million impairment charge on certain specific equipment
    that could not be transferred as part of FMG deconsolidation and
    for which no alternative future use could be found in the
    Company;
    $11 million impairment charge on certain tangible assets,
    mainly equipment, that the Company identified without
    alternative future use following its commitment to the closure
    of two front-end sites and one back-end site as part of the 2007
    restructuring plan;
    $2 million impairment on technologies without any
    alternative future use based on the Companys
    products roadmap;
    $3 million other-than-temporary impairment charge on an
    equity investment carried at cost. The impairment loss was based
    on the valuation for the underlying investment of a new round of
    third party financing.    
    $6 million impairment of goodwill pursuant to the decision
    of the Company to cease product development from technologies
    inherited from Tioga business acquisition. The Company reported
    Tioga business as part of the former Application Specific
    Product Groups (ASG) product segment. Following this
    decision, the Company recorded the full write-off of Tioga
    goodwill carrying amount.
    $4 million impairment on technologies purchased as part of
    Tioga business acquisition, which were determined to be without
    any alternative use;
    $1 million impairment on equipment and machinery pursuant
    to the decision of the Company to discontinue a production line
    in one of its back-end sites;
    $1 million impairment on equipment and machinery identified
    without any alternative use in one of the Companys
    European 150mm fab sites. F-63




---



##### Table of Contents



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





Otherrestructuring


FMG


restructuringplan


disposal


initiatives


TotalProvision as at December 31, 2006










32



32Charges incurred in 2007


62



5



40



107Reversal of provision










(2
)


(2
)Amounts paid


(2
)


(3
)


(50
)


(55
)Provision as at December 31, 2007


60



2



20



82Charges incurred in 2008


87



51



78



216Provision on business combinations










46



46Amounts paid


(34
)


(33
)


(43
)


(110
)Provision as at December 31, 2008


113



20



101



234   2007
    restructuring plan:
    
    $75 million primarily related to accrued one-time
    termination benefits for employees who provide services beyond
    the legal retention period until the complete closure of the
    manufacturing sites of Carrollton, Texas and Phoenix, Arizona;
    $10 million for the transfer of employees and equipment
    from Ain Sebbaa back-end site to Bouskoura site in Morocco;
    $3 million related to the closure of one of the
    Companys design center in France.    FMG
    disposal:
   F-64




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
    Other
    restructuring initiatives
          2005
    restructuring initiatives:
        2008
    restructuring initiatives:
         F-65




---



##### Table of Contents



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


Year Ended


Year EndedDecember 31,


December 31,


December 31,2008


2007


2006Income


132



156



143Expense


(81
)


(73
)


(50
)Total


51



83



93     23.  INCOME
    TAX
    Year Ended


Year Ended


Year EndedDecember 31,


December 31,


December 31,2008


2007


2006Income (loss) recorded in The Netherlands


(1,232
)


(54
)


(12
)Income (loss) from foreign operations


409



(440
)


776Income (loss) before income tax expense


(823
)


(494
)


764    F-66




---



##### Table of Contents



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


Year Ended


Year EndedDecember 31,


December 31,


December 31,2008


2007


2006The Netherlands taxes  current


(1
)


(4
)


(7
)Foreign taxes  current


(25
)


(121
)


(47
)Current taxes


(26
)


(125
)


(54
)Foreign deferred taxes


69



148



74Income tax benefit


43



23



20     Year Ended


Year Ended


Year EndedDecember 31,


December 31,


December 31,2008


2007


2006Income tax benefit (expense) computed at statutory rate


210



126



(226
)Non-deductible, non-taxable and other permanent differences, net






(20
)


(27
)Loss on equity investment


(139
)






Valuation allowance adjustments


(18
)


(1
)


(8
)Impact of prior years adjustments


48



(17
)


63Effects of change in enacted tax rate on deferred taxes






(21
)


Current year credits


66



63



49Other tax and credits


2



(3
)


(1
)Benefits from tax holidays


34



122



134Current year tax risk


(31
)






Impact of FMG deconsolidation


(77
)


(113
)


Earnings of subsidiaries taxed at different rates


(52
)


(113
)


36Income tax benefit (expense)


43



23



20            F-67




---



##### Table of Contents



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


December 31,2008


2007Tax loss carryforwards and investment credits


442



213Inventory valuation


29



38Impairment and restructuring charges


102



76Fixed asset depreciation in arrears


64



61Receivables for government funding


189



169Tax risk


21



Tax allowances granted on past capital investments


1,086



1,054Pension service costs


39



24Stock awards


26



19Commercial accruals


9



10Other temporary differences


42



48Total deferred tax assets


2,049



1,712Valuation allowances


(1,283
)


(1,123
)Deferred tax assets, net


766



589Accelerated fixed asset depreciation


(86
)


(110
)Acquired intangible assets


(61
)


(11
)Advances of government funding


(17
)


(24
)Other temporary differences


(32
)


(27
)Deferred tax liabilities


(196
)


(172
)Net deferred income tax asset


570



417       Year2009


102010


72011


212012


53Thereafter


351Total


442    F-68




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
              Balance at December 31, 2007

$
99Additions based on tax positions related to the current year


20Additions for tax positions of prior years


58Reductions for tax positions of prior years


(18
)Settlements


(3
)Reductions for lapse of statute of limitations


Foreign currency translation


(3
)Balance at December 31, 2008

$
153  F-69




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
    Balance at December 31, 2006

