As filed with the Securities and Exchange Commission on May 15, 2001

================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ----------------------

                                    FORM 20-F
[ ]  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
     EXCHANGE ACT OF 1934
                                   OR
|X|  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934
     For the fiscal year ended: December 31, 2000
                                   OR
[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
              For the transition period from           to

                         Commission file number: 1-13546

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

                             STMicroelectronics N.V.
             (Exact name of Registrant as specified in its charter)

       Not Applicable                                     The Netherlands
(Translation of Registrant's                      (Jurisdiction of incorporation
     name into English)                                  or organization)

                                Route de Pre-Bois
                                 ICC Bloc A1215
                                    Geneva 15
                                   Switzerland

                    (Address of principal executive offices)

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

<TABLE>
<CAPTION>

                                                                          Name of each exchange on
              Title of each class:                                            which registered:
------------------------------------------------                    -----------------------------------
<S>                                                                         <C>
Common Shares, nominal value Euro 1.04 per share                            New York Stock Exchange
Liquid Yield OptionTM Notes due June 10, 2008                               New York Stock Exchange
Liquid Yield OptionTM Notes due September 22, 2009                          New York Stock Exchange

</TABLE>

        Securities registered or to be registered pursuant to Section 12(g) of
the Act: None

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

        Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act: None

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


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

                            889,881,287 Common Shares

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

                             Yes   |X|             No   [ ]

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

                         Item 17   [ ]        Item 18   |X|


================================================================================

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

<S>      <C>                                                                                                      <C>
PART I............................................................................................................4
         ITEM 1:   IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS..........................................4
         ITEM 2:   OFFER STATISTICS AND EXPECTED TIMETABLE........................................................4
         ITEM 3:   KEY INFORMATION................................................................................4
         ITEM 4.   INFORMATION ON THE COMPANY....................................................................15
         ITEM 5.   OPERATING AND FINANCIAL REVIEW AND PROSPECTS..................................................42
         ITEM 6.   DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES....................................................54
         ITEM 7.   MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.............................................65
         ITEM 8.   FINANCIAL INFORMATION.........................................................................68
         ITEM 9.   THE OFFER AND LISTING.........................................................................69
         ITEM 10.  ADDITIONAL INFORMATION........................................................................74
         ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................................84
         ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES........................................87


PART II..........................................................................................................88
         ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES...............................................88
         ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
                    AND USE OF PROCEEDS..........................................................................88
         ITEM 15.  [RESERVED]....................................................................................88
         ITEM 16.  [RESERVED]....................................................................................88


PART III.........................................................................................................89
         ITEM 17.  FINANCIAL STATEMENTS..........................................................................89
         ITEM 18.  FINANCIAL STATEMENTS..........................................................................89
         ITEM 19.  EXHIBITS......................................................................................89
</TABLE>



                                       2
<PAGE>


                 PRESENTATION OF FINANCIAL AND OTHER INFORMATION

         In this annual report, references to "we" and "us" are to
STMicroelectronics NV together with its consolidated subsidiaries, references to
"EU" are to the European Union, references to the "Euro" and the "euro" are to
the euro currency of the EU, references to the "United States" and "U.S." are to
the United States of America and references to "$" or to "U.S. dollars" are to
United States dollars.

         References in this annual report to published industry data are
references to data published by Pathfinder Research, Inc. ("Pathfinder ") or
Dataquest-Gartner Group and references to trade association data are references
to World Semiconductor Trade Statistics ("WSTS"). Except as otherwise disclosed
herein, all references to our market positions in this annual report are based
on 2000 revenues according to published industry data. Certain terms used in
this annual report are defined in "Certain Terms."

            CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

         Some of the statements contained in this annual report that are not
historical facts, including without limitation, certain statements made in the
sections hereof entitled "Item 4: Information on the Company" and "Item 5:
Operating and Financial Review and Prospects," are statements of future
expectations and other forward-looking statements (within the meaning of Section
27A of the Securities Act of 1933, as amended) that are based on management's
current views and assumptions and involve known and unknown risks and
uncertainties that could cause actual results, performance or events to differ
materially from those in such statements due to, among other factors,

o        General business and economic conditions in the countries, the markets
         and the business segments in which we and our customers operate;

o        Market demand for our products and changes in customer order patterns
         and requirements including, but not limited to, order cancellation or
         rescheduling;

o        Competitive factors including the pricing of products in an
         increasingly competitive environment;

o        The development, qualification and availability of innovative products
         in a rapidly changing technological environment;

o        Our ability to implement cost reductions in a timely manner and the
         success of those actions;

o        Manufacturing risks;

o        Insufficient, excess or obsolete inventory;

o        Our ability to recruit and retain skilled personnel; and

o        Currency fluctuations and other risks.

         Certain such forward-looking statements can be identified by the use of
forward-looking terminology such as "believes", "expects", "may", "are expected
to", "will", "will continue", "should", "would be", "seeks" or "anticipates" or
similar expressions or the negative thereof or other variations thereof or
comparable terminology, or by discussions of strategy, plans or intentions. Some
of these risk factors are set forth are discussed in more detail, including
under "Item 3: Key Information - Risk Factors," "Item 4: Information on the
Company" and "Item 5: Operating and Financial Review and Prospects." Should one
or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
described in this annual report as anticipated, believed or expected. We do not
intend, and do not assume any obligation, to update any industry information or
forward-looking statements set forth in this annual report to reflect subsequent
events or circumstances.


                                       3
<PAGE>

                                     PART I

Item 1:  Identity of Directors, Senior Management and Advisers

         Not applicable.

Item 2:  Offer Statistics and Expected Timetable

         Not applicable.

Item 3:  Key Information

Selected Financial Data

         The table below sets forth our selected consolidated financial data for
each of the years in the five-year period ended December 31, 2000. Such data
have been derived from our consolidated financial statements. Consolidated
audited financial statements for each of the years in the three-year period
ended December 31, 2000, including the Notes thereto (collectively, the
"Consolidated Financial Statements"), are included elsewhere in this annual
report.

         The following information should be read in conjunction with "Item 5:
Operating and Financial Review and Prospects" and the Consolidated Financial
Statements and the related notes thereto included elsewhere in this annual
report.

<TABLE>
<CAPTION>

                                                                            Year ended December 31,
                                                            1996         1997        1998(1)      1999(1)      2000(1)
                                                         ----------   ----------  ------------  -----------  ----------
                                                                 (in millions except per share and ratio data)
<S>                                                      <C>          <C>          <C>          <C>          <C>
Consolidated Statement of Income Data:
   Net sales .......................................     $ 4,078.3    $3,969.8     $4,210.6     $5,023.1     $ 7,764.4
   Other revenues...................................          44.1        49.4         37.2         33.2          48.8
                                                              ----        ----         ----         ----          ----
   Net revenues.....................................       4,122.4     4,019.2      4,247.8      5,056.3       7,813.2
   Cost of sales....................................      (2,414.7)   (2,457.4)    (2,623.0)    (3,054.5)     (4,216.9)
                                                          ---------   ---------    ---------    ---------     ---------
   Gross profit.....................................       1,707.7     1,561.8      1,624.8      2,001.8       3,596.3
   Operating expenses:
     Selling, general and administrative............        (421.1)     (454.3)      (488.1)      (534.2)       (703.7)
     Research and development(2) ...................        (532.3)     (610.9)      (689.8)      (836.0)     (1,026.3)
     Other income and expenses(2) ..................          45.1        23.2         76.5         39.9         (83.6)
                                                              ----        ----         ----         ----         ------
       Total operating expenses.....................        (908.3)   (1,042.0)    (1,101.4)    (1,330.3)     (1,813.6)
                                                            ------    --------     --------     --------      --------
   Operating income.................................         799.4       519.8        523.4        671.5       1,782.7
   Net interest income (expense)....................         (11.2)       (2.6)         8.7         35.6          46.7
   Gain on disposal of investments..................           7.3           -            -            -             -
                                                               ---         ---          ---          ---           ---
   Income before income taxes and minority interests         795.5       517.2        532.1        707.1       1,829.4
   Income tax expense...............................        (171.6)     (113.0)      (120.4)      (157.2)       (375.1)
                                                            ------      ------       ------       ------        ------
   Income before minority interests.................         623.9       404.2        411.7        549.9       1,454.3
   Minority interests...............................           1.6         2.4         (0.6)        (2.6)         (2.2)
                                                               ---         ---         ----         ----          ----
   Net income.......................................     $   625.5    $  406.6     $  411.1     $  547.3       1,452.1
                                                         =========    ========     ========     ========       =======
   Earnings per share (basic)(3) ...................     $    0.75    $   0.49     $   0.49     $   0.64     $    1.64
   Earnings per share (diluted)(3) .................     $    0.75    $   0.48     $   0.48     $   0.62     $    1.58
   Number of shares used in calculating
     earnings per share (basic).....................         832.2       834.6        845.1        859.1         885.7
   Number of shares used in calculating
     earnings per share (diluted)...................         835.2       839.1        864.3        901.2         936.1
   Ratio of earnings to fixed charges(4)                      18.6        13.4         12.7         16.3          29.3
   Dividends per share(3) ..........................     $       -    $      -     $      -     $  0.027     $    0.03
</TABLE>


                                       4
<PAGE>

<TABLE>
<CAPTION>

<S>                                                      <C>          <C>          <C>          <C>          <C>
Consolidated Balance Sheet Data (end of period):
   Cash, cash equivalents and marketable
     securities(1)                                       $   556.4    $  702.2     $1,100.7     $1,823.1     $ 2,330.9
   Working capital(5)...............................         611.8       443.5        855.1        398.5         372.5
   Total assets.....................................       5,005.5     5,445.7      6,434.0      7,930.3      11,880.5
   Short-term debt (including current portion)......         428.2       424.6        191.2        123.2         141.6
   Long-term debt (excluding current portion)(1) ...         194.9       356.4        755.8      1,348.5       2,700.5
   Shareholders' equity(1) .........................       3,260.0     3,307.4      4,083.3      4,563.9       6,124.6
   Capital stock(6) ................................       2,003.3     2,004.9      2,232.3      2,508.0       2,823.6

Consolidated Operating Data:
   Capital expenditures(7) ........................      $ 1,125.2    $1,035.4     $  947.3     $1,347.5     $ 3,317.6
   Net cash provided by operating activities........         980.7       983.8      1,012.5      1,469.3       2,431.8
   Depreciation and amortization(7) ................        535.9        608.1        704.0        806.8       1,108.2

</TABLE>

---------
(1)    On November 16, 2000, we issued $1,480.0 million initial aggregate
       principal amount of zero-coupon unsubordinated convertible notes, due
       2010, for net proceeds of $1,457.8 million. On September 22, 1999, we
       completed an equity offering of 8,970,000 shares of capital stock at
       $24.88 (adjusted for the 3-for-1 stock split) for net proceeds of $216.8
       million. On September 22, 1999, we also completed a debt offering of
       $720.9 million initial aggregate principal amount of zero-coupon
       convertible Liquid Yield Option(TM) Notes, due 2009, for net proceeds of
       $708.3 million. On June 10, 1998, we completed an equity offering of
       18,000,000 shares of capital stock at $12.03 (adjusted for the 2-for-1
       and 3-for-1 stock splits) for net proceeds of $208.8 million. On June 10,
       1998, we also completed a debt offering of $431.7 million initial
       aggregate principal amount of zero-coupon convertible Liquid Yield
       Option(TM) Notes, due 2008, for net proceeds of $421.8 million. We have
       issued a redemption notice for these LYONs and intend to redeem them at a
       redemption price of $885.22 per $1,000 principal amount on June 11, 2001.
       According to the information available to us, on May 11, 2001,
       approximately $45.6 million in total indebtedness was outstanding under
       the 1998 LYONs. Based on the amount outstanding on May 11, 2001, if all
       remaining holders of the 1998 LYONs chose to convert them into Common
       Shares before the redemption date, 2,772,291 Common Shares would be
       issued.

(2)    Other income and expenses include, among other things, funds received
       through government agencies for research and development expenses, and
       the cost of new plant start-ups, as well as foreign currency gains and
       losses, the costs of certain activities relating to intellectual property
       and goodwill amortization. Our reported research and development expenses
       do not include design center, process engineering, pre-production or
       industrialization costs.

(3)    All share information has been adjusted to reflect the 2-for-1 stock
       split effected in June 1999 and the 3-for-1 stock split effected in May
       2000. See Note 2.19 to the Consolidated Financial Statements. Earnings
       per share have been restated to reflect the adoption in 1997 of Statement
       of Financial Accounting Standard No. 128 "Earnings per Share." See Note
       2.10 and Note 12 to the Consolidated Financial Statements.

(4)    For purposes of calculating the ratio of earnings to fixed charges,
       earnings consist of income before income taxes and minority interests,
       plus fixed charges. Fixed charges consist of interest expenses.

(5)    Working capital is calculated as current assets (excluding cash, cash
       equivalents and marketable securities) less current liabilities
       (excluding bank overdrafts, short-term debt and current portion of
       long-term debt.)

(6)    Capital stock consists of common stock and capital surplus.

(7)    Capital expenditures are net of certain funds received through government
       agencies, the effect of which is to decrease depreciation.

Risk Factors

         Risks related to the semiconductor industry

         The semiconductor industry is highly cyclical, which causes our results
to vary significantly

         The semiconductor industry is highly cyclical and has been subject to
significant economic downturns at various times. These downturns are typically
characterized by production overcapacity, accelerated erosion of average selling
prices and reduced revenues. When these downturns have occurred, such as in 1991
and 1996 through 1998, our results of operations have been adversely affected.
In addition, the markets for semiconductors and electronic systems that use
semiconductor products are characterized by rapid technological change, leading
to more complex and powerful products, evolving industry standards, intense
competition, and fluctuations in end-user demand. According to published
industry data, since the fourth quarter 2000, the market has been experiencing a
downturn which has led to a reduction in the production volume of semiconductor
products being shipped since the third quarter of 2000, primarily due to excess
inventory held by end-customers, particularly computer, telecom and other
manufacturers.

         Overall, the semiconductor market expanded significantly from 1983
through 2000. According to trade association data, annual worldwide sales of all
semiconductor products, referred to as the total available market or TAM, has
grown from 1983 through 2000 at an average compound annual growth rate of
approximately 15.4%. During the upward industry cycle in the first half of the
1990s, the semiconductor industry experienced significantly increased demand and
production capacity constraints, with the total available market growth rate
reaching over 40% in 1995. During this period, semiconductor manufacturers
increased capacity significantly. However, in 1996

                                       5
<PAGE>

the market experienced a significant downturn characterized by production
overcapacity and severe reductions in average selling prices that resulted in an
8.6% decrease in the total available market compared to 1995.

         According to trade association data, the total available market
decreased by 8.4% in 1998 compared to 1997. However, the total available market
for worldwide sales of semiconductor products increased by approximately 36.8%
in 2000 compared to 1999. In addition, the serviceable available market, or SAM,
(which consists of the TAM but excluding the market for DRAM and opto-electronic
products), increased by approximately 34.8% in 2000 compared to 1999. Capital
expenditures of many semiconductor manufacturers increased in 2000 and have
remained at high levels in 2001. In the event of weakening demand, the addition
of new capacity may give rise to over capacity and competitive pricing which
will affect margins. Since the third quarter 2000, the industry has experienced
a downturn. We cannot guarantee that the current downturn or any future downturn
will not be severe or that it would not have a material adverse effect on our
results of operations.

         Changes in industry capacity could lead to overcapacity and exacerbate
future industry downturns

         In the 1990s, many companies invested in building or improving
semiconductor-manufacturing capacity. According to published industry data and
other industry sources, investment in worldwide semiconductor fabrication
capacity totaled approximately $43 billion in 1996, $38 billion in 1997, $28
billion in 1998, $33 billion in 1999 and $59 billion in 2000 or approximately
32%, 28%, 22%, 22% and 29%, respectively, of the total available market for such
years. In addition to international semiconductor companies, companies
specializing in operating semiconductor foundries (companies providing
outsourcing capacity on a third party basis) such as UMC, TSMC and Chartered,
have added significant capacity, particularly in Asia. These capacity additions
contributed to an increase of supply over demand during 1997 and 1998 and to
declines in average selling prices and the downturn in the industry during this
period. Recent investments in 2000 could further increase overcapacity in 2001.
There has also been a shift in existing industry capacity to production of
products that compete with our products. We believe that future fluctuations in
the rate of industry capacity additions relative to the growth rate in demand
for semiconductor products or the transformation of manufacturing facilities to
produce products that compete with our products could contribute to fluctuations
in average selling prices and affect our results of operations.

         During industry downturns, our high fixed costs may adversely impact
our results

         In less favorable industry environments, we are driven to reduce prices
in response to competitive pressures. Since the semiconductor industry is
characterized by high fixed costs, we cannot guarantee our ability to reduce our
total costs in line with revenue declines during industry downturns. Reduced
average selling prices for our products therefore adversely affect our results
of operations. Our gross profit margin declined from 41.4% in 1996 to 38.9% in
1997 and 38.3% in 1998 during difficult market conditions. Our gross profit
margin was 39.6% in 1999 and 46.0% in 2000. In the difficult market conditions
encountered during the first quarter of 2001, our gross margin decreased by 2.9
percentage points compared to the fourth quarter 2000 and we expect that it will
further decrease by between 2.5 percentage points and 4.5 percentage points in
the second quarter of 2001 compared to the first quarter 2001. We cannot
guarantee that increased competition in our core product markets will not lead
to further price erosion, lower revenue growth rates and lower margins for us in
the future.

         Competitive factors in our industry make our competitive environment
intense

         We compete on the basis of a variety of factors, and our success
depends on our ability to compete successfully in all of the relevant areas. We
compete in different product lines to various degrees on the following bases:

         o      price

         o      technical performance

         o      product features

         o      product system compatibility

         o      product design

         o      availability

                                       6
<PAGE>

         o      quality

         o      sales and technical support

         Our ability to compete successfully also depends on factors partially
outside of our control, including:

         o      successful and timely development of new products and
                manufacturing processes

         o      manufacturing yields

         o      product availability

         o      industry and general economic trends

         Our results may be adversely impacted by worldwide economic downturns

         Our results are increasingly linked to worldwide economic trends,
especially in the United States, the European Union and Japan. The economic
situation in Asia in 1998 had a negative effect on the worldwide semiconductor
market and made semiconductor and end-use market requirements more difficult to
predict. The current economic slow-down in the United States, linked to a
declining GDP growth rate and to inventory build-ups by certain customers for
semiconductor products, is also negatively impacting the semiconductor market
which, following a growth of 36.8% in 2000, has declined by over 4% in the first
quarter of 2001, compared to the first quarter of 2000, and by over 19% over the
fourth quarter of 2000, according to industry sources. We believe that these
market developments are creating additional pressures on unit demand and on
semiconductor prices in general. To the extent economic uncertainties cause our
customers to experience reduced demand for their products that include our
products, our results of operations could be adversely affected.

         Because we operate in an industry where technology changes rapidly, our
products may become obsolete and we may not be able to develop new ones in a
timely manner

         The market for our products is characterized by rapidly changing
technology. Therefore, our success is highly dependent upon our ability to
develop and manufacture increasingly complex new products on a cost-effective
basis, to introduce them in the marketplace on a timely basis, and to have them
selected for design into future products of leading systems manufacturers. We
have committed and intend to continue to commit substantial resources to the
development of new products. Because new product development commitments must be
made well in advance of sales, however, our new product decisions must
anticipate both future demand and the technology that will be available to
supply such demand. Delays in developing new products with anticipated
technological advances, failure to win new design projects for customers or in
commencing volume shipments of new products, may have an adverse effect on our
business. In addition, there can be no assurance that new products, if
introduced, will gain market acceptance or will not be adversely affected by new
technological changes or new product announcements by others.

         Our future success depends in part upon our ability to develop and
implement new design and process technologies

         Semiconductor design and process technologies are subject to rapid
technological change and require large expenditures for capital investment and
research and development. We are developing advanced and standardized design
tools for our processes as well as libraries of macrofunctions and megafunctions
for many of our products. We are also focusing on improving our concurrent
engineering practices to better coordinate design activities and reduce overall
time-to-market. If we experience substantial delays in developing new design or
process technologies or inefficiently implement production increases or
transitions, our results of operations could be adversely affected.

         Loss of our key employees could hurt our competitive position

         As is common in the semiconductor industry, our success depends to a
significant extent upon the continued service of our key senior executives and
research and development, engineering, marketing, sales, manufacturing, support
and other personnel. Our success also depends upon our ability to continue to
attract, retain and motivate qualified personnel. The competition for such
employees is intense, and the loss of the services of any of these key personnel
without adequate replacement or the inability to attract new qualified personnel
could have a

                                       7
<PAGE>


material adverse effect on us. Mr. Pasquale Pistorio, age 65, has been our
president and chief executive officer since our formation in 1987 and he was
reappointed at our 1999 annual shareholders' meeting for a three-year term
expiring at our annual general meeting to be held in 2002. We do not maintain
insurance with respect to the loss of any of our key personnel.

         Some of our production processes and materials are environmentally
sensitive, which could lead to increased costs due to environmental regulations
or to damage to the environment

         We are subject to a variety of governmental regulations relating to the
use, storage, discharge and disposal of chemicals, gases and other hazardous
substances used in our manufacturing processes. We have established proactive
environmental policies with respect to the handling of chemicals, gases,
emissions and waste disposals from our manufacturing operations, and we have not
suffered material environmental claims in the past. We believe that our
activities comply with presently applicable environmental regulations in all
material respects. All of our facilities have been approved as being in
compliance with the EU Eco-Management and Audit Scheme regulations, and have
also obtained ISO 14001 certification. We are participating in various working
groups set up by the European Commission to propose new legislation regarding
the collection, recovery and disposal of electronic equipment, as well as
banning the use of lead and some flame retardants in manufacturing electronic
components. We intend to proactively implement such new legislation, when
enacted, in line with our commitment towards environmental protection.

         We cannot assure you, however, that the implementation of any such
legislation could not adversely affect our manufacturing costs or product sales
by requiring us to acquire costly equipment or materials, or to incur other
significant expenses in adapting our manufacturing processes or waste and
emission disposal processes. Furthermore, environmental claims or our failure to
comply with present or future regulations could result in the assessment of
damages or imposition of fines against us, suspension of production or a
cessation of operations and, as with other companies engaged in similar
activities, any failure by us to control the use of, or adequately restrict the
discharge of hazardous substances could subject us to future liabilities.

         Because we depend on a limited number of suppliers for raw materials,
we may experience supply disruptions or pricing pressure

         Our manufacturing operations depend upon obtaining adequate supplies of
quality raw materials on a timely basis. Thus, our results of operations would
be adversely affected if we were unable to obtain adequate supplies of raw
materials in a timely manner or if there were significant increases in the costs
of raw materials or problems with the quality of these raw materials. A number
of materials are available from a limited number of suppliers, or from a limited
number of suppliers in a particular region. In addition, we purchase raw
materials such as silicon wafers, lead frames, mold compounds, ceramic packages
and chemicals and gases from a number of suppliers on a just-in-time basis.
Although supplies for the raw materials used by us are currently adequate,
shortages could occur in various essential materials due to interruption of
supply or increased demand in the industry. In addition, suppliers may extend
lead times, limit supply to us or increase prices due to capacity constraints or
other factors. Any such supply limitations or price increases could adversely
affect our quarterly or annual results of operations.

         Risk factors related to our operations

         Our operating results may vary significantly from quarter to quarter
and annually

         Our operating results are affected by a wide variety of factors that
could materially and adversely affect revenues and profitability or lead to
significant variability of operating results. These factors include, among
others, the cyclicality of the semiconductor and electronic systems industries,
capital requirements and the availability of funding, competition, new product
development and technological change, and manufacturing problems. In addition, a
number of other factors could lead to fluctuations in quarterly and annual
operating results, including:

         o      order cancellations or reschedulings by customers

         o      reduced bookings or product returns by key customers

         o      changes in distribution arrangements

                                       8
<PAGE>

         o      intellectual property developments

         o      failure to win new design projects

         o      problems with product quality

         o      litigation

         o      possible acquisitions

         o      problems in obtaining adequate raw materials on a timely basis

         o      the loss of key personnel

         Unfavorable changes in the above or other factors have in the past and
may in the future adversely affect our operating results. In addition, during
periods of industry overcapacity and declining selling prices, customer orders
are not generally made as far in advance of the scheduled shipment date as
during periods of capacity constraints and we have experienced an increasing
reliance on orders placed and shipped within the same month. During, industry
downturns, we experience lower levels of backlog, which in turn reduces our
management's ability to forecast production levels, revenues and margins.

         We face intense competition in our core product lines as well as in
emerging applications from both large integrated manufacturers and smaller niche
companies

         The semiconductor industry is intensely competitive and we face
significant competition in each of our product lines. Some of our competitors
are large integrated manufacturing groups that compete with us in most of our
product lines. A few of these large companies have substantially greater
financial and other resources than we do. As a result, these companies may be
able to invest more than we can afford in research and development, in the
construction of large-scale, advanced, cost effective manufacturing plants and
in the marketing of products, and this may adversely affect our ability to take
advantage of potentially profitable business opportunities. Such large
competitors include:

         o      Advanced Micro Devices

         o      Agere Systems

         o      Analog Devices

         o      Atmel

         o      Broadcom

         o      Fujitsu

         o      Hitachi

         o      Infineon Technologies

         o      Intel

         o      LSI Logic

         o      Matsushita

         o      Mitsubishi Electric Corporation

         o      Motorola

         o      National Semiconductor

         o      Nippon Electric Company

                                       9
<PAGE>

         o      ON Semiconductor

         o      Philips Semiconductors

         o      Samsung

         o      Texas Instruments

         o      Toshiba

         In addition, we are facing increased competition from smaller niche
companies that specialize in certain product lines and who may decide to invest
more than we do in research and development, manufacturing and marketing of such
selected products. These competitors include design houses, many of which use
semiconductor foundry companies that produce high volume products and may offer
competitive pricing. These foundry companies have expanded significantly in
recent years, particularly in Asia. Other smaller niche competitors include
manufacturers of standard semiconductors, integrated circuits for specific
applications and fully customized integrated circuits, including both chip and
board-level products. In addition, some of our customers have developed their
own integrated circuit products and foundry operations.