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


4Additions for tax positions of prior years


72Reductions for tax positions of prior years


(25
)Settlements


(6
)Reductions for lapse of statute of limitations


(28
)Balance at December 31, 2007

$
99         24.  COMMITMENTS
    Total


2009


2010


2011


2012


2013


ThereafterIn million US$Operating leases

$
423


$
89


$
68


$
61


$
52


$
61


$
92Purchase obligations


516



409



68



39of which:Equipment purchase


150



150Foundry purchase


106



106Software, technology licenses and design


260



153



68



39Other obligations


359



163



86



53



48



7



2Total

$
1,298


$
661


$
222


$
153


$
100


$
68


$
94        F-70




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
      Other
    commitments
    25.  CONTINGENCIES
    26.  CLAIMS
    AND LEGAL PROCEEDINGS
   F-71




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
  and/or
      27.  FINANCIAL
    INSTRUMENTS AND RISK MANAGEMENT
  27.1
    Financial risk factors
     F-72




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
  Market
    risk
  Foreign
    exchange risk
        Derivative Instruments Not Designated as a Hedge
          Derivative Instruments Designated as a Hedge
   F-73




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
            Cash
    flow and fair value interest rate risk
       F-74




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
      Credit
    risk
  and/or
      Liquidity
    risk
      27.2
    Capital risk management
     F-75




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
    27.3 
    Fair value measurement
      Fair Value Measurements UsingQuoted Prices inActive Markets for


Significant Other


SignificantDecember 31,


Identical Assets


Observable Inputs


Unobservable Inputs2008


(Level 1)


(Level 2)


(Level 3)DescriptionIn millions of U.S. dollars Available-for-sale marketable debt
    securities






640







253Available-for-sale long term subordinated notes














168Available-for-sale equity securities






5







Equity securities held for trading






7







Derivative instruments held for trading










34



Derivative instruments designated as cash flow hedge






23







Derivative instruments not designated as hedge






9







Total






684



34



421  F-76




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
    Fair ValueMeasurements UsingSignificantUnobservable Inputs(Level 3)In millions of U.S. dollarsJanuary 1, 2008


369Subordinated notes received in Numonyx transaction


156Transfer-in Level 3 category: Lehman Brothers senior
    unsecured bonds following Lehman Brothers Chapter 11 filing


22Other-than-temporary impairment charge on Lehman Brothers senior
    unsecured bonds included in earnings on the line
    Other-than-temporary impairment charge on financial
    assets


(11
)Other-than-temporary impairment charge on auction-rate
    securities included in earnings on the line
    Other-than-temporary impairment charge on financial
    assets


(127
)Paid-in-Kind
    interest on Numonyx subordinated notes


11Change in fair value on Numonyx subordinated notes
     pre-tax


1Settlements and redemptions


December 31, 2008


421Amount of total losses for the period included in earnings
    attributable to assets still held at the reporting date


138     Fair Value Measurements UsingQuoted Prices inActive Markets for


Significant Other


SignificantDecember 31,


Identical Assets


Observable Inputs


Unobservable Inputs2008


(Level 1)


(Level 2)


(Level 3)DescriptionIn millions of U.S. dollarsInvestments in equity securities carried at cost














32Numonyx equity investment














496Total














528  F-77




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
    Fair ValueMeasurements UsingSignificantUnobservable Inputs(Level 3)In millions of U.S. dollarsJanuary 1, 2008


25Investments in equity securities carried at cost


15Other-than-temporary impairment charge on equity securities
    carried at cost included in earnings on the line
    Impairment, restructuring charges and other related
    closure costs


(6
)Liquidation of investments carried at cost


(2
)Equity investment received in Numonyx transaction


966Debt guarantee granted to Numonyx


69Other-than-temporary impairment charge included in earnings on
    the line Earnings (loss) on equity investments


(480
)Equity share in Numonyx loss


(59
)December 31, 2008


528Amount of total losses for the period included in earnings
    attributable to assets still held at the reporting date


486     2008


2007Carrying


Estimated


Carrying


EstimatedDescription

Amount


Fair Value


Amount


Fair ValueIn millions of U.S. dollarsLong-term debt Bank loans (including current portion)


938



937



472



465 Senior Bonds


703



580



736



734 Convertible debt


1,036



918



1,012



965Total


2,677



2,435



2,220



2,164     Marketable
    securities
     F-78




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
  Foreign
    exchange forward contracts and currency options
    Cancellable
    swaps held for trading
    Equity
    securities classified as available-for-sale
    Equity
    securities held for trading
    Equity
    securities carried at cost
    Numonyx
    equity investment
    Subordinated
    notes received in Numonyx transaction
    Long-term
    debt and current portion of long-term debt
  borrowing-by-borrowing
  Cash and
    cash equivalents, accounts receivable, bank overdrafts,
    short-term borrowings, and accounts payable
   F-79




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
  28.
    RELATED
    PARTY TRANSACTIONS    December 31,


December 31,


December 31,2008


2007


2006Sales & other services


325



272



118Research and development expenses


(63
)


(68
)


(43
)Other purchases


(77
)


(85
)


(70
)Other income and expenses


(7
)


(11
)