         Certain of our competitors have increased their focus on products that
compete with our products

         In recent years, some of our competitors have redirected their
marketing focus and manufacturing capacity toward products that compete with our
products. We believe increased focus by our competitors in our core product
markets is generating greater pricing pressure, increased competition for market
share in the serviceable available market, and a generally more challenging
market environment for us. In addition, as new products are developed we will
face significant competition in each of these markets. We cannot guarantee that
we will be able to maintain or establish a strong market position in all of our
product markets.

         Because we have our own manufacturing facilities, our capital needs are
high compared to competitors who do not produce their own products, and they
remain high during industry downturns

         As a result of our strategic choice to maintain control of our advanced
proprietary manufacturing technologies to serve our customer base and develop
our strategic alliances, we require significant amounts of capital to build,
expand, modernize and maintain our facilities. Some of our competitors, however,
do not manufacture their own products, and therefore do not require significant
capital expenditures for their facilities. Our capital expenditures totaled $0.9
billion in 1998, $1.3 billion in 1999 and $3.3 billion in 2000. Due to the
current market situation, we have reduced our capital expenditure forecast for
2001 from approximately $2.5 billion to approximately $1.9 billion. However, we
expect to continue to invest significantly in the coming years as the
requirements of new technologies increase the cost of production equipment,
although we intend to modulate such investments in line with market
requirements. We will continue to monitor our level of capital spending, taking
into consideration factors such as trends in the semiconductor market and
capacity utilization.

         The semiconductor industry also requires heavy commitments of funds for
research and development necessary to keep up with the rapid pace of
technological change and to consistently develop innovative, performing and
cost-effective products. We intend to continue to increase research and
development expenditures in the future, although not necessarily as a percentage
of net revenues.

         We could need additional funding in the coming years

         At December 31, 2000, we had a negative net financial position (total
debt, net of cash, cash equivalents and marketable securities) of $511.2
million. As the cost of new manufacturing facilities is increasing, due to the
complexity of advanced sub-micron technology and required manufacturing
equipment, we may expand or upgrade capacity based on market conditions. In that
event, or if we proceed with acquisitions, we may incur additional indebtedness,
which could increase our interest costs and adversely affect our results. In
such circumstances, we may need to issue additional debt or equity, or both.

         Our manufacturing processes are highly complex, costly and potentially
vulnerable to impurities and disruptions that can significantly increase our
costs and delay product shipments to our customers


                                       10
<PAGE>

         Our manufacturing processes are highly complex, require advanced and
increasingly costly equipment and are continuously being modified in an effort
to improve yields and product performance. Impurities or other difficulties in
the manufacturing process can lower yields, interrupt production or result in
losses of products in process. As system complexity has increased and sub-micron
technology has become more advanced, manufacturing tolerances have been reduced
and requirements for precision have become even more demanding. Although in the
past few years we have significantly enhanced our manufacturing capability in
terms of efficiency, precision and capacity, we have from time to time
experienced production difficulties that have caused delivery delays and quality
control problems, as is common in the semiconductor industry. We cannot
guarantee that we will be able to increase the capacity, efficiency or precision
of our manufacturing capabilities in the future to the same extent as in the
past. We might also experience production difficulties in the future. In
addition, during past periods of high revenue growth for us, our manufacturing
facilities have operated at high capacity, which has led to production
constraints.

         As is common in the semiconductor industry, we have from time to time
experienced difficulty in ramping up production at new facilities or effecting
transitions to new manufacturing processes. As a result, we have suffered delays
in product deliveries or reduced yields. In the future, we might face:

         o      construction delays

         o      delays in ramping up production at new facilities or on new
                lines, in upgrading or expanding existing facilities, or in
                changing our process technologies

         o      interruptions in production

         o      delivery delays

         o      manufacturing problems in achieving acceptable yields

         o      capacity constraints

         o      contamination or fires, storms, earthquakes or other acts of
                nature

the impact of which is exacerbated during a period of industry constraint.

         In addition, our development of fabrication facilities that include
200mm or 300mm capabilities, or which require advanced technologies has
increased the potential for losses associated with production difficulties,
imperfections, or other causes of defects. If production is interrupted at a
manufacturing facility, we may not be able to shift production to other
facilities on a timely basis or customers may decide to purchase products from
another supplier. In either case the loss of revenues and impact on our
relationships with our customers could be significant. Our operating results
could also be adversely affected by the increase in fixed costs and operating
expenses related to increases in production capacity if revenues do not increase
commensurately.

         We may not be able to increase capacity to meet additional demand,
which could adversely affect our ability to take advantage of profitable
business opportunities

         Our ability to increase capacity in response to increasing customer
demand will be an important factor in our future profitability. To increase
capacity, we may need to expand or modernize our manufacturing facilities, which
may require significant amounts of capital and time to accomplish. In addition,
we are dependent upon suppliers of semiconductor manufacturing equipment to
provide us with the necessary equipment. During periods of increased demand,
these suppliers may not be able to provide such equipment on a timely basis. As
a result, we may lose opportunities to provide new products or greater volumes
of products to customers and the associated revenues.

         In a period of market downturn, we may face overcapacity in some of our
older fabrication facilities

         In a period of market downturn, we may have overcapacity, particularly
in our older fabrication facilities that use mature process technology. We, like
other semiconductor manufacturers, could have mature fabrication facility
capacity being only partially used. This may affect our cost of operations if we
are unable to simultaneously and proportionately cut our manufacturing costs or
make other necessary savings in due time.

                                       11
<PAGE>

         If our outside wafer suppliers fail to perform, this could adversely
affect our ability to exploit growth opportunities

         In 2000, to meet anticipated requirements for HCMOS wafers, we used
outside suppliers, or foundries, for the supply of up to 15% of our requirements
for these wafers. We do not intend to increase our reliance on front-end
manufacturing through external foundries beyond this level. In fact, in a period
of market downturn, our reliance on such suppliers may decrease. For example, in
the first quarter 2001, they represented only 9% of our wafer requirements,
compared to an average of 11% in the year 2000. However, when our markets grow,
we may face capacity constraints and we expect to continue to rely on
third-party wafer suppliers without having the same degree of management control
and supervision over their operations as we do over our own. If these suppliers
experience manufacturing difficulties, delays, or reduced yields, our results of
operations and ability to satisfy customer demand could suffer. In addition,
purchasing rather than manufacturing these products may adversely affect our
gross profit margin if the purchase costs of these products are higher than our
own manufacturing costs.

         Our common share price and operating results may be negatively affected
by potential acquisitions

         Our growth to date had primarily been organic. In 1999, however, we
made three acquisitions: the Peripheral Technology Solutions group from Adaptec
for a purchase price of approximately $72 million, Vision Group plc for a
purchase price of approximately $41 million and Arithmos for a purchase price of
approximately $42 million. In 2000 we acquired from Nortel Networks its
semiconductor business including a 150mm manufacturing facility located in
Ottawa, Canada, under the terms of a transaction which could involve a payment
of up to $100 million. In September 2000, we acquired the assets and business of
Waferscale Integration, Inc. for approximately $78 million. In December 2000, we
announced the acquisition of Portland Group Inc. (PGI), a vendor of compilers
and software developments tools to the high-performance parallel computing
market, for approximately $18 million. In January 2001, we announced the
acquisition of Ravisent's consumer electronics business for approximately $56
million, which transaction closed in March 2001. We may, from time to time,
consider making selected additional acquisitions that we believe would
complement or expand our existing business. We may pay for these acquisitions
with cash, our common shares or both. These acquisitions, if they occur, may
have a dilutive effect for existing shareholders and, whether they are paid for
in cash or common shares, may negatively affect our common share price. In
addition, acquisitions involve a number of risks and if not successful they
could adversely affect our operating results. Announcements concerning potential
acquisitions could be made at any time.

         Our business can be adversely affected by changes in the value of the
U.S. dollar

         A material variation in the value of the U.S. dollar against the
principal European and Asian currencies which have a material impact on us could
result in a favorable impact on our net income in the case of an appreciation of
the U.S. dollar, or a negative impact on our net income if the U.S. dollar
depreciates relative to these currencies. For example, the appreciation
registered by the U.S. dollar in 2000 against the principal European and Asian
currencies (excluding the Japanese yen, which appreciated compared to the U.S.
dollar) resulted in a favorable impact on results of operations for 2000,
because of the favorable impact on cost of sales and operating expenses. In
addition, the balance sheet impact of translation adjustments has been, and may
be expected to continue to be, material from period to period. Our policy is to
monitor and cover a portion of our exchange rate exposure, and we manage our
operations to mitigate, but not eliminate, the positive or negative impact of
exchange rate fluctuations.

         Our controlling shareholders' interests may conflict with your
interests

         STMicroelectronics Holding II B.V. ("ST Holding II"), a wholly owned
subsidiary of ST Holding N.V. ("ST Holding"), owns in excess of 40% of our
outstanding common shares and is effectively in a position to control actions
that require shareholder approval, including corporate actions and the election
of the Supervisory Board and the Managing Board. As permitted by our articles of
association, the Supervisory Board has specified further selected actions by our
Managing Board that require the approval of the Supervisory Board.

         ST Holding is 50% owned by a French shareholder that is indirectly
controlled by the French government and 50% owned by an Italian shareholder in
whom the Italian government holds approximately 37% of the share capital and
retains special powers to approve or determine certain corporate actions. These
French and Italian shareholder groups of ST Holding have entered into a
shareholders agreement which enables each of them to designate three members of
our Supervisory Board and includes provisions requiring the approval of the
supervisory

                                       12
<PAGE>

board of ST Holding for actions by ST Holding, us and our subsidiaries. Such
shareholders agreement also contemplates that equilibrium will be maintained in
the levels of research and development and related expenditures between France
and Italy.

         The shareholders of FT1CI (the holding company for the two indirect
French shareholders of ST Holding) also have entered into a separate
shareholders agreement that in effect requires the approval of the board of
directors of each such company before members of our Supervisory Board appointed
by the group of French shareholders may approve specified actions to be taken by
ST Holding, ST Holding II, us or our subsidiaries. In addition, as is the case
with other companies controlled by the French government, certain Ministries of
The Republic of France may veto any decision taken by the board of directors of
FT1CI. These requirements for the prior approval of various actions to be taken
by us and our subsidiaries may give rise to a conflict of interest between our
interests and your interests, on the one hand, and the interests of the
individual shareholders approving such actions, on the other, and may result in
a delay in the ability of our Managing Board to respond as quickly as may be
necessary in the rapidly changing environment of the semiconductor industry.
Such approval process is subject to the provisions of Dutch law requiring
members of the Supervisory Board to act independently in supervising our
management.

         In addition, our indirect shareholders, their affiliates and we may
have contractual and other business relationships and may engage in significant
transactions from time to time. Although it is anticipated that any such
transactions and agreements will be on terms no less favorable to us than we
could obtain in comparable contracts with unaffiliated third parties, conflicts
of interest may arise between us and our indirect shareholders and their
affiliates in a number of circumstances.

         Our shareholder structure and our preference shares may deter a change
of control

         On May 31, 1999, our shareholders at the annual general meeting
approved the creation of up to 180,000,000 preference shares. Pursuant to the
3-for-1 stock split effected in May 2000, the number of such preference shares
has increased to 540,000,000. These preference shares entitle a holder to full
voting rights at any meeting of shareholders and to a preferential right to
dividends. On May 31, 1999, we agreed, in order to protect ourselves from a
hostile takeover or other similar action, to enter into an option agreement with
ST Holding II, which provides that up to 540,000,000 preference shares shall be
issued to ST Holding II upon its request and subject to the adoption of a
resolution of our Supervisory Board giving its consent to the exercise of the
option and upon payment of at least 25% of the par value of the preference
shares to be issued. The option is contingent upon ST Holding II retaining at
least 33% of our issued share capital. The preference shares, if issued, would
have priority with respect to dividends and distributions upon liquidation over
the common shares. The effect of the preference shares may be to deter potential
acquirors from effecting an unsolicited acquisition resulting in a change of
control. In addition, any issuance of additional capital within the limits of
our authorized share capital, as approved by our shareholders, is subject to the
approval of our Supervisory Board and of the Supervisory Board of ST Holding
(the entity which controls the entire share capital of ST Holding II).

         Substantial sales of our common shares into the market could cause the
market price of our common shares to drop significantly

         As of December 31, 2000, 889,881,287 of our common shares were
outstanding, not including (i) common shares issuable under our various employee
stock option plans or employee share purchase plans, or (ii) common shares
issuable upon conversion of our outstanding convertible debt securities.
Substantial sales of existing shares of our common shares by existing
shareholders, or newly issued shares or convertible debt securities by us, could
cause the market price of our common shares to drop significantly. The timing
and size of any future primary or secondary offerings will depend upon a variety
of factors, including, in particular, market conditions.

         The shareholders of ST Holding entered into an agreement on August 31,
1999 pursuant to which they agreed to maintain their interest at least 40% of
our share capital and voting rights until at least December 31, 2000. ST Holding
has informed us that its shareholders have not extended such agreement.
Therefore, we cannot exclude the possibility that the percentage of our common
stock and of our voting rights held by ST Holding may change at any time. Any
such transaction, or publicity concerning such a potential transaction, could
affect the market price of our common shares and cause the market price of our
common shares to drop significantly. See "Item 7: Major Shareholders and Related
Party Transactions - Major Shareholders."

                                       13
<PAGE>

         Disruptions in our relationships with any one of our key customers
could adversely affect our results of operations

         We have several large customers, some of whom have entered into
strategic alliances with us. In 2000, our largest customer was Nokia and it
accounted for approximately 13% of net revenues, and our top ten customers
accounted for approximately 47% of net revenues. We cannot guarantee that our
largest customers will continue to book the same level of sales with us that
they have in the past. Many of our key customers operate in cyclical businesses
that are also highly competitive, and their own demands and market positions may
vary considerably. Our customers have in the past, and may in the future, vary
order levels significantly from period to period. In addition, approximately 18%
of our net revenues were made through distributors in each of 1998, 1999 and
2000. We cannot guarantee that such customers or distributors, or any other
customers, will continue to place orders with us in the future at the same
levels as in prior periods. If we were to lose one or more of our customers or
distributors, or if any key customer or distributor were to reduce its bookings,
increase its product returns or fail to meet its payment obligations, our
operating results could be adversely affected. If orders are canceled, we may
not be able to resell products previously made or require the customers who have
ordered these products to pay for them.

         We depend on patents to protect our rights to our technology

         We depend in part on patents and other intellectual property rights
covering our products and their design and manufacturing processes. We intend to
continue to seek patents on our inventions and manufacturing processes. The
process of seeking patent protection can be long and expensive, however, and we
cannot guarantee that we will receive patents from currently pending or future
applications. Even if patents are issued, they may not be of sufficient scope or
strength to provide meaningful protection or any commercial advantage. In
addition, effective patent, copyright and trade secret protection may be
unavailable or limited in some countries. Competitors may also develop
technologies that are protected by patents and other intellectual property and
therefore either be unavailable to us or be made available to us subject to
adverse terms and conditions. We may not be able to obtain licenses or other
rights to necessary intellectual property on acceptable terms.

         Because patent and other intellectual property litigation is costly and
unpredictable, our attempts to protect our rights or to defend ourselves against
claims made by others could impose high costs and risks on our business

         Litigation that could demand financial and management resources may be
necessary to enforce our patents or other intellectual property rights. Also, we
may become involved in costly litigation brought against us regarding patents,
mask works, copyrights, trademarks or trade secrets. If we cannot obtain
licenses or other intellectual property rights, or if we have litigation
expenses or judgments that are contrary to us, our results of operations or
financial condition could be hurt. We have from time to time received, and may
in the future receive, communications alleging possible infringement of patents
and other intellectual property rights of others. Regardless of the validity or
the successful assertion of such claims, we could incur significant costs with
respect to the defense thereof which could have a material adverse effect on our
results of operations or financial condition.

         We have benefitted from state funding in France and Italy which might
become unavailable, and as a result our costs could increase

         Like many other semiconductor manufacturers operating in Europe, we
have had the benefit of governmental funding for research and development
expenses, industrialization costs (which include some of the costs incurred to
bring prototype products to the production stage) and capital investment as well
as low-interest financing. As a result of our history, our research and
development facilities and manufacturing activities are concentrated mainly in
France and Italy, and the substantial majority of our state funding has been
derived from national and European Union programs in these countries. We have
entered into funding agreements with France and Italy, which set forth the
parameters for state support to us under selected national programs. These
funding agreements require compliance with European Union ("EU") regulations and
approval by EU authorities and annual and project-by-project reviews and
approvals. Recently, the EU confirmed our right to receive Euro143 million
under programs funded by the Italian government in accordance with the Italian
law for the development of the south of Italy.

                                       14
<PAGE>

         The EU adopted guidelines in 1995 seeking to limit state aid for
research and development activities routinely performed in the normal course of
business. We cannot guarantee that we will continue to benefit from state aid
for research and development, that such aid will not be revoked or discontinued,
or that material aid granted by a government for research and development will
not be reviewed or challenged by the EU.

         We rely on receiving funds allocated by state governments on a timely
basis. However, funding of programs in France and Italy is subject to annual
appropriation. If these governments were unable to provide anticipated funding
on a timely basis or if existing government-funded programs were curtailed or
discontinued, this could have a material adverse effect on our business,
operating results and financial condition. From time to time we have experienced
delays in the receipt of funding under these programs. As the availability and
timing of such funding are substantially outside our control, we cannot
guarantee that we will continue to benefit from such government support, that
funding will not be delayed from time to time, that sufficient alternative
funding would be available if necessary or that any such alternative funding
would be provided on terms as favorable to us as those previously provided. In
addition, there can be no assurance that the funding granted to us may not be
revoked or challenged or discontinued in whole or in part by any competent state
or European authority, or competent administrative or judicial body, until the
legal time period for challenging or revoking such funding has elapsed.

         Because we are a Dutch company subject to the corporate law of The
Netherlands, you might have difficulty protecting your interests in a court of
law or otherwise

         The corporate affairs of STMicrolectronics NV are governed by our
articles of association and by the laws governing corporations incorporated in
The Netherlands. The corporate affairs of each of the consolidated subsidiaries
of STMicroelectronics NV are governed by the articles of association and by the
laws governing corporations incorporated in the jurisdiction in which such
consolidated subsidiary is incorporated. Your rights and the responsibilities of
members of our Supervisory Board under Dutch law are not as clearly established
as under the rules of some U.S. jurisdictions. Therefore, you may have more
difficulty in protecting your interests in the face of actions by our
management, members of our Supervisory Board or our controlling shareholders
than you would have if we were incorporated in the United States. Under our
articles of association, when our annual accounts are adopted by the general
meeting of shareholders, the members of our Managing Board and Supervisory Board
are discharged from liability for their actions during the financial year
concerned, unless a reservation is made by the general meeting of shareholders.
This is without prejudice to the provisions of Dutch law, including provisions
relating to liability of members of supervisory boards and managing boards upon
bankruptcy of a company pursuant to articles 2:138 and 2:149 of the Dutch Civil
Code.

         Our executive offices and a substantial portion of our assets are
located outside the United States. In addition, ST Holding II and most members
of our Managaging and Supervisory Boards are residents of France, Italy,
Switzerland and jurisdictions other than the United States and Canada. As a
result, it may be difficult for you to effect service within the United States
or Canada upon us, ST Holding II, members of our Managing or our Supervisory
Boards. It may also be difficult for you to enforce outside the United States or
Canada judgments obtained against such persons in U.S. or Canadian courts, or to
enforce in U.S. or Canadian courts judgments obtained against such persons in
courts in jurisdictions outside the United States or Canada. This could be true
in any legal action, including actions predicated upon the civil liability
provisions of the U.S. securities laws. In addition, it may be difficult for you
to enforce, in original actions brought in courts in jurisdictions located
outside the United States, liabilities predicated upon the U.S. securities laws.

         Removal of our common shares from the CAC 40 could adversely affect the
price of our common shares

         Our common shares have been included in the CAC 40 index on Euronext
Paris since November 12, 1997. However, our common shares could be removed from
the CAC 40, which could adversely affect the market price of our common shares.

Item 4.  Information on the Company

History and Development of the Company

         STMicroelectronics N.V (formerly known as SGS-Thomson Microelectronics
N.V.). was formed in 1987 by the combination of the semiconductor business of
SGS Microelettronica (then owned by Societa Finanziaria Telefonica (S.T.E.T.) an
Italian corporation) and the non-military business of Thomson Semiconducteurs
(then owned by the former Thomson-CSF, now Thales, a French corporation) whereby
each company contributed their

                                       15
<PAGE>

respective semiconductor businesses in exchange for a 50% interest in
STMicroelectronics. We were incorporated in 1987, and our length of life is
indefinite. We have our corporate legal seat and are domiciled in Amsterdam, and
are organized under the laws of The Netherlands. We have our headquarters and
executive offices located in the vicinity of Geneva Airport at Route de Pre-Bois
20, ICC Bloc A, 1215 Geneva 15, Switzerland. Our main telephone number is
(41-22) 929-2929. We also maintain an administrative center at Technoparc du
Pays de Gex - B.P. 112, 165, rue Edouard Branly, 01637 Saint-Genis Pouilly,
France; telephone number (33-4) 5040-2640. STMicroelectronics N.V. is our parent
company and we also conduct our operations through our consolidated
subsidiaries.

         For information on our principal capital expenditures and divestitures,
see "Item 5: Operating and Financial Review and Prospects."

Business Overview

         We are a global independent limited liability semiconductor company
that designs, develops, manufactures and markets a broad range of semiconductor
integrated circuits and discrete devices used in a wide variety of
microelectronic applications, including automotive products, computer
peripherals, telecommunications systems, consumer products, industrial
automation and control systems. According to Dataquest-Gartner Group, we were
the sixth largest semiconductor company worldwide in 2000 based on sales.
According to the latest industry sources released in 2001, STMicroelectronics in
2000 was the world's leading supplier of telecom ICs and EPROM memories, and the
second leading supplier of total analog and mixed signal ICs, EEPROM memories,
NVRAM memories, power diodes and thyristors. According to published industry
data, we are the leader for differentiated and mixed signal ASSP ICs, digital
decoder ICs, disk drive ICs, special automotive ICs and the second leading
producer for ADSL kits. We currently offer more than 3,000 main types of
products to approximately 800 direct customers. Major customers include Alcatel,
Bosch, DaimlerChrysler, Delco, Echostar, Ericsson, Gemplus, Hewlett-Packard,
Marelli, Matsushita, Nokia, Nortel Networks, Pace, Philips, Pioneer, Samsung,
Schlumberger, Scientific Atlanta, Seagate Technology, Siemens, Sony, Thomson
Multimedia and Western Digital. We also sell our products through distributors.

         We offer a diversified product portfolio and develop products for a
wide range of market applications to reduce our dependence on any single
product, industry or application market. Within our diversified portfolio, we
have focused on developing products that exploit our technological strengths in
creating customized, system-level solutions with substantial analog and
mixed-signal content. Products include differentiated ICs (which we define as
being our dedicated products, semicustom devices and microcontrollers) and
analog ICs (including mixed-signal ICs), the majority of which are also
differentiated ICs. As a leading provider of differentiated ICs, we have
developed close relationships with customers, resulting in early knowledge of
their evolving requirements and opportunities to access their markets for other
products. Differentiated ICs, which are less vulnerable to competitive pressures
than standard commodity products, accounted for approximately 63% of our net
revenues in each of 2000 and 1999. We also target applications that require
substantial analog and mixed-signal content and can exploit our system level
expertise. All analog ICs accounted for approximately 49% of our 2000 net
revenues compared to approximately 51% in 1999, while discrete devices accounted
for approximately 10% of our net revenues in 2000 compared to approximately 12%
in 1999.