(21
)Accounts receivable


63



44



20Accounts payable


65



40



20Other assets






2



        F-80




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
        29.
    SEGMENT
    INFORMATION        
    Application Specific Product Groups (ASG) segment;
    Industrial and Multisegment Sector (IMS)
    segment; and
    Flash Memory Group (FMG) segment (until
    March 30, 2008).     F-81




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
    
    Automotive Consumer Computer and Communication Infrastructure
    Product Groups (ACCI), comprised of three product
    lines:  
    Home Entertainment & Displays (HED), which
    now includes the Imaging division;
    Automotive Products Group (APG); and,
    Computer and Communication Infrastructure (CCI),
    which now includes the Communication Infrastructure division.  
    Industrial and Multisegment Products Sector (IMS),
    comprised of:  
    Analog Power and Micro-Electro-Mechanical Systems
    (APM); and
    Micro, non-Flash, non-volatile Memory and Smart Card products
    (MMS).  
    Wireless Products Sector (WPS), comprised of three
    product lines:  
    Wireless Multi Media (WMM);
    Connectivity & Peripherals
    (C&P); and
    Cellular Systems (CS).      Disclosures about Segments of an Enterprise and
    Related Information
  start-up
 F-82




---



##### Table of Contents



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


December 31,


December 31,2008


2007


2006In million of U.S dollarsNet revenues by product segment:Automotive Consumer Computer and Communication Infrastructure
    Product Groups (ACCI)


4,129



3,944



4,122Industrial and Multisegment Products Sector (IMS)


3,329



3,138



2,842Wireless Products Sector (WPS)


2,030



1,495



1,273Flash Memory Group segment


299



1,364



1,570Others(1)


55



60



47Total consolidated net revenues


9,842



10,001



9,854     (1)
    
    Includes revenues from sales of
    subsystems and other products not allocated to product segments.  Net
    revenues by product segment and by product line
  December 31,


December 31,


December 31,2008


2007


2006In million of U.S dollarsNet revenues by product lines:Home Entertainment & Displays (HED)


1,585



1,402



1,602Automotive Products Group (APG)


1,460



1,419



1,356Computer and Communication Infrastructure (CCI)


1,077



1,123



1,164Others


7







Automotive Consumer Computer  and Communication
    Infrastructure Product Groups (ACCI)


4,129



3,944



4,122Analog Power and Micro-Electro-Mechanical Systems
    (APM)


2,393



2.313



2,085Micro, non-Flash, non-volatile Memory and Smartcard products
    (MMS)


936



825



757Industrial and Multisegment Products Sector (IMS)


3,329



3,138



2,842Wireless Multi Media (WMM)


1,293



1,288



1,210Connectivity & Peripherals (C&P)


416



207



63Cellular Systems
    (CS)(1)


321







Wireless Products Sector (WPS)


2,030



1,495



1,273Others


55



60



47Flash Memories Group (FMG)


299



1,364



1,570Total consolidated net revenues

$
9,842


$
10,001


$
9,854     (1)
    
    Cellular Systems includes the
    largest part of the revenues contributed by NXP Wireless and, as
    such, there are no comparable numbers available for 2006 and
    2007. F-83




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
   Operating
    income (loss) by product segment
  December 31,


December 31,


December 31,2008


2007


2006Automotive Consumer Computer and Communication Infrastructure
    Product Groups (ACCI)


107



198



272Industrial and Multisegment Products Sector (IMS)


459



469



441Wireless Products Sector (WPS)


(70
)


105



167Flash Memory Group segment


16



(51
)


(53
)Total operating income of product groups


512



721



827Others(1)


(710
)


(1,266
)


(150
)Total consolidated operating income (loss)


(198
)


(545
)


677     (1)
    
    Operating income (loss) of
    Others includes items such as impairment,
    restructuring charges and other related closure costs,
    start-up
    costs, and other unallocated expenses such as: strategic or
    special research and development programs, acquired In-Process
    R&D, certain corporate level operating expenses, certain
    patent claims and litigation, and other costs that are not
    allocated to the product segments, as well as operating earnings
    or losses of the Subsystems and Other Products Group, including,
    beginning in the second quarter of 2008, the remaining FMG
    costs. The 2008 Others also includes non-recurring
    purchase accounting items.    December 31,


December 31,


December 31,2008


2007


2006Total operating income of product groups


512



721



827Strategic R&D and other R&D programs


(24
)


(20
)


(12
)Start-up
    costs


(16
)


(24
)


(57
)Impairment & restructuring charges


(481
)


(1,228
)


(77
)Subsystems and Other Products Group


3



6



(1
)Acquired In-Process R&D and other non-recurring purchase
    accounting(1)


(185
)






Seniority awards






(21
)


Other non-allocated
    provisions(2)


(7
)


21



(3
)Total operating loss
    Others(3)


(710
)


(1,266
)


(150
)Total consolidated operating income (loss)


(198
)


(545
)


677     (1)
    
    Non-recurring purchase accounting
    items are related to Genesis business combination with
    In-Process R&D charge for $21 million and to the
    Wireless business acquisition from NXP for $164 million,
    composed of $76 million as In-Process R&D charge and
    $88 million as inventory
    step-up
    charge.(2)
    
    Includes unallocated expenses such
    as certain corporate level operating expenses and other costs.(3)
    
    Operating income (loss) of
    Others includes items such as impairment,
    restructuring charges and other related closure costs,
    start-up
    costs, and other unallocated expenses such as: strategic or
    special research and development programs, acquired In-Process
    R&D, certain corporate level operating expenses, certain
    patent claims and litigation, and other costs that are not
    allocated to the product segments, as well as operating earnings
    or losses of the Subsystems and Other Products Group, including,
    beginning in the second quarter of 2008, the remaining FMG costs.   F-84




---



##### Table of Contents



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


December 31,


December 31,2008


2007


2006The Netherlands


2,737



3,123



3,114France


178



223



240Italy


185



220



230USA


1,032



1,027



1,030Singapore


4,939



4,795



4,698Japan


492



483



400Other countries


279



130



142Total


9,842



10,001



9,854   Long-lived
    assets
  December 31,


December 31,


December 31,2008


2007


2006The Netherlands


14



7



4France


1,728



1,885



1,763Italy


1,000



1,216



1,701Other European countries


229



175



188USA


217



361



436Singapore


675



731



1,635Malaysia


306



287



355Other countries


570



382



344Total


4,739



5,044



6,426   Payment
    for purchase of tangible assets
  December 31,


December 31,


December 31,2008


2007


2006The Netherlands


5



4



1France


462



396



467Italy


138



279



292Other European countries


66



53



96USA


2



47



116Singapore


106



180



380Malaysia


104



99



115Other countries


100



82



66Total


983



1,140



1,533  F-85




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
  30.
    SUBSEQUENT
    EVENTS      Consideration transferred:Equity interest in the Companys business contributed

$
1,105Equity interest in EMP business acquired


306Cash received by the Company


(700
)Equity investment in JVD


(99
)Total consideration transferred

$
612   Assets acquired and liabilities assumed:Cash in JVS

$
445Goodwill


173Customer relationships


48Property, plant and equipment


8Other current assets and liabilities  net


(62
)Total assets acquired and liabilities assumed

$
612          F-86




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (in millions of U.S. dollars, except per share
    amounts)
     F-87




---



##### Table of Contents



NUMONYX
    HOLDINGS B.V.





CONSOLIDATED
    FINANCIAL STATEMENTS
    FOR THE PERIOD MARCH 30, 2008 THROUGH DECEMBER 31,
    2008  F-88




---



##### 



INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
   
 PageReport of Independent Registered Public
    Accounting Firm


F-90Consolidated Statement of Operations


F-91Consolidated Statement of Comprehensive Loss


F-92Consolidated Balance Sheet


F-93Consolidated Statement of Cash Flows


F-94Consolidated Statement of Changes in
    Shareholders Equity


F-95   INDEX TO
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
 PageThe Company

F-96Accounting Policies

F-96Business Combinations

F-102Equity Investments

F-103Trade Accounts Receivable, Net

F-104Inventories, Net

F-104Other Receivables and Current Assets

F-104Intangible Assets

F-104Property, Plant and Equipment

F-106Other Investments and Non-Current Assets

F-106Other Payables and Accrued Liabilities

F-107Post-Retirement and Other Long Term Employee
    Benefits

F-107Long Term Debt and Notes

F-110Other Non Current Liabilities

F-111Shareholders Equity

F-111Other Income and Expenses, Net

F-112Impairment and Restructuring Charges

F-112Interest Income and Expenses

F-113Income Taxes

F-113Financial Instruments and Risk Management

F-116Commitments

F-117Related Party Transactions

F-117   F-89




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##### Table of Contents



Report of
    Independent Registered Public Accounting Firm        /s/  Robert
    P. MuirRobert
    P. Muir

/s/  Kenneth
    PostalKenneth
    Postal    F-90




---



##### Table of Contents



NUMONYX
    HOLDINGS B.V.CONSOLIDATED STATEMENT OF OPERATIONSFor the period March 30, 2008 through December 31,
    2008
    In thousands of US dollars
  Net sales

$
1,623,189Other revenues


456Net revenues


1,623,645Cost of sales


(1,280,463
)Gross profit


343,182Selling, general, and administrative expenses


(223,984
)Research and development expenses


(207,685
)Impairment and restructuring charges


(74,350
)Other income and expenses, net


(37,547
)Operating loss


(200,384
)Interest expense, net


(57,060
)Income from equity investment


5,748Loss before income taxes


(251,696
)Income tax expense


(19,125
)Net loss

$
(270,821
)   The accompanying notes are an integral part of these
    consolidated financial statements.
 F-91




---



##### Table of Contents



NUMONYX
    HOLDINGS B.V.CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSSFor the period March 30, 2008 through December 31,
    2008
    In thousands of US dollars
  Net loss

$
(270,821
)Other comprehensive income, net of tax:Foreign currency translation adjustments


6,720Defined benefit pension plans:Actuarial loss during the period


(414
)Other comprehensive income


6,306Comprehensive Loss

$
(264,515
)   The accompanying notes are an integral part of these
    consolidated financial statements.
 F-92




---



##### Table of Contents



NUMONYX
    HOLDINGS B.V.CONSOLIDATED BALANCE SHEETAs of December 31, 2008
    In thousands of US dollars
  AssetsCurrent assets:Cash and cash equivalents