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

         Our products are organized into the following principal groups:

         o      Telecommunications, Peripherals and Automotive

                                       16
<PAGE>

         o      Consumer and Microcontroller

         o      Memory Products

         o      Discrete and Standard ICs

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

         The tables below set forth information on our net revenues by product
group and by geographic region:

<TABLE>
<CAPTION>

                                                                          Year ended December 31,
                                                            --------------------------------------------------------
                                                              1996         1997         1998       1999       2000
                                                            --------     --------     --------   --------   --------
                                                                      (in millions except percentages)
<S>                                                         <C>          <C>          <C>        <C>        <C>
Net Revenues by Product Group:(1)
   Telecommunications, Peripherals and Automotive(1)        $1,614.0     $1,606.9     $1,855.2   $2,305.5   $3,481.7
   Discrete and Standard ICs(1).....................           778.1        839.5        816.7      927.9    1,213.1
   Memory Products..................................           736.8        708.6        659.6      835.9    1,552.9
   Consumer and Microcontrollers(1).................           870.2        738.8        805.8      881.7    1,438.9
   New Ventures Group and Others(2).................           123.3        125.4        110.5      105.3      126.6
                                                            --------     --------     --------   --------   --------
       Total........................................        $4,122.4     $4,019.2     $4,247.8   $5,056.3   $7,813.2
                                                            ========     ========     ========   ========   ========

Net Revenues by Geographic Region: (3)
   Europe...........................................        $1,788.5     $1,753.3     $1,768.9   $1,833.6   $2,629.2
   North America....................................           903.0        899.1        937.3    1,156.1    1,843.0
   Asia Pacific.....................................         1,125.7      1,065.8      1,247.9    1,658.2    2,614.7
   Japan............................................           228.2        214.5        180.7      239.7      402.4
   Emerging Markets(3)..............................            77.0         86.5        113.0      168.7      323.9
                                                            --------     --------     --------   --------   --------
       Total........................................        $4,122.4     $4,019.2     $4,247.8   $5,056.3   $7,813.2
                                                            ========     ========     ========   ========   ========

                                                                     (as a percentage of net revenues)
Net Revenues by Product Group:(1)
   Telecommunications, Peripherals and Automotive(1)          39.1%         40.0%        43.6%      45.6%      44.6%
   Discrete and Standard ICs(1).....................          18.9          20.9         19.2       18.4       15.5
   Memory Products..................................          17.9          17.6         15.5       16.5       19.9
   Consumer and Microcontrollers(1).................          21.1          18.4         19.0       17.4       18.4
   New Ventures Group and Others(2).................           3.0           3.1          2.7        2.1        1.6
                                                               ---           ---          ---        ---        ---
       Total........................................         100.0%        100.0%       100.0%     100.0%     100.0%
                                                             ======        ======       ======     ======     ======

Net Revenues by Geographic Region: (3)
   Europe...........................................          43.4%         43.6%        41.6%      36.3%      33.6%
   North America....................................          21.9          22.4         22.1       22.9       23.6
   Asia Pacific.....................................          27.3          26.5         29.4       32.8       33.5
   Japan............................................           5.5           5.3          4.3        4.7        5.2
   Emerging Markets(3)..............................           1.9           2.2          2.6        3.3        4.1
                                                               ---           ---          ---        ---        ---
       Total........................................         100.0%        100.0%       100.0%     100.0%     100.0%
                                                             ======        ======       ======     ======     ======
</TABLE>

----------
(1)    In January 1999, we implemented organizational changes to better orient
       our product groups to end-use applications. As a result, net revenues
       have been restated for prior periods to reflect these changes. In
       addition, the former Dedicated Products Group has become the
       Telecommunications, Peripherals and Automotive Groups, while the former
       Programmable Products Group has become the Consumer and Microcontrollers
       Groups.
(2)    Includes revenues from sales of subsystems and other products and from
       the New Ventures Group, which was created in May 1994 to act as a center
       for our new business opportunities.
(3)    Revenues 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.  Net revenues by
       geographic region have been reclassified to reflect the creation of
       Region Five in January 1998 which includes emerging markets such as South
       America, Africa, Eastern Europe, the Middle East and India. Prior years
       have been restated to reflect this reclassification. In the fourth
       quarter of 2000, Region Five changed its name to become the Emerging
       Markets region.

                                       17
<PAGE>

         We have received many awards. We were the only semiconductor company to
receive a AAA rating in eco-efficiency from Innovest Strategic Value Advisors
and were recipients of both the EPA Climate Protection Award in 1999 and the
Akira Inoue Award for Outstanding Achievement in Environmental, Health and
Safety in the Semiconductor Industry in December 2000. In recent years, our
regional subsidiaries have also received several prestigious awards: the
prestigious Malcolm Baldrige National Quality Award in the U.S., the Singapore
Quality Award, the Moroccan National Quality Award, the EPA Climate Protection
Award (U.S.), the Malaysian Prime Minister Quality Award and the Malta Quality
Award. In 1997, we received the European Quality Award for Business Excellence
in the category of large businesses awarded by the European Foundation for
Quality Management. These awards illustrate the success of our unified Total
Quality and Environmental Management philosophy on four continents. Total
Quality and Environmental Management or "TQEM" defines a common set of
objectives and performance measurements for employees in all geographic regions,
at every stage of product design, development and production for all product
lines. See "--Strategy" and "--Description of Property--Manufacturing."

Strategy

         The key elements of our strategy are set forth below.

         Broad Product Portfolio. We offer a diversified product portfolio and
develop products for a wide range of market applications to reduce our
dependence on any single product, industry or application market. Within our
diversified portfolio, we have focused on developing products that exploit our
technological strengths in creating customized, system-level solutions with
substantial analog and mixed-signal content. Products include differentiated ICs
(which we define as being our dedicated products, semicustom devices and
microcontrollers) and analog ICs (including mixed-signal ICs), the majority of
which are also differentiated ICs. As a leading provider of differentiated ICs,
we have developed close relationships with customers, resulting in early
knowledge of their evolving requirements and opportunities to access their
markets for other products. Differentiated ICs, which are less vulnerable to
competitive pressures than standard commodity products, accounted for
approximately 63% of our net revenues in each of 2000 and 1999 and 62% in 1998.
We also target applications that require substantial analog and mixed-signal
content and can exploit our system level expertise. Analog ICs accounted for
approximately 49% of our 2000 net revenues compared to approximately 51% in 1999
and 50% in 1998, while discrete devices accounted for approximately 10% of our
net revenues in 2000 compared to approximately 12% in 1999 and 13% in 1998. In
general, differentiated ICs, in particular analog ICs, have experienced less
volatility in sales growth rates and average selling prices than the overall
semiconductor industry.

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

         Total standard products (including all nonvolatile memories, discrete
devices, Smartcard ICs and all standard logical and linear ICs) represented
approximately 37% of our sales in 2000 and, in management's view, increased
sales of these products represent an opportunity to improve cash flow because
the manufacture of standard products requires moderate capital investment and to
saturate existing mature fabrication facilities.

         Broad Range of Process and Design Technologies. We intend to continue
to exploit our expertise and experience with a wide range of process and design
technologies to develop our capabilities. We are committed to continuing to
increase research and development expenditures in the future as well as
continuing to develop alliances with other semiconductor companies and suppliers
of software development tools. Technological advances in the areas of transistor
performance and interconnection technologies are being developed through our
logic products and semicustom devices. We continually work with key suppliers to
develop advanced and standardized design methodologies for our CMOS, mixed
signals and nonvolatile memories processes as well as libraries of
macrofunctions and megafunctions for many of our products, and are focusing on
improving our concurrent engineering practices to better coordinate design
activities and reduce overall time-to-market. We are also working closely with
many of our key suppliers to develop easy-to-use design tools for specific
applications. Alliances with other semiconductor manufacturers are generally
designed both to permit costly research and development and manufacturing
resources to be shared to mutual advantage for joint technology development and
to reduce time to market.

                                       18
<PAGE>

         Leading Global Customer Base with Focus on Strategic Alliances. We work
with our key customers to identify evolving needs and new applications and to
develop innovative products and product features. We also seek to use our access
to key customers as a supplier of application-specific products to establish
ourselves as a supplier across a broad range of products. Alliances with
customers allow us and our customers to share some of the risks of product
development and the customers to gain access to our process technologies and
manufacturing infrastructure. We have targeted alliances with customers in each
of our key application markets of telecommunications, automotive, consumer and
computer. We have established alliances with Alcatel, Bosch, Hewlett-Packard,
Marelli, Nokia, Nortel Networks, Pioneer, Seagate Technology, Thomson Multimedia
and Western Digital, among others. In establishing these alliances, we have also
aimed to cover our key geographical markets.

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

         Balanced Sales by Application and Region in High Growth Market
Segments. We have developed a strong product portfolio across major application
markets including computer peripherals, wireless communications, digital
consumer electronics, Smartcards, automotive and power management. While we are
consolidating our position in our established high volume businesses, including
switching, engine management, car safety, traditional analog TV, VCR, computer
peripherals, power and industrial and consumer appliances, we have also been
investing research and development and design resources to develop the next
generation of high growth applications, such as smartcards, portable computing,
digital consumer (DVD, new generations of set-top boxes, digital TV, digital
cameras and MP3 digital music players), wireless communications (digital
cellular phones), data transport (fiber optic ICs and voice over IP, known as
VoIP), Internet (xDSL), new automotive products (car multimedia) and new
generations of mass storage devices. We also maintain a geographically diverse
customer base across a broad range of market applications.

         Pervasive TQEM Culture. We are fostering a corporate-wide TQEM culture
that defines a common set of objectives and performance measurements for
employees in all geographic regions, at every stage of product design,
development, production and consignment for all product lines. TQEM in our
company is based on five key principles: management commitment, employee
empowerment, continuous improvement, management by fact and customer focus. TQEM
has become an integral part of our culture and it is designed to develop a
self-directed work force with a common set of values, objectives and
problem-solving processes. Since 1987, we have continually improved average AIQ
(electrical) status levels. Most of our manufacturing facilities have been
certified to conform to ISO international quality standards and Eco Management
and Audit Scheme ("EAMS"). Several major customers, including Hewlett-Packard,
Nokia, Sharp, DaimlerChrysler and Sanyo have recognized our commitment to
quality and have honored us with quality awards in the recent past. Also in
recent years, several prestigious awards have been accorded to our regional
subsidiaries, underscoring our long-standing commitment to business excellence:
the prestigious Malcolm Baldrige National Quality Award in the U.S., the
Singapore Quality Award, the Moroccan National Quality Award, the EPA Climate
Protection Award (U.S.), the Malaysian Prime Minister Quality Award, and the
Malta Quality Award. In 1997 the European Quality Award for Business Excellence
in the category of large businesses was awarded to us by the European Foundation
for Quality Management. These awards illustrate the success of our unified Total
Quality and Environmental Management philosophy on four continents.

                                       19
<PAGE>

         Pioneer in System-on-chip. Since our inception, we have leveraged our
know-how of a broad range of industries to integrate different system functions
on a single chip, pioneering the trend towards system evolutions on silicon and
superintegration. A modular approach is being utilized to develop options to the
main manufacturing processes and blocks of intellectual property; strategic
partnerships are the main lever for acquisitions of the system know-how to be
embedded on the chip. We currently supply highly integrated products in all our
main applications, and particularly in high volume domains such as hard disk
drives (disk controllers), set-top boxes and Digital video drives.

         To date, our growth has been attributable primarily to internal growth.
However, we have recently proceeded with the acquisition of specific assets and
intellectual property, enhancing our expertise in specific business or markets.
In 1999, we acquired Peripheral Technology Solutions Group, a company
specialized in the design of products for the hard disk drive market, of Vision
Group, a leading designer and supplier of CMOS sensors and Arithmos, a company
which designs controller ICs for flat panel displays and LCD monitors. In 2000,
we acquired WSI, a manufacturer of programmable system memory devices, (in
September) and PGI, a vendor of computers and software development tools to the
high performance parallel computer market (in December). In June 2000, we also
acquired from Nortel Networks its semiconductor business, including its design
and manufacturing activity in Ottawa. Furthermore, in March 2001, we completed
the acquisition of Ravisent's consumer electronics business. We may, from time
to time, consider making selected acquisitions of or targeted equity investments
in companies that we believe would complement or expand our existing business.
Announcements concerning potential acquisitions could be made at any time.

         Acquisitions involve a number of risks that could adversely affect our
operating results, including: (i) the diversion of management's attention; (ii)
the assimilation of the operations and personnel of the acquired companies;
(iii) the assumption of potential liabilities, disclosed or undisclosed,
associated with the business acquired, which liabilities may exceed the amount
of indemnification available from the seller; (iv) the risk that the financial
and accounting systems utilized by the business acquired will not meet our
standards; (v) the risk that the businesses acquired will not maintain the
quality of products and services that we have historically provided; (vi) the
inability to attract and retain qualified management for the acquired business;
and (vii) our inability to retain customers of the acquired entity. There can be
no assurance that (a) we will be able to consummate future acquisitions on
satisfactory terms, if at all, (b) adequate financing will be available for
future acquisitions on terms acceptable to us, if at all, or (c) any operations
acquired will be successfully integrated or that such operations will ultimately
have a positive impact on our business. See "Item 5: Operating and Financial
Review and Prospects -- Liquidity and Capital Resources."

Products and Technology

         We design, develop, manufacture and market a broad range of products
used in a wide variety of microelectronic applications, including
telecommunications systems, computer systems, consumer goods, automotive
products and industrial automation and control systems. Our products include
standard commodity components, full custom devices, semicustom devices and ASSPs
for analog, digital and mixed-signal applications. Historically, we have not
produced DRAMs or x86 microprocessors.

         In 2000, we had four principal products groups, Telecommunications
Peripherals and Automative, Consumer and Microcontroller, Memory Products and
Discrete and Standard ICs. As part of our activities outside the principal
product groups, we also have a New Ventures Group, which identifies and develops
new business opportunities to complement our existing businesses, and a
Subsystem Product Group, which produces subsystems for industrial and other
applications. For a breakdown of net revenues by product group and geographic
region each of the five years ended December 31, 2000, see " - Business
Overview."

         Telecommunications, Peripherals and Automotive Groups

         The Telecommunications Group has two application divisions, and the
Automotive and Peripherals Group has four divisions. The Groups also have two
support divisions (i) digital signal processing and microcontrollers cores and
(ii) digital and mixed analog/digital semi-custom. The Telecommunications,
Peripherals and Automotive Groups are responsible for the design, development
and manufacture of application-specific products using advanced bipolar, CMOS,
BiCMOS mixed-signal and power technologies as well as mixed analog/digital
semicustom devices. The Groups offer complete system solutions to customers in
several application markets. All

                                       20
<PAGE>

of the Groups' products are ASSPs, full-custom or semicustom devices that may
also include DSP and micro-controller cores.

         The Telecommunications, Peripherals and Automotive Groups work closely
with customers to develop application-specific products using our technologies
and manufacturing capabilities. The breadth of our customer and application base
provides us with a source of stability in the cyclical semiconductor market. The
Telecommunications, Peripherals and Automotive Groups particularly emphasize
dedicated ICs for automotive, computer peripherals and industrial application
segments, as well as for communication, computing and networking application
segments.

         The Telecommunications Group has two divisions:

         (i)      Wireline Telecommunications Products. Our wireline
                  telecommunications products are used in telephone sets,
                  modems, subscriber line interface cards (SLICs) for digital
                  central office switching equipment and high-speed electronic
                  and optical communications networks. In the field of broadband
                  networking, the success of our established strategic
                  partnership with Nortel Networks was reinforced by the new
                  agreements that included a commitment for $2 billion in sales
                  to Nortel over three years, and a development agreement
                  covering processes, packages and fundamental IP for high speed
                  optical interfaces, essential components for high-speed
                  optical-fiber network equipment. We also announced our entry
                  into the emerging market for optical switches, by signing a
                  letter of intent with Agilent Technologies for the development
                  and manufacture of innovative optical switch chips.

                  In the area of broadband access, we shipped more than four
                  million ADSL chipsets in 2000. Along with our strategic
                  partner Alcatel, we announced the joint development and
                  promotion of the DMT (Discrete Multi-Tone) modulation
                  technique as a worldwide standard for VDSL at the
                  international regulatory level. We also signed an agreement
                  with Telia AB for the transfer to us of all patent rights in
                  the Zipper-DMT VDSL technology jointly developed by us with
                  Telia.

                  In addition, we announced plans to develop an Enhanced G.Lite
                  ADSL (Asymmetrical Digital Subscriber Line) chipset for the
                  mass market through a joint project with Nortel Networks.

         (ii)     Wireless Telecommunications Products. In wireless
                  telecommunications, we focus our product offerings on cellular
                  phones, pagers and wireless local loop applications, serving
                  the major OEMs in each of these areas with differentiated ICs.
                  Regarding the cellular phone segment, new design wins for
                  radio frequency were achieved in Silicon-Germanium (SiGe)
                  technologies for next generation cellular phones (2.5G and
                  3G). Two leading manufacturers of mobile phones awarded us
                  with development contracts. One was for a multimedia processor
                  chip for next-generation mobile phones, while another leading
                  cellphone maker chose us to supply a radio frequency solution
                  for dual-mode terminals, using 0.35-micron SiGe technology. In
                  addition, we announced an agreement with TTPCom for the
                  development of GSM and GPRS (2.5G) baseband platform chips for
                  the next generation of mobile handsets and mobile Internet
                  devices based on our ST100 DSP core.

                  In addition, in the telecommunications area, Alcatel
                  Microelectronics has agreed to use our innovative ST100 as the
                  preferred DSP core for a variety of system-on-chip solutions
                  for GSM, xDSL, Voice-over-Internet Protocol (VoIP) and other
                  leading-edge technologies.

         The Peripherals and Automotive Group has four divisions:

         (i)      Data Storage. We produce ICs for several data storage
                  applications, specializing in disk drives with advanced
                  solutions for read and write digital channels, controllers,
                  host interfaces, digital power processing and micromachinery.
                  We are working actively on super-integrating these
                  macro-functions into system-on-chip solutions. In September
                  2000, we announced two important additions to our Hard Disk
                  Drive IC portfolio. Aimed at 'dual servo' disk drives where
                  micropositioning will be used to increase drive density, the
                  L6670 Rotational Accelerometer System is a device containing
                  both a micromachined Micro-Electro-Mechanical System (MEMS)
                  sensor plus an interface chip, while the L6660 is a
                  Piezoelectric actuator driver built in 90V BCD technology. We
                  have also been awarded a design win from Seagate for the most
                  advanced

                                       21
<PAGE>

                  system-on-chip solution for high-volume, low-cost hard disk
                  drives. The chip will be the first to integrate the hard disk
                  controller, the new Super10 micro/DSP core and the read/write
                  channel. In addition to delivering first samples of a hard
                  disk controller with embedded DRAM built in 0.18-micron
                  technology and gaining important new design wins for hard disk
                  drive preamplifiers and dedicated power devices for high-end
                  and mobile disk drives, we were chosen by Quantum Technologies
                  to supply a SoC solution for a new hard disk drive. Based on
                  our new Super10 DSP enhanced microcontroller core, the new
                  device will also incorporate a hard disk controller, 4Mbit of
                  embedded dynamic RAM memory and interface functions. We will
                  supply the complete system solution, including firmware. In
                  February 2001, we introduced the world's first single-chip
                  solution for 16x DVD- and 48x CD- ROM drives. Called "Verdi"
                  (STA1000), the new solution integrates an ST10 16-bit
                  microprocessor core, a proprietary digital signal processor
                  core, memories, interfaces and application-specific digital
                  and mixed analog/digital functions.

         (ii)     Printers. We are focusing on inkjet printer components and are
                  an important supplier of pen chips, motor drivers, head
                  drivers, high performance photo quality applications and
                  digital color copiers. We are an important partner of
                  Hewlett-Packard for technology development and manufacturing
                  and are currently developing printer system on chip platforms.
                  Other notable successes in the printer field included
                  contracts with two other leading printer manufacturers to
                  develop system-on-chip solutions with embedded DRAM memory for
                  the 'digital printer engines' used in inkjet printers. With
                  these new contracts, we are now the chosen supplier at three
                  out of the four leading manufacturers. In the first quarter of
                  2001, we won further design wins for both inkjet and laser
                  printer engines and also ramped up production of 0.18-micron
                  printer engines for a very high volume order.

         (iii)    Audio and Automotive Products. Our audio products include
                  audio power amplifiers, audio processors and graphic equalizer
                  ICs. Our automotive products include alternator regulators,
                  airbag controls, antiskid braking systems, ignition circuits,
                  injection circuits, multiplex wiring kits and products for
                  body and chassis electronics, engine management,
                  instrumentation systems and car multimedia. We believe we are
                  the leader in the manufacturing of car radio components, on
                  the basis of sales. We are currently developing solutions for
                  global positioning systems (GPS) and multimedia in the car. In
                  1999, we signed a strategic alliance for car entertainment
                  systems with Pioneer Electronics of Japan. Due to our
                  super-integration know-how, we have successfully expanded our
                  presence beyond Europe to the United States and Japan, further
                  accessing key customers such as Mitsubishi and Denso.

                  In 2000, we announced the world's first automotive grade
                  microcontroller with embedded Flash memory. Optimized for
                  automotive applications, the ST10F168 integrates the ST10
                  16-bit MCU core, 256kbytes of internal Flash memory plus
                  peripherals and RAM. We were awarded a contract to develop a
                  complex system-on-chip with both a powerful DSP - the ST120,
                  based on the ST100 core - and a 32-bit micro core for a new
                  traffic information system being developed by Cue Corporation
                  in the United States. In addition, we began a joint
                  development program with Marelli and Cadence for smart valves
                  for motor control in model year 2005. This program is based on
                  the ST120 DSP/MCU core. We signed an important agreement with
                  Italy's Autostrade for the development of a chipset that will
                  support the European standard for new generation tolling.

                  In 2001, our leading position in the automotive arena was
                  reinforced by the introduction of a new 16-bit
                  automotive-grade microcontroller chip with embedded Flash
                  memory whose performance is guaranteed over the entire
                  automotive temperature range, making it ideal for fast-growing
                  applications such as engine control. In addition, our
                  microcontroller built using 0.18 -micron embedded Flash
                  technology was selected by Siemens for a next generation
                  airbag system.

                  In the audio field, we achieved a major technical milestone
                  with XM Satellite Radio, the satellite radio broadcaster.
                  Following the successful fabrication and testing of XM's
                  custom chips, the devices are now being delivered to XM radio
                  partners for integration into XM satellite-capable radios. In
                  the first quarter 2001, we received an order for one million
                  kits for the WorldSpace satellite radio receivers, following
                  the successful launch of the second satellite.

                                       22
<PAGE>

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

         The Groups also have two support divisions (i) digital signal
processing and microcontroller cores and (ii) digital and mixed analog/digital
semicustom. These two divisions are centers of excellence to develop key
competences in the field of semicustom (digital and analog) as well as in DSP
and microcontrollers cores. We are currently developing superintegrated
solutions using our broad range of technologies (CMOS, BiCMOS, BCD) and our
expertise in microcontrollers/DSP cores, dedicated IC megacells and embedded
memory capability.

         Other important technology deals concluded during the year included the
acquisition of Portland Group Inc. (PGI). PGI is a developer of compilers and
software development tools for the high-performance parallel computing market
and the acquisition of full ownership of PGI's operations substantially
reinforces our strength in embedded DSP system-on-chip solutions for
applications including wireless, wireline, data storage, multimedia and
automotive.

         Consumer and Microcontroller Groups

         The Consumer and Microcontroller Groups (CMG) are responsible for the
design, development and manufacture of microcontrollers, graphic accelerators
and Application Specific Standard Products (ASSP) targeted at high growth
digital consumer applications, including digital set-top boxes, Digital
Versatile Disk (DVD) players, digital cameras and digital TV.

         Through year-end 2000, CMG was organized by system partitionings, with
front-end ICs (reception and demodulation of the video signal), back-end ICs
(decompression and control of the video signal) and micro cores. In the first
quarter 2001, CMG was reorganized by application and regrouped the front-end,
the back-end and the micro cores activities of each application. Two new
divisions have been created: the set-top-box division and the DVD division. The
TV, the Imaging and Display, the Graphics Products and the Microcontroller
divisions are unchanged.

         The Consumer and Microcontroller Groups are divided into the Consumer
Group and the Microcontrollers Group. The Consumer Group is further divided into
five divisions: set-top boxes, DVD, TV, Imaging and Display division and the
Graphics Products division.

         Consumer Group. We consolidated our leadership in digital consumer
applications on the basis of shipments in 2000, particularly for set-top boxes,
DVDs and digital TV, and we shipped more than 30 million MPEG2 decoder ICs
embedding our ST20 32-bit RISC core in 2000.

         (i)      Set-top box. We have expanded our product and customer base
                  introducing solutions for set-top boxes with web-browsing and
                  video recording and time-shifting functionality. We were the
                  only semiconductor company at the USA National Association of
                  Broadcasters show (NAB2000) in Las Vegas to demonstrate
                  advanced Personal Video Recording (PVR) and Hard Disk Drive
                  capability, on our STi5512 product family, in conjunction with
                  NDS Group. We reinforced the market leadership of our STi5500
                  (OMEGA) family of set-top box back-end decoders with the
                  introduction of the STi5518, which retains all of the features
                  of the STi5500 but adds support for Dolby Digital and MP3
                  audio decoding as well as additional logic to ease the
                  connection of hard disk drives, making the device ideal for
                  emerging 'convergence' products that offer features such as
                  pausing and time-shifting of live TV. In addition, we shipped
                  production quantities of our STi5508 OMEGA set-top box chip to
                  customers such as Echostar and major design wins were achieved
                  in the U.S. and Europe for the STV0399, the world's first
                  device to integrate a Zero IF tuner, a multi-standard
                  demodulator (QPSK and 8-PSK) and a Forward Error Correction
                  (FEC) block in a single CMOS chip.

                  We entered into new agreements for expanding our leadership
                  position in digital consumer applications on the basis of
                  sales. Following the 1999 agreement with Scientific Atlanta
                  (SA) on DOCSIS (Data Over Cable System Interface
                  Specification), we strengthened our cooperation with SA to
                  supply key components for the Explorer 2000 and 6000 digital
                  cable set-top boxes. In May

                                       23
<PAGE>

                  2000, we announced a license agreement with France Telecom
                  that gives us worldwide rights to exploit France Telecom's
                  patented Turbo Code Forward Error Correction technology. This
                  allows the information carrying capacity of a communications
                  system to be substantially increased and could dramatically
                  affect the Digital Satellite TV market by significantly
                  increasing the number of TV channels broadcast by existing
                  satellites. In September 2000, we disclosed details of plans
                  with Norwegian company Nera to develop chipsets and related
                  software for providing turnkey interactive broadband solutions
                  for set-top boxes.