$
476,810Restricted cash


4,991Trade accounts receivable, net


230,901Inventories


582,140Deferred tax assets


5,386Other receivables and assets


159,058Total current assets


1,459,286Intangible assets, net


208,322Property, plant and equipment, net


563,725Restricted cash


24,795Deferred tax assets


79,100Equity investment


303,371Other non-current assets


132,8191,312,132Total assets


2,771,418Liabilities and shareholders equityCurrent liabilities:Trade accounts payable


245,645Other payables and accrued liabilities


146,091Deferred tax liabilities


3,995Total current liabilities


395,731Long-term debt


450,000Debt obligations to related parties


341,822Pension liability


28,941Long-term deferred tax liabilities


3,640Other non-current liabilities


40,423Total Liabilities


1,260,557Commitments and contingencies (Note 21)Share Capital:Common stock (ordinary shares: 250,000,000 shares
    authorized, 210,700,758 shares issued)


1,644,221Preferred stock (Preferred A shares: 14,204,545 shares
    authorized and issued, Preferred
    A-1 shares:
    142,045 shares authorized)


131,1551,775,376Accumulated deficit


(270,821
)Accumulated other comprehensive income


6,306Shareholders equity


1,510,861Total liabilities and shareholders equity

$
2,771,418   The accompanying notes are an integral part of these
    consolidated financial statements.
 F-93




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##### Table of Contents



NUMONYX
    HOLDINGS B.V.CONSOLIDATED STATEMENT OF CASH FLOWSFor the period March 30, 2008 through December 31,
    2008
    In thousands of US dollars
  Cash flows from operating activities:Net loss

$
(270,821
)Adjustments to reconcile net loss to cash flows used in
    operating activities:Depreciation and amortization


171,349Amortization of debt guarantees


27,750Non cash interest expense


22,734Changes in deferred income taxes


(18,446
)Income from equity investment


(5,748
)Impairment and restructuring charges, net of cash payments


70,541Gain on sale of other non-current assets


(2,770
)Other non-cash items


(8,965
)Changes in assets and liabilities, net of effects from
    business combination of contributed assets of shareholder
    companies:Trade accounts receivable, net


(230,901
)Inventories


(1,035
)Trade accounts payable


58,052Other assets and liabilities, net


171,738Net cash used in operating activities


(16,522
)Cash flows from investing activities:Payment for purchase of tangible assets


(78,100
)Proceeds from sales of tangible assets


4,579Investments in intangible assets


(48,600
)Changes in restricted cash


(29,786
)Net cash used in investing activities


(151,907
)Cash flows from financing activities:Proceeds from borrowings, net of issuance costs


444,410Proceeds from issuance of preference shares


131,155Proceeds from issuance of related party loan note


19,087Cash received as part of business combination


50,587Net cash provided by financing activities


645,239Net cash increase

$
476,810Cash and cash equivalents at beginning of the period


Cash and cash equivalents at end of the period

$
476,810Supplemental disclosure of cash flow information:Interest paid


(11,847
)Income taxes paid


(12,300
)Supplemental disclosure of non-cash investing and financing
    activities:Upon formation, Numonyx Holdings B.V. acquired the contributed
    assets of Intel Corporations NOR flash business. Details
    of the transaction were as follows:Value of non cash assets contributed by Intel Corporation


771,313Common stock issued


(677,472
)Related party note issued


(144,428
)   The accompanying notes are an integral part of these
    consolidated financial statements.
 F-94




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##### Table of Contents



NUMONYX
    HOLDINGS,B.V.CONSOLIDATED STATEMENT OF CHANGES IN
    SHAREHOLDERS EQUITYFor the period March 30, 2008 through December 31,
    2008
    In thousands of US dollars
  AccumulatedCommon





Preferred





Other


TotalCommon


Stock


Preferred


Stock


Accumulated


Comprehensive


ShareholdersStock


(Shares)


Stock


(Shares)


Deficit


income


EquityBalance at March 30, 2008

$
966,749



109,263,907


















$
966,749Issuance of common stock


677,472



101,436,851



















677,472Issuance of preferred stock









$
131,155



14,204,545











131,155Net loss

















$
(270,821
)






(270,821
)Other comprehensive income





















$
6,306



6,306Balance at December 31, 2008

$
1,644,221



210,700,758


$
131,155



14,204,545


$
(270,821
)

$
6,306


$
1,510,861  F-95




---



##### Table of Contents



NUMONYX
    HOLDINGS B.V.
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS
 1.  THE
    COMPANY           2.  ACCOUNTING
    POLICIES    2.1 
    Principles of consolidation
   F-96




---



##### Table of Contents



NUMONYX
    HOLDINGS B.V.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  2.2 
    Use of estimates
    2.3 
    Foreign currency
  non-U.S. currencies,
  2.4 
    Revenue recognition
  Revenue
    Recognition
       F-97




---



##### Table of Contents



NUMONYX
    HOLDINGS B.V.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          2.5 
    Other revenue
    2.6 
    Research and development
    2.7 
    Property, plant and equipment
        Buildings


33 yearsFacilities and Leasehold Improvements


5-10 yearsMachinery and Equipment


6 yearsComputer and Research & Development Equipment


3-7 years    F-98




---



##### Table of Contents



NUMONYX
    HOLDINGS B.V.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      2.8 
    Inventories
      2.9 
    Income taxes
    2.10 
    Cash and cash equivalents
    2.11 
    Restricted cash
    2.12 
    Trade accounts receivable
   F-99