         (ii)     DVD. In the field of DVD players, after RCA and Philips, we
                  won designs for DVD and Combo boxes (set-top box plus DVD) in
                  the U.S. and China. Further strengthening our positioning, we
                  introduced in the second quarter 2000 a new DVD decoder/host
                  processor chip, the STi5508, that offers all the functions of
                  the popular STi5505 along with enhanced audio and video
                  features, including a powerful Karaoke processor and MP3
                  decoder. The STi5508 has been designed into DVD drives of
                  major Asian manufacturers. In 2001, following several years of
                  successful cooperation combining Ravisent's DVD software and
                  ST's OMEGA family of DVD decoder processors, we expanded our
                  ability to provide complete DVD system solutions by acquiring
                  the Consumer Electronics business of Ravisent Technologies.

         (iii)    TV. This division addresses both the analog and digital
                  television markets with a wide range of highly integrated
                  ASSPs and application-specific microcontrollers.

         (iv)     Imaging and Display Division. Our Imaging and Display Division
                  focuses on video camera recorders, monitors and flat panel
                  displays and image capturing and transmission. In 1999, we
                  finalized the acquisition of Vision Group plc, a U.K. company
                  based in Edinburgh, Scotland, which developed a technology for
                  production of CMOS sensors. CMOS sensors significantly reduce
                  the cost of digital cameras; it is thus possible to produce
                  the principal features of a camera on a single IC, which is
                  significantly cheaper than using a multi-component chip set
                  based on traditional Charge Coupled Devices (CCD) technology.
                  We are actively pursuing opportunities in webcam, digital
                  still camera and cellular phone applications. In 2000, we
                  unveiled a highly integrated digital color camera module
                  optimized for use in the next generation of cellular phones,
                  personal digital assistants and other portable communications
                  devices. The Digital Camera Module meets two key requirements
                  for portable applications - small size and low power
                  consumption.

         (v)      Graphics Products. In early 1999, we entered into a
                  partnership agreement with Imagination Technologies, (formerly
                  Videologic) of the United Kingdom for developing the next
                  generation 3D accelerator aimed at the PC and digital consumer
                  market. In June 2000, we introduced our KYRO 3D graphics and
                  video accelerator, which was the first full-featured PC
                  graphics and video accelerator based on Imagination
                  Technologies' PowerVR Series 3 technology. We gained several
                  design wins from PC-based graphics card manufacturers in
                  Taiwan and China. In March 2001, we announced our
                  second-generation 3D Graphics and Video Accelerator derived
                  from our partnership with Imagination Technologies. At the
                  same time, we announced a commercial partnership and technical
                  cooperation with Hercules to develop further leading-edge PC
                  Graphics add-in card solutions exploiting KYRO II's clear
                  performance leadership for PC games and similar applications
                  requiring high performance, cost-effective graphics.

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

         Expanding on our cooperation with Hitachi on advanced SuperH RISC
cores, we have announced the formation of a jointly controlled independent
company, SuperH, Inc. In addition to licensing SuperH cores on the open market,
SuperH will complete the final development of the 64-bit SH-5 core and take over
development of the SH-6 and SH-7 cores. SuperH is expected to commence
operations in the third quarter of 2001 subject to receipt of all required
regulatory clearances.

                                       24
<PAGE>

         Memory Products Group

         The Memory Products Group designs, develops and manufactures a broad
range of semiconductor memory products but does not produce DRAMs.

         Our Memory Products Group is organized into the following divisions:
(i) Flash memories; (ii) smartcard products; (iii) EPROMs; (iv) EEPROMs; and (v)
other memories and application-specific memories. This last division was set up
following the acquisition of WSI.

         (i)      Flash Memories. In 2000, the market for Flash memories more
                  than doubled, according to published industry data, driven by
                  cellular phones and digital consumer applications growth. Our
                  Flash sales have more than tripled in the same period due to
                  advanced process technologies, new products development and
                  state-of-the-art manufacturing facilities. Flash memories must
                  have many capabilities because they are used in a wide variety
                  of applications, and thus are more comparable to dedicated
                  products than pure standard products. We offer a broad variety
                  of Flash memories, which we sell to customers in different
                  fields, such as wireless telephony, digital consumer,
                  automotive and computer products. For example, we currently
                  supply single voltage (down to 1.8 volt) NOR cell structure
                  Flash memory products up to 32 Mbit to the mobile phone
                  market, and we are now successfully processing wafers for the
                  first 64Mbit Flash memories using multi-bit/cell technology.
                  In addition, in the 2001 first quarter, we began ramping up
                  production of our dedicated Flash memories for Firmware Hub
                  BIOS applications, which are now qualified at most PC desktop
                  and notebook manufacturers. Targeted at high-performance PCs
                  employing Intel's Accelerated Hub Architecture, the device is
                  a 4Mbit Flash memory that performs the Firmware Hub function
                  and is built using our advanced 0.18-micron Flash technology.

         (ii)     Smartcard Products. Smartcards are credit card-like devices
                  containing integrated circuits that store data and provide an
                  array of security capabilities. They are used in a wide and
                  growing variety of applications, including public pay
                  telephone systems (primarily in France and Germany), cellular
                  telephone systems and bank cards (primarily in Europe), as
                  well as pay television systems (primarily in the United
                  States, United Kingdom and France). Other applications include
                  medical record applications, card-access security systems,
                  toll-payment secure transactions over the Internet and ID
                  cards applications. In 2000, our innovative SmartJ 32-bit RISC
                  and Java processing platform was awarded the prestigious 'Best
                  New Chip' award at the Smartcard 2000 show held in London. At
                  the same event, we demonstrated the world's fastest RF-powered
                  contactless microcontroller-based smartcard chip. Our
                  achievement in obtaining the world's first security
                  certification to the new international ISO 15408 standard for
                  our ST19 platform was followed by a similar certification
                  jointly achieved with Gemplus for a Smartcard solution that
                  combines Gemplus' embedded software and our ST19 hardware
                  platform. The ST19 platform and embedded Gemplus secure
                  software will be used in Smartcards for telecommunications
                  and banking applications. In 2001, we introduced a chipset
                  that simplifies the design of contactless Smartcard readers,
                  stimulating growth of new contactless Smartcard applications
                  such as access control, ticketing systems, E-purse and ID
                  cards. Finally, we are currently developing biometric
                  solutions based on fingerprint recognition.

         (iii)    EPROMs. We produce a broad range of EPROMs, from 16 Kbit to 32
                  Mbit. The EPROM market is relatively mature. We have succeeded
                  in maintaining our market leadership because of our EPROM
                  technology, which has allowed us to build one of the broadest
                  product portfolios currently offered in the market. At the
                  same time, this technology has permitted continuous
                  improvement of manufacturing yields and reduction of die size,
                  giving us an advantageous cost position. Efficient
                  manufacturing in our Singapore assembly plant, together with
                  our sales and distribution channels, has contributed to the
                  exploitation of our technological advantage.

         (iv)     EEPROMs. We offer serial EEPROMs up to 512 Kbit and parallel
                  EEPROMs up to 1 Mbit. Serial EEPROMs are the most popular type
                  of EEPROMs and are generally used in computer, automotive and
                  consumer applications. Parallel EEPROMs account for a smaller
                  portion of the EEPROM market, being used mainly in
                  telecommunications equipment. We intend to work closely with
                  our key customers and strategic allies to identify and develop
                  added-value application-specific memories.

                                       25
<PAGE>

         (v)      Other memories and application-specific memories. We focus on
                  producing nonvolatile RAMs (battery back-up) used in computers
                  and telecommunications equipment. Our strategy of developing
                  innovative differentiated and value-added products was
                  reflected by the acquisition of Waferscale Integration (WSI).
                  The acquisition of WSI allows us to offer configurable memory
                  systems, integrating multiple memory types and control logic,
                  which represent the ultimate step in term of value-added
                  memories.

         Discrete and Standard ICs Group

         The Discrete and Standard ICs Group designs, develops and manufactures
discrete power devices, power transistors, standard linear and logic ICs, and
radio frequency products.

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

         (i)      Discrete Power Devices. We manufacture and sell a variety of
                  discrete power devices, including rectifiers, protection
                  devices and thyristors (SCRs and triacs). Our devices are used
                  in various applications, including telecommunications systems
                  (telephone sets, modems and line cards), household appliances
                  and industrial systems (motor control and power control
                  devices). More specifically, rectifiers are used in voltage
                  converters and voltage regulators, protection devices are used
                  to protect electronic equipment from power supply spikes or
                  surges, and thyristors are used to vary current flows through
                  a variety of electrical devices, including lamps and household
                  appliances. We offer a highly successful range of standard
                  products built with our proprietary Application Specific
                  Discretes (ASDTM) technology, which allows a variety of
                  discrete structures to be merged into a single device
                  optimized for specific applications such as EMI filtering for
                  cellular phones. We have recently started development of
                  electronic devices integrating both passive and active
                  components on the same chip (IPAD: Integrated Passive and
                  Active Devices).

         (ii)     Power Transistors. We design, manufacture and sell power
                  transistors, which (like our discrete power devices) operate
                  at high current and voltage levels in a variety of switching
                  and pulse mode systems. We have three power transistor
                  divisions: bipolar transistors, power MOSFETs
                  (metal-oxide-silicon field effect transistors) and new power
                  transistors such as IGBTs.

                  Our bipolar power transistors are used in a variety of
                  high-speed, high-voltage applications, including SMPS (switch
                  mode power supply) systems, television/monitor deflection
                  circuits and lighting systems.

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

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

         (iv)     Radio Frequency Products. We supply components for RF
                  transmission systems used in television broadcasting
                  equipment, radar systems, telecommunications systems and
                  avionic equipment. We are targeting new applications for our
                  RF products, including two-way wireless communications

                                       26
<PAGE>

                  systems (in particular, cellular telephone systems) and
                  commercial radio communication networks for business and
                  government applications.

Strategic Alliances

         We believe that strategic alliances are critical to success in the
semiconductor industry, and we have entered into strategic alliances with
customers, other semiconductor manufacturers and major suppliers of design
software. We have entered into several strategic customer alliances, including
alliances with Alcatel, Bosch, Hewlett-Packard, Marelli, Nokia, Nortel Networks,
Pioneer, Seagate Technology, Thomson Multimedia and Western Digital, among
others. In June 2000, in conjunction with our acquisition of the 150mm facility
in Ottawa, Canada, we entered into an agreement with Nortel Networks for the
development of processes, packages and fundamental IP for high-speed optical
interfaces. Customer alliances provide us with valuable systems and application
know-how and access to markets for key products, while allowing our customers to
share some of the risks of product development with us and gain access to our
process technologies and manufacturing infrastructure.

         Alliances with other semiconductor manufacturers, such as the
cooperation with Philips Semiconductors in Crolles, France, for the development
of advanced CMOS logic manufacturing processes, as well as the building and
operations of a 300mm wafer pilot line fab in Crolles, France, the agreement
with Mitsubishi for CMOS Flash memory processes using 0.20 through 0.18-micron
lithography and the agreement with Hitachi on SuperH microprocessors, permit
costly research and development and manufacturing resources to be shared to
mutual advantage for joint technology development.

         We have established joint development programs with leading suppliers
such as Air Liquide, Applied Materials, ASM Lithography, Canon, Hewlett-Packard,
KLA-Tencor, LAM Research, MEMC, Schlumberger, Teradyne and Wacker and with CAD
tool producers including Cadence, Co Ware and Synopsys. We are a participant in
Sematech I 300I for the development of 300 millimeter wafer manufacturing
processes. We are active in joint European research efforts such as the MEDEA
program, and also cooperate with major research institutions and universities.

         In 2000, we pursued development of 0.15-micron drawn (0.13-micron
effective gate length) CMOS process technology, at Crolles, France. At the same
time we started production of our 0.15-micron effective gate length (0.18-micron
drawn) CMOS technology, known as HCMOS-8. This process is aimed at producing
"system-on-chip" products incorporating up to tens of millions of transistors
combined with embedded memory for telecom, digital consumer and computer
applications. In 2000, we started work on new generation 0.13 microFlash
technology in our R2 technology center in Agrate, Italy.

Customers and Applications

         We design, develop, manufacture and market over 3,000 main types of
products that we sell to approximately 800 direct customers. We also sell our
products through distributors. Major customers include Alcatel, Bosch,
DaimlerChrysler, Ericsson, Gemplus, Hewlett-Packard, Marelli, IBM, Matsushita,
Maxtor, Motorola, Nokia, Nortel Networks, Philips, Pioneer, Samsung,
Schlumberger, Scientific Atlanta, Seagate Technology, Siemens, Sony, Thomson
Multimedia and Western Digital. To many of our key customers we provide a wide
range of products, including dedicated products, discrete devices, memory
products and programmable products. Our position as a strategic supplier of
application-specific products to certain customers fosters close relationships
that provide us with opportunities to supply such customers' requirements for
other products, including discrete devices, programmable products and memory
products.

         The following table sets forth certain of our significant customers and
certain applications for our products:

                                       27
<PAGE>





<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------
<S>               <C>                     <C>                     <C>                     <C>
Telecommunications
Customers:        Alcatel                 Lucent Technologies     Motorola                Philips
                  Ericsson                Marconi                 Nokia                   Sagem
                  Italtel                 Matsushita              Nortel Networks         Siemens

Applications:     Central office switching systems                Telephone terminals (wireline and wireless)
                  Digital cellular telephones                     Internet access (xDSL)
                  Wireless networking (Bluetooth)                 Data transport (routing, switching for electronic
                                                                  and optical networks)
--------------------------------------------------------------------------------------------------------------------
Computer Systems
Customers:        ACER                    Delta                   Logitech                Seagate
                  Agilent                 Hewlett-Packard         Maxtor                  Sun Microsystems
                  Creative Technology     IBM                     Samsung                 Western Digital

Applications:     Data storage                                    Webcams
                  Monitors and displays                           Printers
                  Graphics                                        Imaging
                                                                  Power management

--------------------------------------------------------------------------------------------------------------------
Automotive
Customers:        Bosch                   Denso                   Motorola                Valeo
                  DaimlerChrysler         Lear                    Pioneer                 VDO
                  Delphi                  Marelli                 Siemens                 Visteon

Applications:     Airbags                                         Engine management systems (ignition and
                                                                  Injection)
                  Antiskid braking systems                        Multiplex wiring kits
                  Car radio                                       Global positioning systems
                  Body and chassis electronics                    Car multimedia

--------------------------------------------------------------------------------------------------------------------
Consumer Products
Customers:        Agilent Technologies    Hughes                  Philips                 Scientific Atlanta
                  Bose Corporation        Kenwood                 Pioneer                 Sony
                  Echostar                Matsushita              Samsung                 Thomson Multimedia
                  Grundig                 Pace

Applications:     Audio processing (CD, DVD, Hi-Fi)               DVDs
                  Digital cameras                                 Set-top boxes
                  Digital music players                           Analog TVs
                  Digitial TVs                                    VCRs

--------------------------------------------------------------------------------------------------------------------
Industrial and Other Applications
Customers:        Astec                   Gemplus                 Nagra                   Schlumberger
                  Autostrade              Giesecke & Devrient     Oberthur                Siemens
                  Bull                    IPM                     Orga
                  Delta                   Litton                  Philips

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


         In 2000, our largest customer, Nokia, represented approximately 13% of
our net revenues. No other single customer accounted for more than 10% of our
net revenues. Sales to our top ten customers accounted for approximately 47% of
our net revenues in 2000 (45% in 1999). We have several large customers, certain
of whom have entered into strategic alliances with us. Many of our key customers
operate in cyclical businesses and have in the past, and may in the future, vary
order levels significantly from period to period. In addition, approximately 18%
of our net revenues in 2000 were made through distributors. There can be no
assurance that such customers or distributors, or any other customers, will
continue to place orders with us in the future at the same levels as in prior
periods. The loss of one or more of our customers or distributors, reduced
bookings or product returns by our key

                                       28
<PAGE>

customers or distributors, could adversely affect our operating results. In
addition, in a declining market like the present, we have been in the past and
may in the future be driven to lower prices in response to competitive pressures
and may expect a higher number of order cancellations, particularly by
distributors and for commodity products.

Sales, Marketing and Distribution

         We operate regional sales organizations in Europe, North America, the
Asia Pacific region, Japan and, since January 1, 1998, in Emerging Markets which
includes South America, Africa, Eastern Europe, the Middle East and India. For a
breakdown of net revenues by product group and geographic region for each of the
five years ended December 31, 2000, for " - Business Overview." In 2000, our
largest customer, Nokia, represented approximately 13% of our net revenues. No
other single customer accounted for more than 10% of our net revenues. Sales to
our top ten customers were approximately 47% and 45% of our net revenues in 2000
and 1999, respectively, which was an increase from 43% in 1998.

         The European region is divided into five businesses units: automotive,
commodities, consumer and computers, industrial and smartcards, six
geographically configured units to cover mid-sized OEM customers (France and the
Benelux, Central Europe, Northern Europe, Southern Europe, Scandinavia and
Finland), and six regions (United Kingdom, France, Central Europe, Southern
Europe, Scandinavia and Finland) addressed through distributors.

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

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

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

         The Emerging Markets region (designated as "Region Five" until January
1, 2001) was created as of January 1, 1998 and includes South America, Africa,
Eastern Europe, the Middle East and India. Prior to that time, these markets had
been covered, where appropriate, by the other existing sales and marketing
organizations. Emerging Markets also includes the design and software
development center in India, which employs approximately 700 people in a wide
range of activities. We intend to increase our focus on this region to enhance
our presence in these new markets.

         The sales and marketing activities carried out by our regional sales
organizations are supported by the product marketing that is carried out by each
product division, which also include product development functions. This matrix
system reinforces our sales and marketing activities and our broader strategic
objectives.

                                       29
<PAGE>

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

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

         We also use distributors and representatives to distribute our products
around the world. Typically, distributors handle a wide variety of products,
including products that compete with our products, and fill orders for many
customers. Most of our sales to distributors are made under agreements allowing
for price protection and/or the right of return on unsold merchandise. We
recognize revenues upon transfer of ownership of the goods at shipment. Sales
representatives generally do not offer products that compete directly with our
products, but may carry complementary items manufactured by others.
Representatives do not maintain a product inventory; instead, their customers
place large quantity orders directly with us and are referred to distributors
for smaller orders.

Research and Development

         We believe that research and development is critical to our success and
we are committed to increasing research and development expenditures in the
future. In periods of industry downturn, such as in 1997 and 1998,
simultaneously as we made significant cost reductions in our overall expenses,
we continued increasing our research and development expenses, year-over-year.
In 2000, we spent $1,026 million on research and development, increased from
$836 million in 1999. The table below sets forth information with respect to our
research and development spending since 1996 (not including design center,
process engineering, pre-production or industrialization costs):

<TABLE>
<CAPTION>

                                                                Year ended December 31,
                                       ----------------------------------------------------------------------------
                                          1996            1997            1998             1999            2000
                                       -----------    -----------      -----------      -----------      ----------
                                                           (in millions, except percentages)
<S>                                      <C>             <C>             <C>              <C>            <C>
Expenditures.......................      $532.3          $610.9          $689.8           $836.0         $1,026.3
As a percentage of net revenues....       12.9%           15.2%           16.2%            16.5%            13.1%

-------------------------------------------------------------------------------------------------------------------
</TABLE>

         As a result of our history, approximately 81% of our research and
development expenses in 2000 were incurred in Europe, primarily in France and
Italy. See "--Public Funding." As of December 31, 2000, approximately 6,800
employees were employed in research and development activities.

         Our policy in the field of research and development is market driven,
focused on leading edge products and technologies and carried out by over 6,800
employees worldwide in close collaboration with strategic alliance partners,
leading universities and research institutes, key customers and blue chip
equipment manufacturers working at the cutting edge of their own markets. We
invest in a variety of research and development projects ranging from long term
advanced research for the acceleration, in line with industry requirements and
roadmaps, of our broad range of process technologies including BICMOS, BCD, High
Performance Logic, stand alone and embedded Flash and other nonvolatile
memories, to the continued expansion of our system level design expertise and IP
creation for advanced architecture for system-on-chip integration, as well as
new products for many key applications in the field of digital consumer wireless
communications and networking, computer peripherals, Smartcards and car
multimedia amongst others.

         Our research and development activities focus on the VLSI technology
platform, new system architectures, new product developments and emerging
technologies in microsystems and photonics. The development of the technology
platform (VLSI technologies and design tools) is conducted by Central Research
and Development (CRD) while new systems architectures are studied in the
Advanced System Technology (AST) units. New product research and development is
conducted within each product group in conjunction with customers. The highest
concentration of our CRD activities is located in the two main VLSI facilities
of Crolles, France and Agrate, Italy. Other CRD activities are located in
Catania, Italy, Rousset, France, Carrollton, Texas, Berkeley, California,
Ottawa, Canada and Noida, India.

                                       30
<PAGE>

         The central research and development units participate in several
strategic partnerships. Our manufacturing facility at Crolles, France houses a
research and development center that is operated in the legal form of a French
Groupement d'interet economique ("GIE") named "Centre Commun de
Microelectronique de Crolles", whose members are us, France Telecom R&D and
Laboratoire d'Electronique de Technologie d'Instrumentation ("LETI"), a research
laboratory of CEA-Industrie. The tripartite cooperation is intended to last
until the end of 2002. We also cooperate with Philips Semiconductors to jointly
develop sub-micron CMOS logic processes in Crolles, France and have extended
this cooperation to cover the building of an advanced 300mm wafer pilot line in
Crolles, France, which will be funded and operated jointly with Philips
Semiconductors. Since April 2001, the piles have been completed and the shell
building has commenced.

         The CRD activities performed in the new 200mm facility of Agrate,
Italy, are focused on the development of new generation sub 0.18 micron Flash
memories from which other nonvolatile memory products are derived, such as
embedded memories, EEPROM and OTP. Current Flash developments, which are one of
our technology drivers, are targeting 0.13 micron very high density multilevel
memories and the introduction of innovative materials for nonvolatile
applications.

         A technical center in Noida, India, develops design software and CAD
libraries and tools. At the Agrate, Italy site, we are developing nonvolatile
memory technologies and programmable logic processes using a pilot line, which
is being upgraded to 200mm with a capability of 0.25 -micron and below. See
"--Property, Plants and Equipment." We have developed a wide network of
cooperation with several universities in the United Kingdom (Bristol and
Newcastle), Italy (Bologna, Catania, Milan, Pavia and Turin), France (Grenoble,
Marseille, Toulouse and Tours), in the United States (Carnegie Mellon, Stanford,
Berkeley and UCLA) and Singapore for basic research projects on design and
process development.

         We are a member of International Sematech, a non profit technology
development consortium of 13 semiconductor manufacturers, funded by dues from
the member companies. International Sematech works with members, equipment and
materials suppliers, international labs and institutes, academia, and other
consortia to accelerate the development of advanced precompetitive semiconductor
manufacturing processes, materials and equipment for their member companies.

         In addition to central research and development, each operating
division also conducts independent research and development activities on
specific processes and products focusing on developing an advanced range of the
key technological building blocks required by targeted applications. These
building blocks include (i) MPEG2 decoder ICs, (ii) a family of 16 bit (ST10,
super 10), 32 bit (ST20) and 64 bit (ST50) microcontrollers, (iii) a family of
general purpose DSP cores for embedded applications based on the current D950
solution and the ST100 (currently being sampled to customers) as well as several
dedicated DSP cores (MMDSP, SAFIRE, EMIRALDA) for specific applications, and
(iv) embedded volatile (DRAM and SRAM) and nonvolatile (EPROM, EEPROM and Flash)
memories. Applying our broad range of technologies and our expertise in diverse
application domains, we are currently embedding dedicated, semicustom circuits
and these advanced building blocks on the same chip, in addition to the many
dedicated and semicustom ICs developed using power analog, digital and mixed
signal technologies.

Intellectual Property

         Intellectual property rights that apply to our various products include
patents, copyrights, trade secrets, trademarks and maskwork rights. We own more
than 19,000 patents or pending patent applications corresponding to more than
11,000 original inventions, most of which have been registered in several
countries around the world. In 2000, we filed 685 new patent applications around
the world. Management believes that our intellectual property represents
valuable property and intends to protect our investment in technology by
enforcing all of our intellectual property rights. We have entered into several
patent cross-licenses with several major semiconductor companies.

         Our success depends in part on our ability to obtain patents, licenses
and other intellectual property rights covering our products and their design
and manufacturing processes. To that end, we have acquired certain patents and
patent licenses and intend to continue to seek patents on our inventions and
manufacturing processes. The process of seeking patent protection can be long
and expensive, and there can be no assurance that patents will issue from
currently pending or future applications or that, if patents are issued, they
will be of sufficient scope or strength to provide meaningful protection or any
commercial advantage to us. In addition, effective copyright and trade secret
protection may be unavailable or limited in certain countries. Competitors may
also develop technologies that

                                       31
<PAGE>

are protected by patents and other intellectual property rights and therefore
such technologies may be unavailable to us or available to us subject to adverse
terms and conditions. Litigation, which could demand financial and management
resources, may be necessary to enforce our patents or other intellectual
property rights.

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

Backlog

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

         Our backlog increased steadily in the first half of 2000 while
registering a decline in the latter part of the year reflecting the industry
downturn. Backlog decline increased during the first quarter of 2001. In
industry downturns, customers tend to order products for immediate delivery,
which leads us to build up inventory of key products and lowers our backlog.

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

Competition

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

         According to published industry data in March 2001, we grew 55.4%
annually making us the sixth leading semiconductor manufacturer worldwide. The
primary international semiconductor companies, which compete with us include
Advanced Micro Devices, Agere Systems, Broadcom, Hitachi, Intel Corporation,
Mitsubishi Electric Corporation, Motorola, National Semiconductor Corporation,
Nippon Electric Company, Philips Semiconductors, Samsung, Infineon Technology,
Texas Instruments and Toshiba.

         According to published industry data and other industry sources,
investment in worldwide semiconductor fabrication capacity totaled approximately
$28 billion in 1998, $33 billion in 1999 and $59 billion in 2000, or
approximately 22 %, 22% and 29%, respectively, of the TAM for such years. Such
capacity investment is made not only by international semiconductor companies,
but also companies specializing in operating semiconductor foundries,
particularly in Asia such as UMC, TSMC and Chartered Semiconductors.

                                       32
<PAGE>

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

Organizational Structure

         We are a multinational group of companies that designs, develops,
manufactures and markets a broad range of products used in a wide variety of
microelectronic applications, including telecommunications systems, computer
systems, consumer goods, automotive products and industrial automation and
control systems. We are organized in a matrix structure with geographical
regions interacting with product divisions, bringing all levels of management
closer to the customer and facilitating communication among research and
development, production, marketing and sales organizations. STMicrolectronics
N.V., owns directly or indirectly, 100% of all of our significant operating
subsidiaries which have their own corporate organization and management bodies,
and are operated independently in compliance with the laws of their country of
incorporation. For a list of our subsidiaries, see note 3 to our consolidated
financial statements.

Property, Plants and Equipment

         We currently operate 19 main manufacturing sites around the world. In
June 2000, we acquired a 150mm microconductor manufacturing facility owned by
Nortel Networks in Ottawa, Canada. The table below sets forth certain
information with respect to our current manufacturing facilities, products and
technologies. Front-end manufacturing facilities are wafer fabrication plants
(known as "fabs") and back-end facilities are assembly, packaging and final
testing plants.

<TABLE>
<CAPTION>
                                                                                                    Gross floor area
                                                                                                     size (including
                                                                                                       clean room,
                                                                                                     facilities and
   Location              Products                                Technologies                      production offices)
   ---------             --------                                ------------                      -------------------
                                                                                                   (in square meters)
<S>             <C>                            <C>                                                            <C>
Front-end facilities
Crolles,        Semicustom devices,            Fab: 200mm 0.35/0.18 -micron CMOS and 0.7/0.25                 51,600
   France         microcontrollers and           -micron BiCMOS; R&D on VLSI sub-micron
                  dedicated products             technologies in conjunction with France Telecom
                                                 R&D and Philips Semiconductors

Phoenix,        Dedicated products             Fab: 200mm 0.5/0.35 -micron CMOS, 0.5/0.35 -micron             46,400
   Arizona                                       BiCMOS

Agrate, Italy   Nonvolatile memories,          Fab 1: 150mm 2.0/0.5 -micron BCD, nonvolatile                  47,500
                  microcontrollers and           memories
                  dedicated products
                                               Fab 2: 200mm 0.35/0.18 -micron Flash, embedded                 32,800
                                                 Flash, R&D on nonvolatile memories

Rousset,        Microcontrollers,              Fab 1: 150mm 0.8/0.5 -micron CMOS, Smartcard                   32,000
   France         nonvolatile memories and
                  smartcard ICs and            Fab 2: 200mm 0.35/0.18 -micron CMOS, Flash,                    66,500
                  dedicated products             Smartcard

</TABLE>



                                       33
<PAGE>

<TABLE>
<CAPTION>

                                                                                                    Gross floor area
                                                                                                     size (including
                                                                                                       clean room,
                                                                                                     facilities and
   Location              Products                                Technologies                      production offices)
   ---------             --------                                ------------                      -------------------
                                                                                                   (in square meters)
<S>             <C>                            <C>                                                            <C>
Catania, Italy  Power transistors, smart       Fab 1: 150mm 4/1 -micron MOS power, BCD                        22,500
                  power ICs and nonvolatile
                  memories                     Fab 2: 150mm 4/1 -micron pilot line RF                         10,000

                                               Fab 3: 200mm 0.35/0.18-micron, Flash, Smartcard                43,000

Rennes, France  Dedicated and power products   Fab: 150mm 2 -micron BiCMOS, BCD and bipolar                   17,500

Castelletto,    Smart power BCD                Fab: 150mm 4.0/0.8 -micron BCD pilot line                      12,500
   Italy
Tours, France   Protection thyristors,         Fab: 100mm and 150mm discrete                                  36,500
                  diodes and
                  application-specific
                  discretes-power
                  transistors

Ang Mo Kio,     Dedicated products,            Fab 1: 100mm 1.5-micron, power MOS, bipolar                    75,000
   Singapore      microcontrollers, power        transistor, bipolar ICs, standard linear
                  transistors, commodity         CMOS
                  products; nonvolatile
                  memories and dedicated       Fab 2: 150mm 1-2-micron bipolar, power MOS and BCD             15,000
                  products
                                               Fab 3: 200mm 0.50/0.18-micron BICMOS, Flash (should            58,500
                                                 enter volume production in 2001)

Carrollton,     Memories, microcontrollers,    Fab: 150mm 1.5/0.7-micron BiCMOS, BCD and CMOS                 47,000
   Texas         dedicated products; and
                 semicustom devices

Rancho          Dedicated products             Fab: 150mm 2.0-micron BCD                                      18,500
   Bernardo,
   California
Ottawa,         Dedicated products             Fab:  150mm, 0.8-micron bipolar                                11,000
   Canada

Back-end
   Facilities:
Muar, Malaysia  Dedicated and standard                                                                        63,050
                 products, microcontrollers

Kirkop, Malta   Dedicated products,                                                                           27,200
                 microcontrollers,
                 semicustom devices

Tuas,           Dedicated products and                                                                        12,400
   Singapore     nonvolatile memories

Toa Payoh,      Nonvolatile memories and                                                                      17,150
   Singapore     power ICs

</TABLE>

                                       34
<PAGE>

<TABLE>
<CAPTION>

                                                                                                    Gross floor area
                                                                                                     size (including
                                                                                                       clean room,
                                                                                                     facilities and
   Location              Products                                Technologies                      production offices)
   ---------             --------                                ------------                      -------------------
                                                                                                   (in square meters)
<S>             <C>                            <C>                                                            <C>

Ain Sebaa,      Discrete and standard                                                                         30,000
   Morocco       products

Bouskoura,      Nonvolatile memories,                                                                         60,000
   Morocco       discrete and standard
                 products, micromodules,
                 RF and subsystems

Shenzhen,       Nonvolatile memories,                                                                         40,000
   China(1)       discrete and standard
                  products
</TABLE>


-------------
(1)      Jointly operated with Shenzhen Electronics Group.

         In the last quarter of 2000, our front-end facilities had total
capacity of approximately 140,000 150mm equivalent wafer starts per week. The
number of wafer starts per week varies from facility to facility and from period
to period as a result of changes in product mix. We have five 200mm wafer
production facilities currently in operation. Of these, three (at Crolles,
France, Catania, Italy and Phoenix, Arizona) were operating at full capacity at
December 31, 2000 and the other two (in Rousset, France and Agrate, Italy) are
now in volume production and continue to be expanded. Construction of a new
200mm sub-micron facility is underway in Singapore. We have started construction
our 200mm sub-micron fabrication plant in Catania, Italy which will be
upgradeable to 300mm capacity and is planned to be operational by the year 2002.

         We acquired a new facility in Singapore that entered volume production
of 150mm wafers in 2000, and we expanded our production of 150mm wafers in
Carrollton, Texas and Rancho Bernardo, California. In June 2000, we acquired
from Nortel Networks a 150mm manufacturing facility in Ottawa, Canada. In line
with our expansion of front-end facilities in 2000, we expanded all our back-end
plants at our existing facilities in Morocco, Malta, Malaysia, Singapore, and
China. We also equipped a newly acquired back-end plant in Tuas (Singapore) and
built a new back-end plant in Bouskoura (Morocco) in which the first assembly
lines were operational by the end of 2000.

         We have also started the construction of a shell building for an
advanced 300mm wafer pilot-line fabrication facility in Crolles (France) that
will be operated jointly with Philips Semiconductors. The pilot line will
initially be designed to produce up to 1,000 wafers per week, with potential to
ramp up to 2,000 wafers per week as needed. The first 300mm wafers are expected
to be processed in 2002.

         We have historically subcontracted approximately 15% of total volumes
for back-end operations to external suppliers. Since 1999, to cope with a sudden
surge in demand, and in particular, to meet anticipated requirements for HCMOS
wafers, we decided to significantly increase our use of external foundries for
front-end manufacturing as well, and they supplied up to approximately 15% of
our total wafers. We intend to maintain the percentage of front-end
manufacturing through external foundries at approximately this level in a period
of high demand, reducing it as required to meet market conditions. In the first
quarter 2001, the total wafer demand supplied by foundries represented
approximately 9%, compared to an average of 11% in year 2000.

         We have expanded our diversified manufacturing infrastructure while
improving the cost, quality and flexibility of our operations. In 2000, we
invested in our manufacturing facilities to bring to full capacity and expand
the 200mm front-end manufacturing facility in Crolles, France and Catania,
Italy, to continue the ramp up of an 200mm front-end manufacturing facilities in
Phoenix, Arizona and Catania, Italy, and to build and equip the new 200mm
front-end facilities in Rousset, France and Agrate, Italy, which are today in
production, to expand 150mm front-end facilities in Carrollton, Texas and Rancho
Bernardo, California, to purchase and equip a new 150mm facility in Singapore,
to convert from 5-to 150mm the front-end facilities in Tours and Rennes, France
and Catania, Italy and to expand our back-end facilities in Morocco, Malta,
Malaysia, Singapore and China.

         According to present visibility, as of the end of March 2001, we
currently expect that capital spending for 2001 will be in the range of $1.9
billion, significantly below the 2000 level and the initially announced $2.5
billion. This investment will primarily be used for the expansion of the 200mm
front-end facilities in France and Italy, the

                                       35
<PAGE>

start-up of the 200mm facility in Singapore, the expansion of the new back-end
facilities in Morocco and the conversion of the facilities in Crolles (France)
from 0.18 micron to 0.15 micron processes. As of December 31, 2000, we had
commitments of approximately $1.7 billion for equipment purchases. We will
continue to monitor our level of capital spending, taking into consideration
factors such as trends in the semiconductors market, capacity utilization and
announced additions.

         Although each fabrication plant is dedicated to specific processes, our
strategy is to develop local presences, better serve customers and mitigate
manufacturing risks by having key processes operated in different manufacturing
plants. In certain countries, we have been granted tax incentives by local
authorities in line with local regulations, being recognized as an important
contributor to the economies where our plants are located. In 2000 we sought to
take advantage of industry capacity limitations by purchasing from
subcontractors both wafer foundry and back-end services and thereby minimizing
our capital expenditure needs.

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

         We are fostering a corporate-wide TQEM culture that defines a common
set of objectives and performance measurements for employees in all geographic
regions, at every stage of product design, development, production and
consignment for all product lines. TQEM in our company is based on five key
principles: management commitment, employee empowerment, continuous improvement,
management by fact and customer focus. TQEM has become an integral part of our
culture and it is designed to develop a self-directed work force with a common
set of values, objectives and problem-solving processes. Since 1987, we have
improved average AIQ (electrical) status levels. Most of our manufacturing
facilities have been certified to conform to ISO international quality standards
and EMAS. Several major customers, including Hewlett-Packard, Nokia, Sharp,
DaimlerChrysler and Sanyo, have recognized our commitment to quality and have
honored us with quality awards in the recent past. We have also adopted an
environmental charter in order to reinforce our commitment to environmental
protections.

         As is common in the semiconductor industry, we have from time to time
experienced difficulty in ramping up production at new facilities or effecting
transitions to new manufacturing processes and, consequently, have suffered
delays in product deliveries or reduced yields. There can be no assurance that
we will not experience manufacturing problems in achieving acceptable yields,
product delivery delays or interruptions in production in the future as a result
of, among other things, capacity constraints, construction delays, ramping up
production at new facilities, upgrading or expanding existing facilities,
changing our process technologies, or contamination or fires, storms,
earthquakes or other acts of nature, any of which could result in a loss of
future revenues. In addition, the development of larger fabrication facilities
that require state-of-the-art sub-micron technology has increased the potential
for losses associated with production difficulties, imperfections, or other
causes of defects. In the event of an incident leading to an interruption of
production at a fab, we may not be able to shift production to other facilities
on a timely basis or the customer may decide to purchase products from other
suppliers, and in either case the loss of revenues and impact on our
relationship with our customers could be significant. Our operating results
could also be adversely affected by the increase in fixed costs and operating
expenses related to increases in production capacity if revenues do not increase
commensurately. Finally, in periods of high demand, we increase our reliance on
external contractors for foundry and back-end service. Any failure to perform by
such subcontractors could impact our relationship with our customers and could
materially affect our results of operations.

Public Funding

         We participate in certain programs established by the European
Commission and individual countries in Europe (France and Italy), which provide
public funding for research and development and capital investment in compliance
with local laws. The pan-European programs are generally open to eligible
companies operating and

                                       36
<PAGE>

investing in Europe and cover a period of several years.
In Italy, both electronics and economic development programs are open to
eligible companies regardless of their ownership or country of incorporation.

         The main European programs for research and development in which we are
involved include: (i) the Micro-Electronics Development for European Application
("MEDEA+") cooperative research and development program, (ii) European Union
research and development projects with FWP5 for Information Technology; and
(iii) national programs for research and development and industrialization in
the electronics industries. We also participate in investment incentive programs
for the economic development of certain regions.

         The MEDEA+ cooperative research and development program was launched in
June 2000 by the Eureka Conference and is designed to bring together many of
Europe's top researchers in a 12,000 man-year program that will cover the period
2000-2008. The MEDEA+ program replaced the joint European research program
called MEDEA, which was a European cooperative project in microelectronics among
several countries that covered the period 1996 through 2000 and involved more
than 80 companies. In Italy, the Programma Nazionale per la Bioelettronica has
more than 10 participants, and various programs for intervention in the
Mezzogiorno (southern Italy) are open to eligible companies, including
non-European companies, operating in the region and regulated by specific laws.
Italian programs often cover several years, but funding is typically subject to
annual budget appropriation. In France, support for microelectronics is provided
to over 30 companies manufacturing or using semiconductors. The amount of
support under French programs is decided annually and subject to budget
appropriation.

         We have also entered into funding agreements with France and Italy
which set forth the parameters of state support under certain national programs
and require, among other things, compliance with European Commission ("EC")
regulations and approval by EU authorities and annual and project-by-project
reviews and approvals.

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

         Public authority funding for research and development is reported in
"Other Income and Expenses" in our consolidated statements of income. See Note
17 to the Consolidated Financial Statements. Such funding has totaled $63.5
million, $60.4 million and $42.1 million in the years 1998, 1999 and 2000,
respectively. Government support for capital expenditures funding has totaled
$182.4 million, $53.4 million and $95.2 million in the years 1998, 1999 and
2000, respectively. Such funding has been used to support our capital
investment; while receipt of these funds is not directly reflected in our
results of operations, the resulting lower amounts recorded in property, plant
and equipment reduce the level of depreciation recognized by us.

         Low interest financing has been made available (principally in Italy)
under programs such as the Italian Republic's Fund for Applied Research,
established in 1968 for the purpose of supporting Italian research projects
meeting specified program criteria. At year-end 1998, 1999 and 2000, we had
$49.4 million, $48.8 million and $31.3 million, respectively, of indebtedness
outstanding under state-assisted financing programs at an average interest cost
of 2.1%, 1.6% and 1.4%, respectively.

         Due to changes in legislation and/or review by the competent
administrative or judicial bodies, there can be no assurance that government
funding granted to us may not be revoked or challenged or discontinued in whole
or in part, by any competent state or European authority, until the legal time
period for challenging or revoking such funding has fully lapsed.

Suppliers

         The quality and technology of equipment used in the IC manufacturing
process defines the limits of our technology. Demand for increasingly smaller
chip structures means that semiconductor producers must quickly incorporate the
latest advances in process technology to remain competitive. Advances in process
technology

                                       37
<PAGE>

cannot be brought about without commensurate advances in equipment technology,
and equipment costs tend to increase as the equipment becomes more
sophisticated.

         In the front-end process we use steppers, scanners, track equipment,
strippers, chemo-mechanical polishing equipment, cleaners, inspection equipment,
etchers, physical and chemical vapor deposition equipment, implanters, furnaces,
testers, probers and other specialized equipment. The manufacturing tools that
we use in the back-end process include bonders, burn-in ovens, testers and other
specialized equipment.

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

Environmental Matters

         Our manufacturing operations use many chemicals, gases and other
hazardous substances, and we are subject to a variety of governmental
regulations related to the use, storage, discharge and disposal of such
chemicals and gases and other hazardous substances, emissions and wastes.
Consistent with our TQEM principles, we have established proactive environmental
policies with respect to the handling of such chemicals and gases and emissions
and waste disposals from our manufacturing operations. We have engaged outside
consultants to audit our environmental activities and have created environmental
management teams, information systems, education and training programs, and
environmental assessment procedures for new processes and suppliers. All of our
plants are validated for the Eco-Management and Audit Scheme ("EMAS") and have
also obtained ISO 14001 certification. We are also participating in various
working groups set up by the European Commission to propose new legislation
regarding the collection, recovery and disposal of electronic equipment, as well
as banning the use of lead and some flame retardants in manufacturing electronic
components. We intend to proactively implement such new legislation when enacted
in line with our commitment towards environmental protection.

         Although we have not suffered material environmental claims in the past
and believe that our activities conform to presently applicable environmental
regulations in all material respects, environmental claims or the failure to
comply with present or future regulations could result in the assessment of
damages or imposition of fines against us, suspension of production or a
cessation of operations, and as with other companies engaged in similar
activities, any failure by us to control the use of or adequately restrict the
discharge of hazardous substances, emissions or wastes could subject us to
future liabilities.

         Because we have manufacturing facilities located in California and
southern Italy (Sicily), we face the risk that an earthquake could damage these
facilities, which would cause a reduction in our revenue and profitability. Any
disruption in our product development capability or our manufacturing capability
arising from earthquakes could cause significant delays in the production or
shipment of our products until we are able to shift development or production to
different facilities or arrange for third parties to manufacture our products.
We may not be able to obtain alternate capacity on favorable terms or at all.
The risk of earthquakes to our manufacturing facilities in Catania (Italy) and
in California is significant due to the proximity of major earthquake fault
lines to these manufacturing facilities. In addition, some of our suppliers are
located in regions where there is a risk of earthquake.

Industry Background

         The Semiconductor Market

         Semiconductors are the basic building blocks used to create an
increasing variety of electronic products and systems. Since the invention of
the transistor in 1948, continuous improvements in semiconductor process and
design technologies have led to smaller, more complex and more reliable devices
at a lower cost per function. As performance has increased and size and cost
have decreased, semiconductors have expanded beyond their original primary
applications (military applications and computer systems), to applications such
as telecommunications systems, consumer goods, automotive products and
industrial automation and control systems. In addition, system users and
designers have demanded systems with more functionality, higher levels of
performance, greater reliability and shorter design cycle times, all in smaller
packages at lower costs. These demands have resulted in increased semiconductor
content as a percentage of system cost. Calculated on the basis of the total
available

                                       38
<PAGE>

market (the "TAM"), which includes all semiconductor products, as a percentage
of worldwide revenues from production of electronic equipment according to
published industry data, semiconductor pervasiveness has increased from
approximately 9% in 1991 to approximately 21% in 2000. The demand for electronic
systems has also expanded geographically with the emergence of new markets,
particularly in the Asia Pacific region.

         Semiconductor sales have increased significantly over the long term but
have experienced significant cyclical variations in growth rates. According to
trade association data, the TAM increased from $17.8 billion in 1983 to $204.4
billion in 2000 (growing at a compound annual rate of approximately 15.4%). At
the same time the serviceable available market (the "SAM"), which prior to 1995
consisted of the TAM without DRAMS, microprocessors and opto-electronic products
and commencing in 1995 and for all subsequent periods presented, includes
microprocessors, increased from approximately $15.0 billion in 1983 to $165.7
billion in 2000 (growing at a compound annual rate of approximately15.2%). In
2000, the TAM increased by 36.8%. Based on trade association data for the first
quarter of 2001, the TAM decreased in the first quarter of 2001 by 4.5% compared
to the first quarter of 2000. In addition, in the first quarter of 2001, the TAM
decreased by 19.6% compared to the fourth quarter of 2000. The SAM increased
34.8% in 2000 compared to 1999; however, based on preliminary trade association
data for the first quarter of 2001, the SAM decreased by 1.6% compared to the
first quarter of 2000. In 2000, approximately 31.3% of all semiconductors were
shipped to the Americas, 22.9% to Japan, 20.7% to Europe, and 25.1% to the Asia
Pacific region.

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

<TABLE>
<CAPTION>


                                   Worldwide Semiconductor Sales (1)             Compound Annual Growth Rates (2)
                               ------------------------------------------------------------------------------------
                                1983      1993      1998      1999      2000    83-93     93-97     98-99     99-00
                               -----     -----    ------    ------    ------    -----     -----     -----     -----
                                          (in billions of $)                        (expressed as percentages)

<S>                            <C>       <C>      <C>       <C>       <C>       <C>       <C>       <C>       <C>
Integrated Circuits....        $13.3     $66.0    $109.1    $130.3    $176.9    17.4%     16.0%     19.3%     35.8%
Analog (linear and
   Mixed-signal).......          2.8      10.7      19.1      22.1      30.5    14.3      16.5      15.7      38.0
Digital Logic..........          6.7      34.1      67.0      75.9      97.2    17.7      19.9      13.3      28.1
   Memory:
     DRAM..............          1.7      13.1      14.0      20.7      28.9    22.7      10.7      47.8      39.6
     Others............          2.0       8.1       9.0      11.6      20.3    15.0       4.4      28.9      75.0
                               -----     -----    ------    ------    ------    -----     ----      ----      ----
   Total Memory........          3.7      21.2      23.0      32.3      49.2    19.1       8.4      40.3      52.3
Total digital..........         10.4      55.3      90.0     108.2     146.4    18.2      15.8      20.0      35.3
Discrete...............          3.7       8.6      11.9      13.4      17.7     8.8      11.1      12.6      32.0
Opto-electronics.......          0.7       2.6       4.6       5.7       9.8    14.0      14.7      23.9      71.9
                               -----     -----    ------    ------    ------    -----     ----      ----      ----
   TAM.................        $17.8     $77.3    $125.6    $149.4    $204.4    15.8%     15.4%     18.9%     36.8%
                               =====     =====    ======    ======    ======    =====     ====      ====      ====

Europe.................          3.3      14.6      29.4      31.9      42.3    16.0      18.8       8.5      32.6
Americas...............          7.8      24.7      41.4      47.5      64.1    12.2      16.8      14.7      34.9
Asia Pacific...........          1.2      14.2      28.9      37.2      51.3    28.0      20.7      28.7      37.9
Japan..................          5.5      23.8      25.9      32.8      46.7    15.8       7.8      26.6      42.4
                               -----     -----    ------    ------    ------    -----     ----      ----      ----
   TAM.................        $17.8     $77.3    $125.6    $149.4    $204.4    15.8%     15.4%     18.9%     36.8%
                               =====     =====    ======    ======    ======    =====     ====      ====      ====
</TABLE>

----------------------
(1)    Source: WSTS
(2)    Calculated using end points of the periods specified.

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

         Semiconductor Classifications

         The process technologies, levels of integration, design specificity,
functional technologies and applications for different semiconductor products
vary significantly. As differences in these characteristics have increased, the


                                       39
<PAGE>

semiconductor market has become highly diversified as well as subject to
constant and rapid change. Semiconductor product markets may be classified
according to each of these characteristics.

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

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

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

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

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

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



                                       40
<PAGE>

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

         The primary volatile memory devices are DRAMs, which accounted for
58.7% of semiconductor memory sales in 2000, and SRAMs (static RAMs). DRAMs are
volatile memories that lose their data content when power supplies are switched
off, whereas SRAMs are volatile memories that allow the storage of data in the
memory array but without the need for clock or refresh logic circuitry. SRAMs
are roughly four times as complex as DRAMs (four transistors per bit of memory
compared to one transistor) and are significantly more expensive than DRAMs per
unit of storage. DRAMs are used in a computer's main memory to temporarily store
data retrieved from low cost external mass memory devices such as hard disk
drives. SRAMs are principally used as caches and buffers between a computer's
microprocessor and its DRAM-based main memory.

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

         Flash memories are typically less expensive per bit of stored
information than EEPROMs, and can also be erased and rewritten. The entire
content of a Flash memory or large blocks of data (not individual bytes) can be
erased with a "Flash" of current. Because Flash memories can be erased and
reprogrammed electrically and in-system, they are more flexible than EPROMs and,
therefore, are progressively replacing EPROMs in many of their current
applications. Flash memories are typically used in high volume in digital mobile
phones and digital consumer applications (set-top boxes, DVDs, digital cameras,
MP3 digital music players) and are also suitable for solid state mass storage of
data and emerging high volume application.