---



##### Table of Contents



NUMONYX
    HOLDINGS B.V.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    2.13 
    Intangible assets
    Loan guarantees


4 yearsLoan arrangement fees


4 yearsContributed technology


3-7 yearsSoftware and licenses


3 years       2.14 
    Employee benefits
  Pension
    obligations
        Termination
    benefits
   F-100




---



##### Table of Contents



NUMONYX
    HOLDINGS B.V.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    Stock
    options
    2.15 
    Long term debt and debt obligations to related parties
    2.16 
    Share capital
    2.17 
    Comprehensive income (loss)
    2.18 
    Recent accounting pronouncements
  No. 157-1 No. 157-2, No. 157-2
     F-101




---



##### Table of Contents



NUMONYX
    HOLDINGS B.V.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      FSP 142-3. FSP 142-3 FSP 142-3
  No. 08-6, (EITF 08-6) EITF 08-6
   3.  BUSINESS
    COMBINATION   F-102




---



##### Table of Contents



NUMONYX
    HOLDINGS B.V.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        2008At March 30, 2008 (In Millions)Cash

$
51Inventory


239Fixed assets


356Intangible assets


114Fair value of favorable operating lease


70Liabilities assumed


(8
)Total

$
822   Applicability of FASB
    Statement No. 2 to Business Combinations Accounted for by
    the Purchase Method (4-year (9-month (3-year 7-year
   4.  EQUITY
    INVESTMENT  Hynix
    Numonyx Semiconductor Ltd.
       F-103




---



##### Table of Contents



NUMONYX
    HOLDINGS B.V.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   5.  TRADE
    ACCOUNTS RECEIVABLE, NET    2008Trade accounts receivable

$
233,340Less allowance for doubtful accounts


(2,439
)Total

$
230,901    6.  INVENTORIES    2008Raw materials

$
39,759Work in process


390,996Finished goods


151,385Total

$
582,140  7.  OTHER
    RECEIVABLES AND CURRENT ASSETS    2008Receivables from related parties

$
2,491Receivables from government agencies


65,716Prepayments, advances and other debtors


90,851Total

$
159,058  8.  INTANGIBLE
    ASSETS    AccumulatedGross Value


Amortization


Net ValueLoan guarantees

$
148,000


$
(27,750
)

$
120,250Loan arrangement fees


6,750



(1,266
)


5,484Product and process technology


10,800



(1,608
)


9,192Software development and licenses


76,256



(2,860
)


73,396Supply agreement


18,982



(18,982
)


Total

$
260,788


$
(52,466
)

$
208,322    F-104




---



##### Table of Contents



NUMONYX
    HOLDINGS B.V.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        SOP 98-1
        AmortizationYear

Expense2009

$
60,3222010


60,0002011


56,0002012


21,0002013


11,000Total

$
208,322  F-105




---



##### Table of Contents



NUMONYX
    HOLDINGS B.V.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  9.  PROPERTY,
    PLANT, AND EQUIPMENT    2008Land

$
2,515Buildings, facilities and leasehold improvements


89,582Machinery and Equipment


597,187Computer and R&D Equipment


16,951Other Tangible Assets


2,123Construction in progress


2,000Total Gross Cost

$
710,358Total Accumulated Depreciation

$
(146,633
)Total Net Cost

$
563,725      10.  OTHER
    INVESTMENTS AND NON-CURRENT ASSETS  2008Fair value of the favorable operating lease

$
67,420Long term receivable related to tax refund


40,423Related party receivable


24,527Deposits


449Total

$
132,819        F-106




---



##### Table of Contents



NUMONYX
    HOLDINGS B.V.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  11.  OTHER
    PAYABLES AND ACCRUED LIABILITIES  2008Taxes other than income tax

$
33,360Salaries, wages and social charges


37,747Provision for restructuring


8,541Deferred income on shipments to distributors


4,525Current portion of pension liability


2,155Accrued income tax


13,035Other accrued liabilities


46,728Total

$
146,091    12.  POST-RETIREMENT
    AND OTHER LONG-TERM EMPLOYEE BENEFITS    Employers Accounting for Defined Benefit Pension and
    Other Postretirement Plans, an amendment of FASB Statements
    No. 87, 88, 106, and 132(R).
  Funding
    policy
   F-107




---



##### Table of Contents



NUMONYX
    HOLDINGS B.V.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Benefit
    obligation and plan assets
    2008Change in projected benefit obligation:Benefit Obligation at beginning of period

$
30,175Service cost


4,149Interest cost


2,703Plan participant contributions


278Actuarial loss/(gain)


(119
)Benefits Paid


(5,375
)Benefit Obligation of acquired business


38,203Currency exchange impact


(9,849
)Ending projected benefit obligation

$
60,165   2008Change in plan assets:Fair Value of the Assets at beginning of the period

$
Actual return on plan assets


176Employer contributions


7,925Plan participants contributions


278Benefits paid


(5,375
)Plan assets of acquired business


31,161Currency impact


(5,096
)Ending fair value of plan assets

$
29,069     2008Funded status at year end

$
(30,679
)Unrecognized transition asset


Unrecognized prior service cost


Accumulated other comprehensive loss/(gain)


(417
)Net amount recognized in consolidated balance sheet

$
(31,096
)  F-108




---



##### Table of Contents



NUMONYX
    HOLDINGS B.V.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    2008Plans with accumulated benefit obligations in excess of plan
    assets:Accumulated benefit obligations

$
56,950Fair Value of plan assets

$
28,863Plans with projected benefit obligations in excess of plan
    assets:Projected benefit obligations

$
60,165Fair Value of plan assets

$
29,069   Assumptions
    2008Discount rate


5.19
%Average increase in compensation


3.24
%     2008Discount rate


5.64
%Expected Long term rate on plan assets


5.35
%Average increase in compensation


4.30
%     Net
    periodic benefit cost
    2008Service cost

$
4,149Interest cost


2,703Expected return on plan assets


(1,322
)Other


678Net periodic pension cost

$
6,208   Plan
    assets
   F-109




---



##### Table of Contents



NUMONYX
    HOLDINGS B.V.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      Asset Category

2008


Target AllocationEquity securities


21
%


21
%Debt securities


55
%


55
%Other


24
%


24
%   Funding
    expectations
    Estimated
    future benefit payments
    Years

Pension Benefits2009


3,7612010


3,0162011


3,8082012


3,3262013


3,828From 2014 to 2018


21,287  13.  LONG-TERM
    DEBT AND DEBT OBLIGATIONS TO RELATED PARTIES  Debt
    obligations to related parties
       F-110




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##### Table of Contents



NUMONYX
    HOLDINGS B.V.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Debt
    obligations to third parties
       14.  OTHER
    NON-CURRENT LIABILITIES  2008Related party payable

$
40,423    15.  SHAREHOLDERS
    EQUITY  Outstanding
    shares
    
    250,000,000 ordinary shares of one Euro each;
    14,204,545 convertible preferred shares A of one
    Euro each; and
    142,045 preferred shares A-1 of one eurocent (EUR
    0.01) each.    Preference
    Shares
     F-111




---



##### Table of Contents



NUMONYX
    HOLDINGS B.V.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   16.  OTHER
    INCOME AND EXPENSES, NET    2008Start up costs

$
39,433Foreign exchange gains


(986
)Gain on sale of other non-current assets, net


(2,770
)Other


1,870Total

$
37,547   SOP 98-1,
 17.  IMPAIRMENT
    AND RESTRUCTURING CHARGES    2008Impairment charges

$
62,000Restructuring charges


12,350Total

$
74,350         2008Charges incurred during the period

$
12,350Amounts paid


(3,809
)Provision as at December 31, 2008

$
8,541  F-112




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##### Table of Contents



NUMONYX
    HOLDINGS B.V.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  18.  INTEREST
    INCOME AND EXPENSES    2008Amortization of loan guarantees

$
27,750Interest on debt obligations to related parties


22,734Interest on long-term debt


11,847Amortization of loan arrangement fees


1,266Total interest expense


63,597Interest income


6,537Total interest expense, net

$
57,060  19.  INCOME
    TAXES    2008Current:Netherlands

$
Foreign


22,229Total current


22,229Deferred:Netherlands


Foreign


(3,104
)Total deferred


(3,104
)Total provision for income taxes

$
19,125       2008Provision computed at Dutch statutory rate

$
(64,182
)Foreign rate differential


171Permanent differences


3,534Research and development tax credits


(3,427
)Current year losses not benefited


69,072Change in beginning of year valuation allowance


15,112Others


(1,155
)Provision for income taxes

$
19,125Effective tax rate


(7.6
)%  F-113




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##### Table of Contents



NUMONYX
    HOLDINGS B.V.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    2008Deferred tax assets:Accrued compensation

$
5,106Other reserves and accruals


658Fixed assets


118,280Unrealized foreign exchange loss


660Research and development credit carryover


987Net operating loss carryover


96,678Others


5,332Total deferred tax assets


227,701Less: valuation allowance


(142,229
)Net deferred tax assets


85,472Deferred tax liabilities:Fixed assets


(3,640
)Inventory


(1,776
)Accounts receivable


(3,205
)Total deferred tax liabilities


(8,621
)Total net deferred tax assets

$
76,851        F-114




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##### Table of Contents



NUMONYX
    HOLDINGS B.V.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    Unrecognized
    tax benefits
    2008Balance as at March 30, 2008


Gross amount of the increases in unrecognized tax benefits of
    tax positions taken during a prior year


Gross amount of the increases in unrecognized tax benefits as a
    result of tax positions taken during the current year

$
2,369Amount of decreases in unrecognized tax benefits relating to
    settlements with taxing authorities


Reductions to unrecognized tax benefits resulting from the lapse
    of the applicable statute of limitations


Balance as at December 31, 2008

$
2,369          F-115




---



##### Table of Contents



NUMONYX
    HOLDINGS B.V.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  20.  FINANCIAL
    INSTRUMENTS AND RISK MANAGEMENT  Financial
    risk factors
        Foreign
    exchange risk
      Interest
    rate risk
    Credit
    risk
  and/or
   F-116




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##### Table of Contents



NUMONYX
    HOLDINGS B.V.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      Liquidity
    risk
   21.  COMMITMENTS    Total