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


                                       41
<PAGE>

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

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

ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS

         The following discussion should be read in conjunction with our
Consolidated Financial Statements and Notes thereto included elsewhere in this
annual report. The following discussion contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended. Our
actual results may differ significantly from those projected in the
forward-looking statements. Factors that might cause future actual results to
differ materially from our recent results or those projected in the
forward-looking statements include, but are not limited to, those discussed in
"Cautionary Statement Regarding Forward-Looking Statements" and under the
caption "Item 3: Key Information - Risk Factors". We assume no obligation to
update the forward-looking statements or such factors.

Overview

         Business conditions in 1999 and 2000 improved from the difficult
conditions experienced in the semiconductor industry in 1997 and 1998. According
to trade association data, worldwide sales of semiconductor products (the total
available market or "TAM") increased 36.8% in 2000 over 1999. Based on trade
association data, the estimated market for products produced by us (the
serviceable available market or "SAM") (which consists of the TAM without DRAMs,
and opto-electronic products) increased approximately 34.8% in 2000 over 1999.
However, the higher rates of increase were recorded in the first three quarters
of 2000, while during the fourth quarter 2000 the semiconductor industry showed
some signs of decreased growth rates with the total market declining
approximately 3% in that quarter compared to the third quarter 2000. The reverse
in the trend in the semiconductor industry which began in the fourth quarter of
2000 led to negative growth expectations for 2001. Industry analysts at the end
of 2000 were forecasting a downturn in the 2001 semiconductor market.

         Our net revenues for 2000 increased 54.5% compared to 1999, a stronger
increase than both the TAM and the SAM. We benefited from increased volumes in
virtually all product families and an improved product mix, including sales of
new products.

         In the last five years, despite the difficult market conditions in 1997
and 1998, our net revenues increased from $4,122.4 million in 1996 to $7,813.2
million in 2000, representing a compound annual growth rate of 17.3%. According
to trade association data, the TAM increased from $132.0 billion in 1996 to
$204.4 billion in 2000, representing a compound annual growth rate of 11.6%,
while the SAM increased from $102.7 billion in 1996 to $165.7 billion in 2000,
representing a compound annual growth rate of 12.7%. During the same period, our
share of the TAM increased from 3.1% to 3.8%, while our share of the SAM
increased from 4.0% to 4.7%. Our revenue growth from 1996 through 2000 was
particularly significant for differentiated ICs (which we define as being our
dedicated products, semicustom devices and microcontrollers).

         As a result of our performance during the period 1996 to 2000, we not
only gained market share against both the TAM and SAM, but, according to ranking
by leading market analysts, became the sixth largest semiconductor company in
the world during 2000, up from ninth in 1999. However, we believe that the
general market conditions have led certain of our competitors to redirect their
marketing focus and manufacturing capacity toward products that compete with our
products. We believe increased competition in our core product markets is

                                       42
<PAGE>

generating greater pricing pressure, increased competition for market share in
the SAM and a generally more challenging market environment for us.

         There can be no assurance that we will experience revenue growth at or
above the growth rate for the TAM or the SAM, or that increased competition in
our core product markets will not lead to further price erosion, lower revenue
growth rates and lower margins for us.

         In 2000, we continued to focus on differentiated ICs and analog ICs.
Differentiated ICs accounted for approximately 63% of our net revenues in both
2000 and 1999. Such products foster close relationships with customers,
resulting in early knowledge of their evolving requirements and opportunities to
access their markets for other products, and are less vulnerable to competitive
pressures than standard commodity products. Analog ICs (including mixed signal
ICs), the majority of which are also differentiated ICs, accounted for
approximately 49% of our net revenues in 2000 compared to 51% in 1999, while
discrete devices accounted for approximately 10% of our net revenues in 2000
compared to approximately 12% in 1999. In recent years, these families of
products, in particular analog ICs, have experienced less volatility in sales
growth rates and average selling prices than the overall semiconductor industry.
However, the difficult competitive environment in the semiconductor market in
more recent years has led to price pressures in these product families as well.

         In order to reinforce our presence in certain strategic business
segments, we completed the acquisition from Nortel Networks of a 150mm facility
in Ottawa, Canada, in June 2000 with a commitment for $2 billion in sales to
Nortel Networks over the following three years (in conjunction with the
acquisition, we entered into an agreement with Nortel Networks for the
development of processes, packages and fundamental IP for high-speed optical
interfaces). We also acquired Waferscale Integration (a leading manufacturer of
programmable system memory devices) and Portland Group (a vendor of compilers
and software development tools for the high-performance parallel computing
market).

         Our gross profit margin increased from 41.4% in 1996 to 46.0% in 2000.
Benefiting from a favorable industry environment in 1996, we had a gross profit
margin of approximately 41% and an operating income margin of approximately 19%.
In 1997 and 1998, in an unfavorable industry environment, which generated lower
margins due to the negative impact of pricing pressures, gross profit margin
declined to slightly above 38%. This decline in gross profit margin coupled with
a higher level of research and development expenditure, resulted in a lower
operating income as a percentage of net revenues which, however, remained above
12%. Benefiting from the market recovery in 1999 and 2000, gross profit margin
increased in 2000 to 46.0% while operating income as a percentage of net
revenues rose significantly to 22.8%.

         Preliminary projections for 2001 assumed a worsening of the market
correction. According to industry data, the market for the first quarter of 2001
declined 19.6% compared to the fourth quarter of 2000 and 4.5% compared to the
first quarter of 2000. The latest forecasts by industry analysts at the end of
March 2001 estimate a 12% decline in the TAM and a 10% decline in the SAM in
2001 compared to 2000. We estimate that the market correction which began
abruptly with a sharp inventory adjustment in the fourth quarter of 2000 is
likely to continue through much of 2001. Its duration is closely tied to
macroeconomic conditions, particularly in the United States and Japan, as well
as to industry-specific issues such as overcapacity and excess inventory levels.

         While we are expecting a difficult business environment, we are
confident in our ability to continue to outperform the industry by a meaningful
margin. Within this challenging near term environment, our strategy continues to
be based upon profitable market share gains through the development of
world-leading products, strong customer alliances, efficient global
manufacturing and a modular approach to capital expenditure.

                                       43
<PAGE>


         Results of Operations

         The tables below set forth information on our net revenues by product
group and by geographic region:

<TABLE>
<CAPTION>

                                                                     Year ended December 31,
                                                    -----------------------------------------------------------
                                                      1996         1997        1998         1999         2000
                                                    -----------------------------------------------------------
                                                                          (in millions)
<S>                                                  <C>        <C>         <C>          <C>          <C>
Net Revenues by Product Group: (1)
  Telecommunications, Peripherals and
  Automotive(1).............................         $1,614.0   $1,606.9    $1,855.2     $2,305.5     $3,481.7
  Discrete and Standard ICs(1) .............            778.1      839.5       816.7        927.9      1,213.1
  Memory Products...........................            736.8      708.6       659.6        835.9      1,552.9
  Consumer and Microcontrollers(1) .........            870.2      738.8       805.8        881.7      1,438.9
  New Ventures Group and Others(2) .........            123.3      125.4       110.5        105.3        126.6
                                                        -----      -----       -----        -----        -----
        Total...............................         $4,122.4   $4,019.2    $4,247.8     $5,056.3     $7,813.2
                                                     ========   ========    ========     ========     ========

Net Revenues by Geographic Region:(3)
  Europe....................................         $1,788.5   $1,753.3    $1,768.9     $1,833.6     $2,629.2
  North America.............................            903.0      899.1       937.3      1,156.1      1,843.0
  Asia Pacific..............................          1,125.7    1,065.8     1,247.9      1,658.2      2,614.7
  Japan.....................................            228.2      214.5       180.7        239.7        402.4
  Emerging Markets(3) ......................             77.0       86.5       113.0        168.7        323.9
                                                         ----       ----       -----        -----        -----
        Total...............................         $4,122.4    $4019.2    $4,247.8     $5,056.3     $7,813.2
                                                     ========   ========    ========     ========     ========

                                                                     (As a percentage of net revenues)
Net Revenues by Product Group:(1)
  Telecommunications, Peripherals and
  Automotive(1).............................             39.1%      40.0%       43.6%        45.6%        44.6%
  Discrete and Standard ICs(1) .............             18.9       20.9        19.2         18.4         15.5
  Memory Products...........................             17.9       17.6        15.5         16.5         19.9
  Consumer and Microcontrollers(1) .........             21.1       18.4        19.0         17.4         18.4
  New Ventures Group and Others(2) .........              3.0        3.1         2.7          2.1          1.6
                                                          ---        ---         ---          ---          ---
        Total...............................            100.0%     100.0%      100.0%       100.0%       100.0%
                                                     ========   ========    ========     ========     ========

Net Revenues by Geographic Region:(3)
  Europe....................................             43.4%      43.6%       41.6%        36.3%        33.6%
  North America.............................             21.9       22.4        22.1         22.9         23.6
  Asia Pacific..............................             27.3       26.5        29.4         32.8         33.5
  Japan.....................................              5.5        5.3         4.3          4.7          5.2
  Emerging Markets(3).......................              1.9        2.2         2.6          3.3          4.1
                                                          ---        ---         ---          ---          ---
        Total...............................            100.0%     100.0%      100.0%       100.0%       100.0%
                                                     ========   ========    ========     ========     ========

</TABLE>

----------
(1)      In January 1999, we implemented organizational changes to better
         orient our product groups to end-use applications. As a result, net
         revenues have been restated for prior periods to reflect these changes.
         In addition, the former Dedicated Products Group has become the
         Telecommunications, Peripherals and Automotive Groups, while the former
         Programmable Products Group has become the Consumer and
         Microcontrollers Groups.

(2)      Includes revenues from sales of subsystems and other products and from
         the New Ventures Group, which was created in May 1994 to act as a
         center for our new business opportunities.

(3)      Revenues 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.  Net revenues by
         geographic region have been reclassified to reflect the creation of
         Region Five in January 1998 which includes emerging markets such as
         South America, Africa, Eastern Europe, the Middle East and India. Prior
         years have been restated to reflect this reclassification. In the
         fourth quarter of 2000, Region Five changed its name to become the
         Emerging Markets region.


                                       44
<PAGE>

         The following table sets forth certain financial data from our
consolidated statements of income since 1996, expressed in each case as a
percentage of net revenues:

<TABLE>
<CAPTION>

                                                                         Year ended December 31,
                                                         ------------------------------------------------------------
                                                           1996         1997          1998         1999        2000
                                                         ----------  ----------    ----------   ---------- ----------
<S>                                                        <C>          <C>           <C>          <C>         <C>
Net sales.........................................         98.9%        98.8%         99.1%        99.3%       99.4%
Other revenues....................................          1.1          1.2           0.9          0.7         0.6
                                                            ---          ---           ---          ---         ---

Net revenues......................................        100.0        100.0         100.0        100.0       100.0
Cost of sales.....................................        (58.6)       (61.1)        (61.7)       (60.4)      (54.0)
                                                          -----        -----         -----        -----       -----

Gross profit......................................         41.4         38.9          38.3         39.6        46.0

Operating Expenses:
Selling, general and administrative...............        (10.2)       (11.3)        (11.5)       (10.6)       (9.0)
Research and development..........................        (12.9)       (15.2)        (16.2)       (16.5)      (13.1)
Other income and expenses.........................          1.1          0.5           1.7          0.8        (1.1)
                                                            ---          ---           ---          ---        ----

Total operating expenses..........................        (22.0)       (26.0)        (26.0)       (26.3)      (23.2)
                                                          -----        -----         -----        -----       -----

Operating income..................................         19.4         12.9          12.3         13.3        22.8
Net interest income (expense).....................         (0.3)          --           0.2          0.7         0.6
Gain on disposal of investment....................          0.2           --            --           --          --
                                                            ---          ---           ---          ---         ---

Income before income taxes and minority interests.         19.3         12.9          12.5         14.0        23.4
Income tax expense................................         (4.2)        (2.9)         (2.8)        (3.1)       (4.8)
                                                           ----         ----          ----         ----        ----

Income before minority interests .................         15.1         10.0           9.7         10.9        18.6
Minority interests................................          0.1          0.1            --         (0.1)         --
                                                            ---          ---           ---         ----         ---

Net income........................................         15.2%        10.1%          9.7%       10.8%        18.6%
                                                           ====         ====           ===        ====         ====

</TABLE>

2000 vs. 1999

         In 2000, we benefited from the industry recovery and our strong market
position, and increased significantly our net revenues, operating income, net
income and diluted earnings per share in each successive quarter. We continued
to invest significant amounts in research and development and completed several
strategic acquisitions which enhanced our intellectual property portfolio. We
accelerated our capital spending during the year in order to build up capacity
to meet demand.

         Net revenues. Net sales increased 54.6%, from $5,023.1 million in 1999
to $7,764.4 million in 2000. The increase in net sales was primarily the result
of higher volume and an improved product mix, including sales of new products.
The exchange rate impact on net sales in 2000 was estimated to be negative.
Other revenues increased from $33.2 million in 1999 to $48.8 million in 2000 due
primarily to an increase in licensing revenues. Net revenues increased 54.5%,
from $5,056.3 million in 1999 to $7,813.2 million in 2000.

         The Telecommunications, Peripherals and Automotive Groups' net revenues
increased 51.0% primarily as a result of volume increases in wireless and
wireline telecommunications, data storage devices and automotive products and a
more favorable product mix in wireline products. The Discrete and Standard ICs
Group's net revenues increased 30.7%, as the volume increases in basically all
major product families and the more favorable product mix in standard
commodities and discrete devices more than offset the price declines in
basically all major product families. Net revenues of the Memory Products Group
increased by 85.8% as a result of volume increases in basically all product
families (such as Flash memories, smartcard ICs and EEPROMs) and improved mix in
Flash memories and EPROMs. The Consumer and Microcontrollers Groups' net
revenues increased 63.2% as a result of significantly higher volumes in digital
video, digital consumer applications and imaging products, partially offset by a
general decrease in prices in most major product families.

         Gross profit. Our gross profit increased 79.7%, from $2,001.8 million
in 1999 to $3,596.3 million in 2000 primarily as a result of higher net
revenues. As a percentage of net revenues, gross profit increased from 39.6% in

                                       45
<PAGE>

1999 to 46.0% in 2000, benefiting from higher production volumes, improved
product mix and a more cost-effective utilization of manufacturing facilities.

         Cost of sales increased from $3,054.5 million in 1999 to $4,216.9
million in 2000, primarily due to a significant increase in production volume,
the increase in purchases of wafers from external foundries and the increased
depreciation associated with new capital investments.

         The exchange rate impact on gross profit in 2000 compared to 1999 was
estimated to be favorable. The appreciation of the U.S. dollar versus the euro
had a favorable impact on cost of sales that was higher than the unfavorable
impact on net revenues. See "--Impact of Changes in Exchange Rates."

         Selling, general and administrative expenses. Selling, general and
administrative expenses increased 31.7%, from $534.2 million in 1999 to $703.7
million in 2000, reflecting increased efforts in the marketing and
administrative functions and the information technology area. As a percentage of
net revenues, selling, general and administrative expenses decreased from 10.6%
in 1999 to 9.0% in 2000.

         Research and development expenses. Research and development expenses
increased 22.8%, from $836.0 million in 1999 to $1,026.3 million in 2000. We
continued to invest heavily in research and development and plan to continue
increasing our research and development staff. We continue to allocate
significant financial resources to expand our market leadership in key
applications, reflecting our commitment to service and continuous innovation.
Our reported research and development expenses do not include marketing design
center, process engineering, pre-production or industrialization costs. As a
percentage of net revenues, research and development expenses decreased from
16.5% in 1999 to 13.1% in 2000.

         Other income and expenses. Other income and expenses decreased from
income of $39.9 million in 1999 to expenses of $83.6 million in 2000. Other
income and expenses include primarily funds received from government agencies in
connection with our research and development programs, the cost of new plant
start-ups, the amortization of goodwill and related acquisition costs, as well
as foreign currency gains and losses, the costs of certain activities relating
to intellectual property and miscellaneous revenues and expenses. The decrease
in other income and expenses resulted primarily from higher start-up costs of
new production facilities. In addition, lower funds received from government
agencies in connection with our research and development programs, higher patent
expenses and higher goodwill amortization contributed to the increase in
expenses.

         Operating income. Our operating income increased by 165.5%, from $671.5
million in 1999 to $1,782.7 million in 2000. The exchange rate impact on
operating income in 2000 was estimated to be favorable since the appreciation of
the U.S. dollar against the euro had a favorable impact on gross profit and
operating expenses.

         Net interest income (expense). Net interest income increased from
income of $35.6 million in 1999 to income of $46.7 million in 2000 primarily as
a result of the increase in cash and cash equivalents following the share
offering and the Liquid Yield Option (TM) Notes ("LYONs") offering completed on
September 22, 1999 and to the convertible debt offering completed on November
16, 2000.

         Income tax expense. Provision for income tax was $375.1 million in 2000
compared to $157.2 million in 1999, primarily as a result of the increase in
income before income taxes and minority interests. The accrued effective tax
rate decreased from 22.2% in 1999 to 20.5% in 2000 mainly due to the application
of new benefits in certain countries. As such benefits may not be available
after 2000, an increase in the effective tax rate could result in the coming
years.

         Net income. Our net income increased 165.3%, from $547.3 million to
$1,452.1 million. As a percentage of net revenues, 2000 net income was 18.6%, up
from 10.8% of 1999 net income. Diluted earnings per share reached $1.58, an
increase of 154.8% compared to diluted earnings per share of $0.62 in 1999. All
per share numbers have been adjusted to reflect the 2-for-1 stock split effected
in June 1999 and for the 3-for-1 stock split effected in May 2000.

1999 vs. 1998

         In 1999, we benefited from the industry recovery and our strong market
position, and increased our net revenues, operating income, net income and
diluted earnings per share in each successive quarter. We continued to

                                       46
<PAGE>


invest significant amounts in research and development and completed several
strategic acquisitions which enhanced our intellectual property portfolio. We
accelerated our capital spending in the second half of the year.

         Net revenues. Net sales increased 19.3%, from $4,210.6 million in 1998
to $5,023.1 million in 1999. The increase in net sales was primarily the result
of higher volume and an improved product mix, including sales of new products,
partly offset by declining average selling prices. The exchange rate impact on
net sales in 1999 was estimated to be negligible. Other revenues decreased from
$37.2 million in 1998 to $33.2 million in 1999 due primarily to a reduction in
licensing revenues. Net revenues increased 19.0%, from $4,247.8 million in 1998
to $5,056.3 million in 1999.

         The Telecommunications, Peripherals and Automotive Groups' net revenues
increased 24.3% primarily as a result of volume increases in wireless
telecommunications, data storage and automotive products and a more favorable
product mix. The Discrete and Standard ICs Group's net revenues increased 13.6%,
as the volume increases in basically all major product families and the more
favorable product mix in standard commodities more than offset the price
declines in all product families. Net revenues to the Memory Products Group
increased by 26.7% as the volume increases in all product families more than
offset the price declines in nearly all product families (such as EPROMs,
EEPROMs, smartcard ICs and flash memories). The Consumer and Microcontrollers
Groups' net revenues increased 9.4% as a result of significantly higher volumes
in digital video and microcontrollers products, partially offset by decreased
volumes in graphics products and lower prices in all product families.

         Gross profit. Our gross profit increased 23.2%, from $1,624.8 million
in 1998 to $2,001.8 million in 1999 primarily as a result of higher net
revenues. As a percentage of net revenues, gross profit increased from 38.3% in
1998 to 39.6% in 1999, due to higher sales volumes and improved manufacturing
efficiency.

         Costs of sales increased from $2,623.0 million in 1998 to $3,054.5
million in 1999, primarily due to a significant increase in production volume
and the increased depreciation associated with new capital investments.

         The exchange rate impact on gross profit in 1999 compared to 1998 was
estimated to be favorable, as the negligible impact of the variation of the U.S.
dollar on net revenues was more than offset by the positive impact on cost of
sales of the appreciation of the U.S. dollar versus the euro. See "--Impact of
Changes in Exchange Rates".

         Selling, general and administrative expenses. Selling, general and
administrative expenses increased 9.4%, from $488.1 million in 1998 to $534.2
million in 1999, reflecting higher expenditure for information technology,
marketing and administrative functions, including the expenses for year 2000
compliance. As a percentage of net revenues, selling, general and administrative
expenses decreased slightly from 11.5% in 1998 to 10.6% in 1999.

         Research and development expenses. Research and development expenses
increased 21.2%, from $689.8 million in 1998 to $836.0 million in 1999. We
continued to invest heavily in research and development and plan to continue
increasing our research and development staff. We continue to allocate
significant financial resources to expand our market leadership in key
applications, reflecting our commitment to service and continuous innovation.
Our reported research and development expenses do not include marketing design
center, process engineering, pre-production or industrialization costs. As a
percentage of net revenues, research and development expenses increased from
16.2% in 1998 to 16.5% in 1999.

         Other income and expenses. Other income and expenses decreased from
income of $76.5 million in 1998 to income of $39.9 million in 1999. Other income
and expenses include primarily funds received from government agencies in
connection with our research and development programs, the cost of new plant
start-ups, as well as foreign currency gains and losses, the costs of certain
activities relating to intellectual property and miscellaneous revenues and
expenses. The decrease in other income and expenses resulted primarily from
higher start-up costs of new production facilities, from the inclusion of the
goodwill amortization of Vision Group, of Peripherals Technology Solutions and,
to a lesser extent, of Arithmos, and from a slight decrease in funds received
from government agencies in connection with our research and development
programs.

         Operating income. Our operating income increased by 28.3%, from $523.4
million in 1998 to $671.5 million in 1999. The exchange rate impact on operating
income in 1999 was favorable since the appreciation of the U.S. dollar against
the euro had a favorable impact on gross profit and operating expenses.


                                       47
<PAGE>

         Net interest income (expense). Net interest income increased from
income of $8.7 million in 1998 to income of $35.6 million in 1999 primarily as a
result of the increase in cash and cash equivalents following the 1999 Share
Offering and the 1999 LYONs Offering completed on September 22, 1999.

         Income tax expense. Provision for income tax was $157.2 million in 1999
compared to $120.4 million in 1998, primarily as a result of the increase in
income before income taxes and minority interests. The accrued effective tax
rate decreased from 22.6% in 1998 to 22.2% in 1999 mainly due to the application
of benefits in certain countries. As such benefits may not be available after
1999, an increase in the effective tax rate could result in the coming years.

         Net income. Our net income increased 33.1%, from $411.1 million to
$547.3 million. As a percentage of sales, 1999 net income was 10.8%, up from
9.7% of 1998 net income. The increase was mainly due to higher net sales.
Diluted earnings per share reached $0.62 compared to diluted earnings per share
of $0.48 in 1998. All per share numbers have been adjusted to reflect the
2-for-1 stock split effected in June 1999 and the 3-for-1 stock split effected
in May 2000.

Quarterly Results of Operations

         The following table sets forth certain financial information for the
years 1999 and 2000. Such information is derived from unaudited consolidated
financial statements, prepared on a basis consistent with the audited
consolidated financial statements, that include, in the opinion of management,
only normal recurring adjustments necessary for a fair presentation of the
information set forth therein. Operating results for any quarter are not
necessarily indicative of results for any future period. In addition, in view of
the significant growth experienced by us in recent years, the increasingly
competitive nature of the markets in which we operate, the changes in product
mix and the currency effects of changes in the composition of sales and
production among different geographic regions, we believe that period-to-period
comparisons of our operating results should not be relied upon as an indication
of future performance.

         Our quarterly and annual operating results are also affected by a wide
variety of other factors that could materially and adversely affect revenues and
profitability or lead to significant variability of operating results,
including, among others, capital requirements and the availability of funding,
competition, new product development and technological change and manufacturing.
In addition, a number of other factors could lead to fluctuations in operating
results, including order cancellations or reduced bookings by key customers or
distributors, intellectual property developments, international events, currency
fluctuations, problems in obtaining adequate raw materials on a timely basis,
and the loss of key personnel. As only a portion of our expenses varies with our
revenues, there can be no assurance that we will be able to reduce costs
promptly or adequately in relation to revenue declines to compensate for the
effect of any such factors. As a result, unfavorable changes in the above or
other factors have in the past and may in the future adversely affect our
operating results.