2009


2010


2011


2012


2013


ThereafterOperating Leases

$
16,493


$
8,511


$
1,563


$
1,288


$
1,129


$
1,095


$
2,907Purchase Commitments


304,016



277,558



25,058



700



700







of which:Equipment and other asset purchase


61,884



61,884



















Transition Service and Supply
    Agreement Fees


126,720



126,720



















Other operational expenses


115,412



88,954



25,058



700



700







Total

$
320,509


$
286,069


$
26,621


$
1,988


$
1,829


$
1,095


$
2,907      22.  RELATED
    PARTY TRANSACTIONS     F-117




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##### Table of Contents



NUMONYX
    HOLDINGS B.V.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    Intel:
  Transactions
    during the period ended December 31, 2008:
  2008Net Sales to Intel

$
664Supply
    Agreement(1)


141,596Service
    Agreement(2)


28,561Transition Service Agreement
    Fees(3)


49,664Period
    Costs(4)


413,164     (1)
    
    Numonyx purchases wafers from
    Intels facility in Ireland. These costs are recorded
    within cost of sales.(2)
    
    Intels Pudong facility
    performs research and development and assembly/test services for
    Numonyx. These costs are primarily recorded within cost of sales.(3)
    
    As described in Note 1,
    The Company, these expenses include supply chain,
    procurement, site manufacturing, information technology, human
    resource, and finance and accounting services. These costs are
    primarily recorded within cost of sales and selling, general and
    administrative expenses.(4)
    
    Intel incurs facility-related
    expenses on Numonyx behalf for the Israel and Philippines
    sites. These costs are recorded within cost of sales.  Balances
    as at December 31, 2008:
  2008Trade Accounts Receivable from Intel,
    net(1)

$
80,105Prepaid operating lease with
    Intel(2)


67,420Other receivables from
    Intel(3)


4,700Accounts payable to
    Intel(4)


149,188Other accrued liabilities to Intel


5,717     (1)
    
    Trade accounts receivable from
    Intel, net represents monies outstanding from customers to
    Intel, and therefore not yet remitted to Numonyx, relating to
    revenues generated by Intel on behalf of Numonyx.(2)
    
    See Note 10, Other
    Investments and Non Current assets for an explanation of
    the prepaid operating lease.(3)
    
    Other receivables from Intel
    relates to funding for a joint research and development program
    between Intel and Numonyx.(4)
    
    Accounts payable and other accrued
    liabilities to Intel relate principally to amounts payable by
    Numonyx for supply agreement, service agreement and other
    services provided by Intel under the Transition Services
    Agreement.    STM:
  Transactions
    during the period ended December 31, 2008:
  2008Transition Services Agreement Fees

$
29,108Cost sharing
    arrangement(1)


54,879  F-118




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##### Table of Contents



NUMONYX
    HOLDINGS B.V.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (1)
    
    The cost sharing arrangement is an
    agreement with STM in relation to the Companys facility in
    Agrate, Italy, under which facilities and certain costs are
    shared between STM and Numonyx. The number disclosed above is
    the net costs paid by Numonyx to STM during the period.  Balances
    as at December 31, 2008:
  2008Trade accounts receivable from STM,
    net(1)

$
111,682Other current receivables from
    STM(2)


13,200Other long term receivable from
    STM(3)


24,527Accounts payable to
    STM(4)


9,890Other long term payable to
    STM(5)


40,423     (1)
    
    Trade accounts receivable from STM,
    net represents monies outstanding from customers to STM, and
    therefore not yet remitted to Numonyx, relating to revenues
    generated by STM on behalf of Numonyx.(2)
    
    Other current receivables from STM
    relate to non-trade receivables.(3)
    
    The long term receivable from STM
    relates to the end of employment fund in Italy (see
    Note 10, Other Investments and Non-Current
    Assets).(4)
    
    Accounts payable to STM relate to
    Transition Services Agreements fees and the Cost Sharing
    Arrangement in Italy.(5)
    
    The long term payable to STM
    relates to a tax refund in Italy (see Note 10, Other
    Investments and Non-Current Assets and Note 14,
    Other Non Current Liabilities.    Francisco
    partners:
    Hynix
    Numonyx Semiconductor Ltd.:
    Transactions
    during the period ended December 31, 2008:
  2008Purchases of semi-finished product

$
77,470   Balances
    as at December 31, 2008:
  2008Prepayment for additional equity interest

$
50,000Accounts payable to Hynix Numonyx Semiconductor Ltd.


9,635Other accrued liabilities to Hynix Numonyx Semiconductor Ltd


4,053  F-119




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##### Table of Contents



STMICROELECTRONICS
    N.V.
  VALUATION
    AND QUALIFYING ACCOUNTS
  Balance at





Charged to





BalanceValuation and Qualifying Accounts Deducted

Beginning


Translation


Costs and


Additions/


at End offrom the Related Asset Accounts

of Period


Adjustment


Expenses


(Deductions)


Period(Currency millions of U.S. dollars)2008Inventories


39







108



(75
)


72Accounts Receivable


21







1



3



25Deferred Tax Assets


1,123



(6
)


170



(4
)


12832007Inventories


47







72



(80
)


39Accounts Receivable


31







1



(11
)


21Deferred Tax Assets


1,039



6



79



(1
)


1,1232006Inventories


51







78



(82
)


47Accounts Receivable


27



1



7



(4
)


31Deferred Tax Assets


854



101



135



(51
)


1,039  S-1