                                       48
<PAGE>


<TABLE>
<CAPTION>

                                                            Quarter ended (Unaudited)
                                 ----------------------------------------------------------------------------------------
                                  April 3,   July 3,   Oct. 2,   Dec. 31,   April 1,    July 1,    Sept. 30,   Dec. 31,
                                   1999       1999       1999      1999       2000       2000        2000        2000
                                 ---------- --------- --------- ---------- ----------- --------- ----------- ------------
                                              (in millions, except percentages and per share data)(1)
<S>                                <C>      <C>        <C>       <C>        <C>        <C>        <C>        <C>
  Consolidated Statement of
  Income Data
  Net revenues..............      $1,113.3  $1,190.6   $1,274.2  $1,478.2   $1,702.2    $ 1,877.3  $ 2,042.0  $ 2,191.7
  Cost of sales.............        (685.4)   (719.9)    (766.8)   (882.4)    (985.1)    (1,001.6)  (1,077.1)  (1,153.1)
                                 ---------- --------- --------- ---------- ----------- --------- ----------- ------------
  Gross profit..............         427.9     470.7      507.4     595.8      717.1        875.7      964.9    1,038.6

  Operating expenses:
  Selling, general and
    administrative..........       (119.1)    (130.3)    (136.8)   (148.0)    (159.5)      (177.1)    (174.0)    (193.1)

  Research and development..        (193.5)   (202.8)    (205.5)   (234.1)    (235.1)      (245.1)    (259.8)    (286.4)
  Other income and expenses.          16.1      14.9        5.0       3.8      (30.5)       (37.7)     (19.3)       4.1
  Total operating expenses..        (296.5)   (318.2)    (337.3)   (378.3)    (425.1)      (459.9)    (453.1)    (475.4)
                                 ---------- --------- --------- ---------- ----------- --------- ----------- ------------
Operating income..........           131.4     152.5      170.1     217.5      292.0        415.8      511.8      563.2
  Net interest income.......           3.7       6.0        8.2      17.7       16.4         14.0        7.3        9.0
                                 ---------- --------- --------- ---------- ----------- --------- ----------- ------------
  Income before income taxes
    and minority interests..         135.1     158.5      178.3     235.2      308.4        429.8      519.1      572.2
  Income tax expense.......          (29.9)   (35.4)     (41.6)    (50.3)     (69.4)       (92.7)    (103.6)    (109.5)
                                  ---------- --------- --------- ---------- ----------- --------- ----------- ------------
  Income before minority
    interests...............         105.2     123.1      136.7     184.9      239.0        337.1      415.5      462.7
  Minority interests........          (0.1)     (0.6)      (1.4)     (0.6)      (0.6)        (0.6)      (0.2)      (0.8)
                                 ---------- --------- --------- ---------- ----------- --------- ----------- ------------
  Net income................      $  105.1  $  122.5   $  135.3  $  184.3   $  238.4  $     336.5  $   415.3  $   461.9
                                 ========== ========= ========= ========== =========== ========= =========== ============
  Earnings per share (basic)          $0.12 $    0.14  $    0.16 $    0.21  $    0.27 $       0.38 $     0.47 $     0.52
  Earnings per share (diluted)        $0.12 $    0.14  $    0.15 $    0.21  $    0.26 $       0.37 $     0.45 $     0.50
  Number of shares used in
    calculating earnings per
    share (basic)...........         855.1     856.5      858.2     866.8      878.2        887.0      888.5      889.3
  Number of shares used in
    calculating earnings per
    share (diluted).........         888.3     890.6      896.2     930.6      933.5        934.5      934.0      942.4

                                                             As a percentage of net revenues

  Net revenues..............         100.0%    100.0%     100.0%    100.0%     100.0%       100.0%     100.0%     100.0%
  Cost of sales.............         (61.6)    (60.5)     (60.2)    (59.7)     (57.9)       (53.4)     (52.7)     (52.6)
                                 ---------- --------- --------- ---------- ----------- --------- ----------- ------------
  Gross profit..............          38.4      39.5       39.8      40.3       42.1         46.6       47.3       47.4

  Operating expenses:
  Selling, general and
    administrative..........         (10.7)    (10.9)     (10.7)    (10.0)      (9.4)        (9.4)      (8.5)      (8.8)
  Research and development..         (17.4)    (17.0)     (16.1)    (15.8)     (13.8)       (13.1)     (12.7)     (13.1)
  Other income and expenses.           1.5       1.2        0.3       0.2       (1.8)        (2.0)      (0.9)       0.2
                                 ---------- --------- --------- ---------- ----------- --------- ----------- ------------
  Total operating expenses..         (26.6)    (26.7)     (26.5)    (25.6)     (25.0)       (24.5)     (22.2)     (21.7)
                                 ---------- --------- --------- ---------- ----------- --------- ----------- ------------
  Operating income..........          11.8      12.8       13.3      14.7       17.2         22.1       25.1       25.7
  Net interest income.......           0.3       0.5        0.7       1.2        1.0          0.8        0.3        0.4
  Income before income taxes
    and minority interests..          12.1      13.3       14.0      15.9       18.1         22.9       25.4       26.1
                                 ---------- --------- --------- ---------- ----------- --------- ----------- ------------
  Income tax expense........          (2.7)     (3.0)      (3.3)     (3.4)      (4.1)        (4.9)      (5.1)      (5.0)
  Income before minority
    interests...............           9.4      10.3       10.7      12.5       14.0         18.0       20.3       21.1
                                 ---------- --------- --------- ---------- ----------- --------- ----------- ------------
  Minority interests........           -         -         (0.1)       -         -           (0.1)       -          -
  Net income................           9.4%     10.3%      10.6%     12.5%      14.0%        17.9%      20.3%      21.1%
                                 ========== ========= ========= ========== =========== ========= =========== ============

</TABLE>

-------------
(1)      All share information has been adjusted to reflect the 2-for-1 stock
         split effected in June 1999 and the 3-for-1 stock split effected in May
         2000.

         Net revenues. Fourth quarter 2000 net revenues recorded a 7.3%
sequential improvement over the third quarter of 2000, with gains mainly from
the Memory Products Group and the Telecommunications, Peripherals and Automotive
Groups. We recorded an increase in net revenues of 48.3% versus the fourth
quarter of 1999, experiencing strong sales gains across all product groups.
Third quarter 2000 net revenues showed an 8.8% sequential increase over the
second quarter of 2000 in spite of seasonal factors that generally reduce sales
during the

                                       49
<PAGE>

summer months and were 60.3% above 1999 third quarter net revenues. Second
quarter 2000 net revenues increased 10.3% compared to the first quarter of 2000,
and were 57.7% above second quarter 1999 net revenues. First quarter 2000 net
revenues increased 15.2% compared to the fourth quarter of 1999, and were 52.9%
above first quarter 1999 net revenues.

         With respect to the product groups, the Memory Products Group had the
highest year-over-year and quarter-over-quarter results; its revenues in the
2000 fourth quarter rose 84.1% in comparison to the 1999 fourth quarter and
increased 13.7% in comparison to the 2000 third quarter, reflecting our
significant progress in penetrating the market with new generation flash
products. In the 2000 fourth quarter, net revenues from the Telecommunications,
Peripherals and Automotive Groups increased 49.2% over the year ago quarter and
12.0% sequentially, reflecting the strength in sales of ICs for
telecommunications, mainly wireless, hard disk drives, digital cellular phones
and automotive applications. Net revenues for the Consumer and Microcontrollers
Groups increased 39.4% compared to the 1999 fourth quarter and net revenues for
the Discrete and Standards ICs Products Group increased 15.5%. Overall, our
48.3% revenue growth of the 2000 fourth quarter over the 1999 fourth quarter
resulted from the rapidly increasing demand for our products as well as our
ability to effectively deploy our resources.

         In 2000, approximately 34% of our net revenues originated in Europe,
compared to approximately 36% in 1999. Our third quarter revenues in Europe have
generally been slightly less than average revenues during other quarters due to
production slowdowns by our European customers in July and August. Quarterly
results have also been and may be expected to continue to be substantially
affected by the cyclical nature of the semiconductor and electronic systems
industries, the timing and success of new product introductions and the levels
of provisions and other unusual charges incurred.

         Gross profit. In the fourth quarter of 2000, gross profit was $1,038.6
million, 74.3% above the year-ago period. Gross profit margin in the 2000 fourth
quarter was 47.4%, representing a significant improvement compared to 40.3 % in
the fourth quarter of 1999, as a result of higher production volumes, improved
product mix, and more cost-effective utilization of manufacturing facilities.

         Selling, general and administrative expenses. Selling, general and
administrative expenses were $193.1 million in the fourth quarter of 2000, or
8.8% of net revenues, compared to $148.0 million, or 10.0% of net revenues in
the fourth quarter of 1999. The percentage decrease results principally from the
increase in net revenues.

         Research and development expenses. In the fourth quarter of 2000,
research and development costs of $286.4 million increased 22.3% compared to the
fourth quarter of 1999. Research and development represented 13.1% of net
revenues in the fourth quarter of 2000 compared to 15.8% of net revenues in the
fourth quarter of 1999, as a result of the increase in net revenues.

         Other income and expenses. Other income and expenses remained basically
unchanged from income of $3.8 million in the 1999 fourth quarter to income of
$4.1 million in 2000 fourth quarter as the gain from the sale of certain
marketable securities was offset by lower research and development funding
received from government agencies in connection with our research and
development programs and slightly higher start-up costs of new production
facilities.

         Operating income. Operating income reached $563.2 million in the fourth
quarter of 2000 which represented an increase of 158.9% compared to the level of
the fourth quarter of 1999. Operating income margin for the 2000 fourth quarter
was 25.7% compared to 14.7% in the 1999 fourth quarter.

         Net income. Net income for the 2000 fourth quarter rose sharply,
increasing 150.6% to $461.9 million compared to $184.3 million in the 1999
fourth quarter and 11.2% compared to $415.3 million in the third quarter 2000.
Diluted earnings per share increased 138.1% to $0.50 from $0.21 in the fourth
quarter 1999 and 11.1% from $0.45 in the third quarter 2000. All per share
figures have been adjusted to reflect the 2-for-1 stock split effected in June
1999 and the 3-for-1 stock split effect May 2000.

         During the first quarter of 2001, the semiconductor industry
experienced a decline in revenues in excess of earlier forecasts, estimated at a
4% decrease versus the first quarter of 2000 and 19% sequentially. Based on
this, the latest forecasts by industry analysts estimate a 12% decline in the
TAM and a 10% decline in the SAM in 2001 compared to 2000. Our revenues have
been affected by the strong negative market correction that is currently taking
place. On a comparative basis with the first quarter of 2000, our first quarter
2001 revenues recorded a 12.9% increase, in excess of the industry average, but
12.3% below the revenue level reached in the fourth quarter of 2000.

                                       50
<PAGE>

We have taken steps to significantly reduce costs during this period of
uncertain market conditions. Specifically, capital expenditure plans for 2001
have been reduced from $2.5 billion to $1.9 billion and stringent cost control
programs have taken effect throughout our company, including a hiring freeze.

         These forward-looking statements are subject to certain risks and
uncertainties, in particular the rapid pace of change in the semiconductor
industry, and may differ materially from actual events.

Impact of Changes in Exchange Rate

         Our results of operations and financial condition can be significantly
affected by changes in exchange rates between the U.S. dollar and other
currencies, particularly the euro (with respect to prior periods, the Italian
lira, the French franc, the German mark), the Japanese yen and other Asian
currencies.

         Revenues for certain products (primarily dedicated products sold in
Europe and Japan) that are quoted in currencies other than the U.S. dollar are
directly affected by fluctuations in the value of the U.S. dollar. Revenues for
all other products, which are quoted in U.S. dollars and translated into local
currencies for payment, tend not to be affected significantly by fluctuations in
exchange rates except to the extent that there is a lag between changes in
currency rates and adjustments in the local currency equivalent price paid for
such products.

         Certain significant costs incurred by us, such as manufacturing labor
costs and depreciation charges, selling, general and administrative expenses,
and research and development expenses, are incurred in the currencies of
jurisdictions where our operations are located. Fluctuations in the value of
these currencies, particularly the euro, compared to the U.S. dollar can affect
our costs and therefore our profitability.

         The appreciation in the U.S. dollar in 2000 compared to 1999 against
the principal European and Asian currencies (excluding the Japanese yen, which
appreciated compared to the U.S. dollar) that have a material impact on us
resulted in a favorable impact on results of operations because of the favorable
impact on cost of sales and operating expenses.

         Our principal strategies to reduce the risks associated with exchange
rate fluctuations have been (i) to increase the proportion of sales to customers
denominated in U.S. dollars, (ii) to purchase raw materials and services in
transactions denominated in U.S. dollars (thereby reducing the exchange rate
risk for costs relative to revenues, which are principally denominated or
determined by reference to the U.S. dollar), and (iii) to manage certain other
costs, such as financial costs, to maintain an appropriate balance between U.S.
dollars and other currencies based upon the currency environment at the time.
From time to time, we purchase or sell currencies forward to cover currency risk
in obligations or receivables. We have not experienced significant gains or
losses as a result of exchange coverage activities. Our management strategies to
reduce exchange rate risks have served to mitigate, but not eliminate, the
positive or negative impact of exchange rate fluctuations. Furthermore, the
introduction of the euro as of January 1, 1999, has served to reduce the number
of currencies whose exchange rate fluctuations versus the U.S. dollar may impact
our results, thus making our exposure to exchange rate fluctuations more
concentrated.

         Assets and liabilities of subsidiaries are, for consolidation purposes,
translated into U.S. dollars at the period-end exchange rate. See Note 2.3 to
the Consolidated Financial Statements. Income and expenses are translated at the
average exchange rate for the period. Adjustments resulting from the translation
are recorded directly in shareholders' equity, and are shown as "accumulated
other comprehensive income (loss)" in the consolidated statements of changes in
shareholders' equity. The balance sheet impact of such translation adjustments
has been, and may be expected to be, significant from period to period.

         At December 31, 2000, our outstanding indebtedness was denominated
principally in U.S. dollars, French francs and Italian lire. See Note 14 to the
Consolidated Financial Statements.

Liquidity and Capital Resources

         Treasury activities are regulated by our procedures which define
policies, objectives and controls. The policies focus on the management of our
financial risk in terms of exposure to exchange rates and interest rates. Our
objectives are to neutralize our exposure to changes in exchange rates, to
optimize the use of credit facilities and funds available, and to obtain the
best possible market conditions for our financial and treasury operations. Our
treasury controls include systematic reporting to senior management and are
subject to internal and external audits. Most of our treasury activities are
centralized, with any local treasury activities subject to oversight from our
head

                                       51
<PAGE>

treasury office. Basically all of our cash and cash equivalents are held in U.S.
dollars and are placed with financial institutions rated "A+" or higher.
Marginal amounts are held in other currencies. Foreign currency operations and
hedging transactions are performed only to cover commercial positions. For
further information on our funding and treasury policies, see "Item 11:
Quantitative and Qualitative Disclosures About Market Risk."

         On November 16, 2000, we issued $1,480.0 million initial aggregate
principal amount of zero-coupon unsubordinated convertible notes, due 2010, with
yield to maturity of 3.75% per annum. Our net proceeds in connection with the
2000 notes offering were $1,457.8 million. On September 22, 1999, we completed
an equity offering of 8,970,000 shares of capital stock at $24.88 per share
(adjusted for the three-for-one stock split). Our net proceeds in connection
with the 1999 equity offering were $216.8 million. On September 22, 1999, we
also issued $720.9 million initial aggregate principal amount of zero-coupon
convertible Liquid Yield Option(TM) Notes, due 2009, with yield to maturity of
2.4375% per annum. Our net proceeds in connection with the 1999 LYONs offering
was $708.3 million. Our net cash generated from operations totaled $2.4 billion
in 2000 compared to $1.5 billion in 1999 and $1.0 billion in 1998. Significant
amounts of net cash generated from operations in 1998, 1999 and 2000 coupled
with the debt offering undertaken by us in November 2000, and the equity and
debt offerings in September 1999, enabled us to finance capital expenditures and
strengthen our balance sheet over the last five years.

         We had a negative net financial position (cash, cash equivalents and
marketable securities net of total debt) of $511.2 million at December 31, 2000
compared to a positive net financial position of $351.4 million at December 31,
1999. At December 31, 2000, cash and cash equivalents totaled $2,295.7 million,
compared to $1,823.1 million at December 31, 1999. At December 31, 2000, the
aggregate amount of our long-term debt was approximately $2,806 million, all of
which was outstanding, and additionally the aggregate amount of our short-term
credit facilities was approximately $884 million, under which approximately $36
million of indebtedness was outstanding. At December 31, 2000, we had
approximately $106 million of long-term indebtedness that will become due within
one year and expect to fund such debt repayments from available cash. During
2000, certain holders of our 1998 and 1999 LYONs requested conversion of the
LYONs into our shares for approximately $334 million principal amount at
maturity. We have issued a redemption notice for these LYONs and intend to
redeem them at a redemption price of $885.22 per $1,000 principal amount on June
11, 2001. According to the information available to us, on May 11, 2001,
approximately $45.6 million in total indebtedness was outstanding under the 1998
LYONs. Based on the amount outstanding on May 11, 2001, if all remaining holders
of the 1998 LYONs chose to convert them into Common Shares before the redemption
date, 2,772,291 Common Shares would be issued.

         In 2000, our capital expenditure payments totaled $3.3 billion,
compared to $1.3 billion in 1999. Capital expenditures for 2000 were devoted
principally to (i) the conversion from 150mm to 200mm and expansion at one of
our front-end wafer fabrication plants in Agrate (Italy), (ii) the increase of
capacity of the 200mm facilities and upgrading of the 150mm fabrication plant in
Catania (Italy), (iii) the completion of construction of our new 200mm front-end
wafer fabrication facility in Rousset (France), (iv) the conversion of our
facilities in Crolles (France), to 0.25 micron and 0.18 micron processes, (v)
the construction of a new 200mm facility and the equipment of a new 150mm
facility in Singapore, (vi) the increase of capacity of our 200mm facilities in
Phoenix (Arizona), and of the 150mm facility in Carrollton (Texas), and (vii)
the expansion of the back-end facilities in Muar (Malaysia), Morocco and
Singapore. Capital expenditures for 1999 were used principally to (i) expand a
150mm facility and the construction of a new 200mm front-end facility in Agrate
(Italy), (ii) equip and upgrade both the new 200mm and existing 150mm front-end
facilities at the Catania (Italy) plant, (iii) expand the 200mm front-end wafer
fabrication plant in Crolles (France), (iv) expand the 150mm facility in
Carrollton (Texas), (v) upgrade the 150mm facility in Rousset (France), (vi)
ramp-up of production at the Phoenix (Arizona) 200mm front-end facility, (vii)
construct the new 200mm front-end plant in Rousset (France) and (viii) expand
the back-end facilities in Muar (Malaysia), Morocco, Malta and Shenzhen (China).

         According to present visibility, as of the end of March 2001, we
currently expect that capital spending for 2001 will be in the range of $1.9
billion, with the ability to adjust that amount up or down in response to the
changes in market conditions. The most significant of our 2001 capital
expenditure projects are expected to be (i) the expansion of the 200mm front-end
facilities in France and Italy, (ii) the start-up of the 200mm facility in
Singapore, (iii) the expansion of the new back-end facilities in Morocco and
(iv) the conversion of the facilities in Crolles (France), from 0.18 micron to
0.15 micron processes. We have also decided to build a new 300mm wafer research
fabrication and pilot line at Crolles (France) using 0.18 micron and below
process technology. The pilot line will be operated in partnership with LETI and
CNET, which are already working with us in Crolles. We will continue to monitor
our level of capital spending, however, taking into consideration factors such
as trends in the semiconductor market, capacity utilization and announced
additions.

                                       52
<PAGE>


         At December 31, 2000, our receivables from government agencies totaled
$139.4 million compared to $152.2 million in 1999. See Note 7 to the
Consolidated Financial Statements. In 2000, our advances from government
agencies totaled $10.6 million compared to $38.7 million in 1999. See Note 15 to
the Consolidated Financial Statements. The timing of receipt of funds under
government contracts has been delayed from time to time in the past, and while
generally we have received the amounts recorded in such receivables, there have
been instances in which such funds ultimately have not been paid.

         We expect to have significant capital requirements in the coming years
and intend to continue to devote a substantial portion of our net revenues to
research and development. We plan to fund our capital requirements from cash
from operations, available funds, available support from third parties
(including state support) and may make recourse to borrowings under available
credit lines and, to the extent necessary or attractive based on market
conditions prevailing at the time, the sale of debt or additional equity
securities. There can be no assurance that additional financing will be
available as necessary to fund our working capital requirements, research and
development, industrialization costs or expansion plans, or that any such
financing, if available, will be on terms acceptable to us.

         We believe that our available funds, available support from third
parties, and additional borrowings will be sufficient to meet our anticipated
needs for liquidity through at least 2001. For further information on our
research and development, including amounts spent, see "Item 4: Information on
the Company -- Research and Development."

Impact of Recently Issued U.S. Accounting Standards

         In June 1998, the U.S. Financial Accounting Standards Board issued
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
("Statement No. 133"), which is required to be adopted in fiscal years beginning
after June 15, 2000. Statement No. 133 requires us to recognize all derivatives
on the balance sheet at fair value. Derivatives that are not used for hedging
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. We have adopted the standards required by this statement
in the first quarter of 2001. We believe that adoption of Statement No. 133 has
not had a material effect on our financial position or results of operations.

         In December 1999, the U.S. Securities and Exchange Commission released
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
("SAB 101"), providing the staff's views on applying generally accepted
accounting principles to selected revenue recognition issues. For companies with
fiscal years that begin between December 16, 1999 and March 15, 2000, portions
of SAB 101 became effective in the fourth quarter of 2000. We believe that
adoption of these portions of SAB 101 has not had a material effect on our
financial position or overall trends in results of operations.

Euro Conversion

         On January 1, 1999, eleven of the fifteen member countries of the
European Union established fixed conversion rates between their existing
national currencies and the euro. The participating countries agreed to adopt
the euro as their common legal currency on that date. Until January 1, 2002,
either the euro or a participating country's present currency (a "national
currency") will be accepted as legal currency. On January 1, 2002,
euro-denominated bills and coins will be issued and national currencies will be
withdrawn from circulation during the subsequent six months. We do not expect
that the introduction and use of the euro will materially affect our foreign
exchange activities, or our use of derivatives and other financial instruments,
or will result in any material increase in costs to us. We will continue to
assess the impact of the introduction of the euro currency over the transition
period as well as the period subsequent to the transition, as applicable.

Backlog

         Our backlog has increased steadily since the end of 1998 and we
continued to experience record incoming order rates and backlog levels during
2000. In order to meet this backlog, we are ramping up production at the new
200mm facility at Rousset, France, and Agrate, Italy, facilities and we are also
increasing our use of front-end external foundry services. Orders under frame
contracts also increased during 2000. Frame contracts are annual

                                       53
<PAGE>

fixed-price contracts with customers setting forth the forecasted quantities and
schedule for purchase and sale of specific products that may be ordered in the
future. Frame contracts are intended to secure capacity availability for the
customer and improved visibility with respect to customer requirements. Due to
the deterioration of the semiconductor industry recorded during the first
quarter of 2001, our backlog at the end of March 2001 declined in comparison to
the end of December 2000.

ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

Directors and Senior Management

Supervisory Board

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

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

         Pursuant to various shareholders agreements, the membership of our
Supervisory Board must include three members designated by the French
shareholders from the Board of Directors of FT1CI (following the merger of FT2CI
and FT1CI, a corporation owned by CEA-Industrie and France Telecom), and three
members designated by the Italian shareholder. See "Item 7: Major Shareholders
and Related Party Transactions - Major Shareholders - Shareholder Agreements."
Our Supervisory Board currently includes three members who are not affiliated
with ST Holding and its direct and indirect shareholders.

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

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

         The shareholders agreement between the group of French shareholders and
the Italian shareholder, as shareholders of ST Holding, also includes certain
provisions requiring the approval of the Supervisory Board of ST

                                       54
<PAGE>

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

         The members of the Supervisory Board are:
<TABLE>
<CAPTION>

   Name                                      Position           Year Appointed    Term Expires      Age
----------                                --------------     -------------------- ------------   ------
<S>                                        <C>                       <C>              <C>           <C>
Jean-Pierre Noblanc...................     Chairman                  1994             2002          62
Bruno Steve...........................     Vice Chairman             1989             2002          59
Tom de Waard..........................     Member                    1998             2002          54
Remy Dullieux.........................     Member                    1993             2002          50
Douglas Dunn..........................     Member                    2001             2002          57
Riccardo Gallo........................     Member                    1997             2002          57
Francis Gavois........................     Member                    1998             2002          65
Alessandro Ovi........................     Member                    1994             2002          57
Robert M. White.......................     Member                    1996             2002          62
</TABLE>

         Jean-Pierre Noblanc has been the Chairman of the Supervisory Board
since May 31, 1999, and has been a member of the Supervisory Board since 1994.
He served as Vice Chairman of the Supervisory Board from June 1996 to May 31,
1999. Mr. Noblanc is presently General Manager of the Components Sector of CEA
Industrie. Prior to joining CEA Industrie, Mr. Noblanc served at CNET, the
Research Center of France Telecom, as Director of the Applied Research Center of
Bagneux and of the Microelectronics Center of Grenoble. Mr. Noblanc holds a
degree in engineering from the Ecole Superieure d'Electricite and a doctoral
degree in physical sciences from the University of Paris. Mr. Noblanc is a
Member of the French Academy of Technology and serves on the Board of Directors
of CEA Industrie, FT1CI and Picogiga S.A. He is also the Chairman of the Board
of MEDEA+, an industry research and development program on microelectronics
belonging to the EUREKA organization.

         Bruno Steve has been a member of our Supervisory Board since 1989 and
its Chairman until May 31, 1999. He served as Vice Chairman of the Supervisory
Board from 1989 to July 1990. From July 1990 to March 1993, Mr. Steve served as
Chairman of the Supervisory Board. He has been with I.R.I., Finmeccanica's
parent company, Finmeccanica and other affiliates of I.R.I. in various senior
positions for over 17 years. Mr. Steve is currently President of the board of
statutory auditors of Alitalia S.p.a., Italia Express S.p.a. and Sigma S.p.A.,
Chairman of the Board of EEMS S.p.A., and member of statutory auditors of
Stretto di Messina S.p.A. Until December 1999, he served as Chairman of MEI. He
served as the Chief Operating Officer of Finmeccanica from 1988 to July 1997 and
Chief Executive Officer from May 1995 to July 1997. He was Senior Vice President
of Planning, Finance and Control of I.R.I. from 1984 to 1988. Prior to 1984, Mr.
Steve served in several key executive positions at Telecom Italia, I.R.I.'s
holding company for the telecommunications sector.

         Tom de Waard was appointed to the Supervisory Board in 1998. Mr. de
Waard has been a partner of Clifford Chance, a leading English law firm, since
March 2000. Prior to that, he was a partner at Stibbe, Simont, Monahan, & Duhot,
where he held several positions since 1979 and gained extensive experience
working with major international companies, particularly with respect to
corporate finance. He is a member of the Amsterdam bar and received his law
degree from Leiden University in 1979.

         Remy Dullieux has been a member of the Supervisory Board since 1993. He
is a graduate of the Ecole Polytechnique. Since June 1996, Mr. Dullieux has
served as a France Telecom Executive Manager for the Northern and Eastern areas
of France. From 1991 to June 1996, Mr. Dullieux served as Group Executive Vice
President for Strategic Procurement and Development of France Telecom. From 1985
to 1988, Mr. Dullieux served as Regional Manager of Creteil. Mr Dullieux also
serves on the Board of Directors of FT1CI.

                                       55
<PAGE>


         Douglas Dunn was appointed to the Supervisory Board in 2001. He is
President and Chief Executive Officer of ASM Lithography Holding N.V. He was a
member of the Managing Board of Royal Philips Electronics in 1998. From 1996 to
1998 he was Chairman and Chief Executive Officer of Philips Consumer
Electronics. From 1993 to 1996 Chairman and Chief Executive Officer of Philips
Semiconductors. From 1980 to 1993 he held various positions at Plessey
Semiconductors. Prior to 1980, Mr. Dunn served in executive positions at
Motorola Semiconductors.

         Riccardo Gallo was appointed to the Supervisory Board in 1997. He is
Associate Professor of Industrial Economics at the Engineering Faculty of "La
Sapienza" University in Rome. He has also been a member of the board of
directors of Comitato Sir from 1981 until the present. From 1982 to 1991, he
served as Director General at the Italian Ministry of the National Budget. In
the early 1990s, he served as Vice Chairman of I.R.I. In 1994, he was appointed
by the Italian Minister of Industry as Extraordinary Commissioner of Fidia, a
research-oriented pharmaceutical company.

         Francis Gavois was appointed to the Supervisory Board in 1998. Mr.
Gavois is the Chairman of the Supervisory Board of ODDO et Cie. He is also a
member of the Board of Directors of Plastic Omnium, FT1CI and the Supervisory
Board of the Consortium de Realisation (CDR). From 1984 to 1997, Mr. Gavois held
several positions, including Chairman of the Board of Directors and Chief
Executive Officer of Banque Francaise du Commerce Exterieur (BFCE). Prior to
that time Mr. Gavois held positions in the French government. He is Inspecteur
des Finances and a graduate of the Institut d'Etudes Politiques de Paris and the
Ecole Nationale d'Administration.

         Alessandro Ovi has been a member of the Supervisory Board since 1994.
He received a doctoral degree in Nuclear Engineering from the Politecnico in
Milan and a masters degree in operations research from Massachusetts Institute
of Technology. He currently is a Special Advisor to the President of the
European Community and also serves on the boards of Carnegie Mellon University
and Corporation Development Committee of the Massachusetts Institute of
Technology. Until April 2000, Mr. Ovi was the Chief Executive Officer of
Tecnitel S.p.a., a subsidiary of Telecom Italia Group. Prior to joining Tecnitel
S.p.A., Mr. Ovi was the Senior Vice President of International Affairs and
Communications at I.R.I.

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

Supervisory Board Committees

         Audit Committee. The Audit Committee was established in 1996 to assist
the Supervisory Board in fulfilling its oversight responsibilities relating to
corporate accounting, reporting practices, and the quality and integrity of our
financial reports. Its primary duties and responsibilities according to its
charter are to oversee that:

         o        Our management has maintained the reliability and integrity of
                  the accounting policies and financial reporting and disclosure
                  practices;

         o        Our management has established and maintained processes to
                  assure compliance with all applicable laws, regulations and
                  corporate policy concerning financial accounting; and

         o        The independence and performance of our external auditors.

         Our Audit Committee is composed of four directors, and meets at least
five times annually, and more frequently as circumstances dictate. It is
currently chaired by Mr. de Waard and also comprised of Messrs. Gavois, Ovi and
White.

         Compensation Committee. Our Compensation Committee approves the
compensation for the sole member of our Managing Board. It also approves any
increase in the incentive compensation component of our executive officers.
Finally, the Compensation Committee is informed of the compensation plans for
our executive officers. It is currently comprised of the Chairman (Mr. Noblanc),
the Vice-Chairman (Mr. Steve) and Mr. White.


                                       56
<PAGE>

         Strategic Committee. Our Strategic Committee was instituted to monitor
key developments within the semiconductor industry and our overall strategy, and
is particularly involved in supervising the execution of significant
transactions. Our Strategic Committee does not have a charter or regular
meetings, but meets as often as is required by our ongoing business or any new
significant opportunities. It is currently comprised of Messrs. Noblanc and
Steve.

Managing Board

         Our management is entrusted to the Managing Board under the supervision
of the Supervisory Board. Mr. Pasquale Pistorio, our President and Chief
Executive Officer, is currently the sole member of the Managing Board. His term
expires in 2002. There is no mandatory retirement age for members of our
Managing Board.

         Under the Articles of Association, the Managing Board must obtain prior
approval from the Supervisory Board for (i) all proposals to be submitted to a
vote at the general meeting of shareholders; (ii) the formation of all
companies, acquisition or sale of any participation, and conclusion of any
cooperation and participation agreement; (iii) all of our multi-year plans and
the budget for the coming year, covering investment policy, policy regarding
research and development, as well as commercial policy and objectives, general
financial policy, and policy regarding personnel; and (iv) all acts, decisions
or operations covered by the foregoing and constituting a significant change
with respect to decisions already taken by the Supervisory Board. The Managing
Board must seek approval from the general meeting of shareholders for decisions
relating to (i) the sale of all or of an important part of our assets or
concerns; and (ii) all mergers, acquisitions or joint ventures which we wish to
enter into and which the Supervisory Board considers to be of material
significance. In addition, under the Articles of Association, the Supervisory
Board may specify by resolution certain actions by the Managing Board that
require its prior approval. Following the adoption of such a resolution, the
actions by the Managing Board requiring such prior approval include the
following: (i) modification of our Articles of Association; (ii) change in our
authorized share capital, issue, acquisition or disposal of our own shares,
change in any shareholder rights or issue of any instruments granting an
interest in our capital or profits; (iii) liquidation or disposal of all or a
substantial and material part of our assets or any shares we hold in any of our
subsidiaries; (iv) entering into any merger, acquisition or joint venture
agreement (and, if substantial and material, any agreement relating to
intellectual property) or formation of a new company; (v) approval of such
company's draft consolidated balance sheets and financial statements or any
profit distribution by such company; (vi) entering into any agreement with any
of the direct or indirect French or Italian shareholders outside the normal
course of business; (vii) submission of documents reporting on (a) approved
policy, expected progress and results and (b) strategic long-term business plans
and consolidated annual budgets or any modifications to such; (viii) preparation
of long-term business plans and annual budgets; (ix) adoption and implementation
of such long-term business plans and annual budgets; (x) approval of all
operations outside the normal course of business, including operations already
provided for in the annual budget; and (xi) approval of the quarterly,
semi-annual and annual consolidated financial statements prepared in accordance
with internationally accepted accounting principles. Such resolution also
requires that the Managing Board obtain prior approval from the Supervisory
Board for (i) the appointment of the members of the statutory management,
administration and control bodies of our French and Italian subsidiaries; and
(ii) the nomination of our statutory management, administration and control
bodies and each of our other direct and indirect subsidiaries followed by
confirmation to the Supervisory Board of such nominees' appointments. The
general meeting of shareholders may also specify certain actions of the Managing
Board that require shareholder approval. Our Articles of Association provide
that the Managing Board must obtain shareholder approval prior to (i) the sale
of all or an important part of our assets and concerns; and (ii) all mergers,
acquisitions or joint ventures which we wish to enter into and which the
Supervisory Board considers to be of material significance. However, during a
meeting held on September 23, 2000, the Supervisory Board authorized the
Managing Board to proceed with acquisitions without prior consent of the
Supervisory Board subject to a maximum amount of $25 million per transaction,
provided the Managing Board keeps the Supervisory Board informed of progress
regarding transactions and gives a full report once the transaction is
completed. See "Item 4: Information on the Company" and "Item 7: Major
Shareholders and Related Party Transactions - Related Party Transactions."

         The Managing Board shall consist of such number of members as resolved
by the general meeting of shareholders upon the proposal of the Supervisory
Board. The members of the Managing Board are appointed for three year terms upon
proposal by the Supervisory Board at the general shareholders' meeting by a
majority of the votes cast at a meeting where at least one-third of the
outstanding share capital is present or represented. The Supervisory Board
appoints one of the members of the Managing Board to be chairman of the Managing
Board require the approval of a majority of its members.

                                       57
<PAGE>


Board for a three year term (upon approval of at least three-quarters of the
members of the Supervisory Board). Resolution

         The general meeting of shareholders may suspend or dismiss one or more
members of the Managing Board at a meeting at which at least one-half of the
outstanding share capital is present or represented. No quorum is required if a
suspension or dismissal is proposed by the Supervisory Board. The Supervisory
Board may suspend members of the Managing Board, but a general meeting of
shareholders must be convened within three months after such suspension to
confirm or reject the suspension. The Supervisory Board shall appoint one or
more persons who shall, at any time, in the event of absence or inability to act
of all the members of the Managing Board, be temporarily responsible for our
management. Upon delegation from the Supervisory Board, the Compensation
Committee determines the compensation and other terms and conditions of
employment of the members of the Managing Board.

Executive Officers

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

<TABLE>
<CAPTION>


                                                                                  Years in
                                                                  Years with    Semiconduct
   Name                                 Position                  Company(1)    or Industry     Age
----------                            -------------             --------------  ------------    ---
<S>                      <C>                                         <C>            <C>         <C>
Pasquale Pistorio        President and Chief Executive
                            Officer                                   21             37         65
Georges Auguste          Corporate Vice President, Total
                            Quality and Environmental
                            Management                                14             27         52
Laurent Bosson           Corporate Vice President, Front-end
                             Manufacturing                            18             18         58
Carlo Bozotti            Corporate Vice President, Memory
                            Products Group                            24             24         48
Salvatore Castorina      Corporate Vice President, Discrete
                            and Standard ICs Group                    19             35         64
Alain Dutheil            Corporate Vice President, Strategic
                            Planning and Human Resources              18             31         56
Philippe Geyres          Corporate Vice President, Consumer
                            and Microcontroller Group                 17             25         49
Maurizio Ghirga          Corporate Vice President, Chief
                            Financial Officer                         18             18         63
Jean-Claude Marquet      Corporate Vice President,
                            Asia/Pacific Region                       15             34         59
Pier Angelo Martinotti   Corporate Vice President, New
                            Ventures Group                            20             33         60
Joel Monnier             Corporate Vice President, Central
                            Research and Development                  18             27         55
Piero Mosconi            Corporate Vice President, Treasurer          37             37         61
Carmelo Papa             Corporate Vice President, Emerging
                            Markets                                   17             17         52
Richard Pieranunzi       Corporate Vice President, Americas
                            Region                                    20             35         62
Aldo Romano              Corporate Vice President,
                            Telecommunications, Peripherals
                            and Automotive Group                      36             36         60
Giordano Seragnoli       Corporate Vice President, Back-end
                            Manufacturing and Subsystems
                            Products Group                            36             38         64
Keizo Shibata            Corporate Vice President, Japan
                            Region                                    9              36         64
Enrico Villa             Corporate Vice President, European
                            Region                                    33             33         60
</TABLE>

----------------------
(1)      Including years with Thomson Semiconducteurs or SGS Microelettronica.


                                       58
<PAGE>

         Pasquale Pistorio has more than 37 years of experience in the
semiconductor industry. After graduating in Electrical Engineering from the
Polytechnical University of Turin in 1963, he started his career selling
Motorola products. Mr. Pistorio joined Motorola in 1967, becoming Director of
World Marketing in 1977 and General Manager of the International Semiconductor
Division in 1978. Mr. Pistorio joined SGS Microelettronica as President and
Chief Executive Officer in 1980 and became our President and Chief Executive
Officer upon our formation in 1987.

         Georges Auguste has served as Corporate Vice President, Total Quality
and Environmental Management since 1999. Mr. Auguste received a degree in
engineering from the Ecole Superieure d'Electricite (SUPELEC) in 1974 and a
diploma in business administration from the Caen University in 1976. Prior to
joining us, Mr. Auguste worked with Philips Components from 1974 to 1986, in
various positions in the field of manufacturing. From 1990 to 1997 he headed our
operations in Morocco and from 1997 to 1999 Mr. Auguste served as director of
Total Quality and Environmental Management.

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

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

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

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

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

         Maurizio Ghirga became Corporate Vice President, Chief Financial
Officer in 1987, after having served as chief financial controller of SGS
Microelettronica since 1983. Mr. Ghirga has a degree in Business Administration

                                       59
<PAGE>

from the University of Genoa. He spent more than ten years of his career in
various financial capacities at ESSO Company (an Exxon subsidiary in Italy) and
prior to joining us was Financial Controller of one of the largest refinery
plants in Italy and of an ESSO chemical subsidiary.

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

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

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

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

         Carmelo Papa has served as Corporate Vice President, Emerging Markets
since January 2000. Mr. Papa received his degree in nuclear physics at Catania
University. Mr. Papa joined us in 1983 and since 1986 has been Director of
Product Marketing and Customer Service for Transistors and Standard ICs. During
this time, he has overseen a substantial growth both in the product portfolio
and the sales volume. He has also played a key role both in the expansion of our
facility in Catania, Italy, from its origin as a low-cost assembly plant to its
present position as one of our most important and dynamic centres, hosting
advanced R&D in areas ranging from process technology to fuzzy logic and other
"soft computing" disciplines, leading-edge wafer manufacturing and Sales and
Marketing HQ for our Discrete and Standard Circuits division.

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

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

                                       60
<PAGE>

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

         Keizo Shibata has served as Corporate Vice President and President of
our Japanese subsidiary since 1992. Mr. Shibata obtained bachelors and masters
degrees in Engineering from Osaka University and has 32 years of experience in
the semiconductor industry. Prior to joining us, Mr. Shibata was employed with
Toshiba Corporation since 1964 in various capacities. From 1987 to 1988, Mr.
Shibata served as Chairman of both World Semiconductor Trade Statistics and the
Trade Policy Committee of the Electric Industry Association of Japan.

         Enrico Villa has served as Corporate Vice President, Europe since
January 1, 2000. Mr. Villa has served in various capacities within our
management since 1968 after obtaining a degree in Business Administration from
the University of Genoa and has 30 years of experience in the semiconductor
industry. He is currently a member of the European Electronics Component
Association ("EECA") for which he is now Chairman of the European Semiconductor
Council as well as Chairman for Europe at the Joint Steering Committee of the
World Semiconductor Council.

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

Compensation

         The aggregate compensation paid in 2000 to the members of our
Supervisory Board by us was approximately $500,000. The amount of compensation
paid in 2000 to our executive officers and members of our Managing Board as a
group by us was approximately $8.7 million.

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

         For information regarding stock options granted to members of our
Supervisory Board, the Managing Board and our executive officers please refer to
"--Stock Option Plans" below.

         The executive officers and the Managing Board were also covered in 2000
under certain group life and medical insurance programs provided by us. The
aggregate additional amount set aside by us in 2000 to provide pension,
retirement or similar benefits for executive officers and our Managing Board as
a group is estimated to have been approximately $3.5 million, which includes
statutory employer contributions for state-run retirement and similar benefit
programs. We do not have any service agreements with members of our Supervisory
Board, the Managing Board or our executive officers that provide for benefits
upon termination of employment, beyond their legal entitlement in accordance
with applicable employment laws.

Share Ownership

         None of the members of our Supervisory and Managing Boards, or our
executive officers hold more than 1% of our shares.

                                       61
<PAGE>

Stock Option Plans

         The following description of our stock options plans has been adjusted
for the 2:1 stock split effected on June 16, 1999 and the 3:1 stock split
effected on May 5, 2000. Taking into account these stock splits, the total
options outstanding as of March 31, 2000 give the right to acquire 26,441,561
Common Shares by our employees and 402,500 Common Shares by members and
professionals of our Supervisory Board, or a total of 26,844,061 shares.

         On October 20, 1995, our shareholders approved resolutions authorizing
the Supervisory Board for a period of five years to adopt and administer a stock
option plan that provides for the granting to our managers and professionals of
options to purchase up to a maximum of 33.0 million Common Shares (the "1995
Stock Option Plan"). We granted options to acquire a total of 31,561,441 shares
pursuant to the 1995 Stock Option Plan as follows:

         o        On March 1, 1996, we granted options to purchase 7,200,000
                  Common Shares with an exercise price per Common Share of
                  $6.04. All such options will expire on March 1, 2004. As of
                  March 31, 2001, options to purchase 2,840,600 shares were
                  outstanding, of which 681,200 were held by the members of the
                  Managing Board and our executive officers, as a group.

         o        On September 12, 1997, we granted options to purchase
                  3,873,000 Common Shares with an exercise price per Common
                  Share of $14.23, which will expire on September 12, 2005. As
                  of March 31, 2001, options to purchase 3,515,820 shares were
                  outstanding, of which 1,034,100 were held by the members of
                  the Managing Board and our executive officers, as a group.

         o        On July 28, 1998, we granted options to purchase 3,900,000
                  Common Shares with an exercise price per Common Share of
                  $12.03, which will expire on July 28, 2006. As of March 31,
                  2001, options to purchase 3,820,140 shares were outstanding,
                  of which 1,069,140 were held by the members of the Managing
                  Board and our executive officers, as a group.

         o        On September 16, 1999, we granted options to purchase
                  8,878,200 Common Shares with an exercise price per Common
                  Shares of $24.88, which will expire on September 16, 2007. As
                  of March 31, 2001, options to purchase 8,680,200 shares were
                  outstanding, of which 1,772,400 were held by the members of
                  the Managing Board and our executive officers, as a group.

         o        On January 24, 2000, we made a special grant of options to
                  purchase 150,000 Common Shares to former employees of Arithmos
                  with an exercise price of $55.25 and which expire on January
                  24, 2008. As of March 31, 2001, options to purchase 113,730
                  shares were outstanding pursuant to this grant.

         o        On June 16, 2000, we granted options to purchase 5,331,250
                  Common Shares with an exercise price per Common Shares of
                  $62.01, which will expire on June 16, 2008. As of March 31,
                  2001, options to purchase 5,269,150 shares were outstanding,
                  of which 712,000 were held by the members of the Managing
                  Board and our executive officers, as a group.

         o        On September 18, 2000, we made a special grant of options to
                  purchase 70,000 Common Shares to former employees of
                  Waferscale Integration Inc. with an exercise price per Common
                  Shares of $52.88, which will expire on September 18, 2008. As
                  of March 31, 2001, options to purchase 69,370 shares were
                  outstanding.

         o        On December 11, 2000, we granted options to purchase 2,019,640
                  Common Shares with an exercise price per Common Shares of
                  $50.69, which will expire on December 11, 2008. As of March
                  31, 2001, options to purchase 1,993,200 shares were
                  outstanding.

         o        On December 18, 2000, we made a special grant of options to
                  purchase 26,501 Common Shares to former employees of PGI with
                  an exercise price per Common Shares of $44.00, which will
                  expire on December 18, 2008. As of March 31, 2001, options to
                  purchase 26,501 shares were outstanding.

                                       62
<PAGE>

         o        On March 1, 2001, we made a special grant of options to
                  purchase 112,850 Common Shares with an exercise price per
                  Common Shares of $31.65, which will expire on March 1, 2008.
                  As of March 31, 2001, options to purchase 112,850 shares were
                  outstanding.

         As of March 31, 2001, of the total options outstanding under the 1995
Stock Option Plan, options to purchase 5,268,840 shares were held by the member
of the Managing Board and executive officers as a group.

         On April 25, 2001, our shareholders approved resolutions authorizing
the Supervisory Board for a period of five years to adopt and administer a new
stock option plan that provides for the granting to our managers and
professionals of options to purchase up to a maximum of 60.0 million Common
Shares (the "2001 Stock Option Plan"). On April 27, 2001, our Supervisory Board
authorized the granting of options to purchase 9,462,800 options with an
exercise price per Common Share of $39.00, which will expire on April 27, 2011.
Of this amount, options to purchase 981,000 Common Shares were granted to the
member of the Managing Board and our executive officers, as a group.

         In June 1996, the general meeting of shareholders approved the granting
of options to members and professionals of the Supervisory Board which
correspond to the right to purchase approximately 378,000 of our Common Shares
over a period of three years, beginning in 1996. Following this grant, certain
persons have renounced the right to retain the stock options granted to them.
The following options have been granted to members and professionals of our
Supervisory Board:

         o        On October 24, 1996, we granted to members and professionals
                  of the Supervisory Board options to purchase 198,000 Common
                  Shares with an exercise price per Common Share of $9.00, which
                  will expire on October 22, 2004. As of March 31, 2001, options
                  to purchase 57,000 shares were outstanding.

         o        On September 12, 1997, we granted to members and professionals
                  of the Supervisory Board options to purchase 90,000 Common
                  Shares with an exercise price per Common Share of $14.23,
                  which will expire on September 12, 2005. As of March 31, 2001,
                  options to purchase 30,500 shares were outstanding.

         o        On July 28, 1998, we granted to members and professionals of
                  the Supervisory Board options to purchase 103,500 Common
                  Shares with an exercise price per Common Share of $12.03,
                  which will expire on July 28, 2006. As of March 31, 2001,
                  options to purchase 45,000 shares were outstanding.

         In 1999, the general meeting of the shareholders voted to renew the
Supervisory Board Option Plan whereby members of the Supervisory Board may
receive, during the three-year period 1999-2001, at least the same number of
options as were granted during the first three-year period. The following
options have been granted:

         o        On September 16, 1999, we granted options to members and
                  professionals of the Supervisory Board to purchase 180,000
                  Common Shares with an exercise price per Common Share of
                  $24.88, which will expire on September 16, 2007. As of March
                  31, 2001, options to purchase 180,000 shares were outstanding.

         o        On June 16, 2000, we granted options to members and
                  professionals of the Supervisory Board to purchase 103,500
                  Common Shares with an exercise price per Common Share of
                  $62.01, which will expire on June 16, 2008. As of March 31,
                  2001, options to purchase 90,000 shares were outstanding.

         o        On April 27, 2001, we granted options to members and
                  professionals of the Supervisory Board to purchase 112,500
                  Common Shares with an exercise price per Common Share of
                  $39.00, which will expire on April 27, 2009.

                                       63
<PAGE>

Employees

         The tables below set forth the breakdown of employees by main category
of activity and geographic area for the past three years.

<TABLE>
<CAPTION>

                                                                                       At December 31,
                                                                                ----------------------------------
                                                                                   1998         1999         2000
                                                                                ----------    --------    --------
<S>                                                                                <C>          <C>         <C>
France........................................................                     5,950        7,200       9,600
Italy.........................................................                     6,350        7,650       9,200
Rest of Europe................................................                       650          850       1,050
United States.................................................                     2,650        3,250       4,350
Malta and Morocco.............................................                     5,450        6,000       7,450
Asia   .......................................................                     8,150        9,550      12,000
                                                                                   -----        -----      ------

Total  .......................................................                    29,200       34,500      43,650
                                                                                  ======       ======      ======


                                                                                       At December 31,
                                                                                ----------------------------------
                                                                                   1998         1999         2000
                                                                                ----------    --------    --------

Research and Development......................................                    4,400         5,350       6,800
Marketing and Sales...........................................                    1,700         1,900       2,250
Manufacturing.................................................                   20,200        23,800      30,450
Administration and General Services...........................                    1,600         1,800       2,200
Divisional Functions..........................................                    1,300         1,650       1,950
                                                                                  -----         -----       -----

Total  .......................................................                   29,200        34,500      43,650
                                                                                 ======        ======      ======
</TABLE>


         Our future success, in particular in a period of strong increased
demand will also depend on our ability to continue to attract, retain and
motivate highly qualified technical, marketing, engineering and management
personnel. Unions are present in France, Italy, Malta, Morocco and Singapore. We
have not experienced any significant strikes or work stoppages in recent years,
other than in connection with national strikes in Italy, and management believes
that our relations with employees are good.

         As part of our commitment to the principles of TQEM, we decided in July
1994 to develop an internal education organization called "ST University",
responsible for organizing training courses to executives, engineers,
technicians and sales personnel within STMicroelectronics and coordinating all
training for our employees. In 2000, ST University organized over 130,000 hours
of training for 5,000 employees.

         We have also established an Employee Stock Purchase Plan that includes
the following provisions:

         o        A total of 4.5 million shares are to be offered to employees
                  of STMicroelectronics N.V. and its majority owned subsidiaries
                  in 20 specified countries and such other countries to which
                  the Supervisory Board may extend the Plan, on the
                  recommendation of our Managing Board.

         o        The first 1.5 million shares offered will be new shares. The
                  source of the remaining 3.0 million shares is to be decided by
                  the Supervisory Board in due course.

         o        The Plan has a three year term, from 2000 to 2003 and features
                  semi-annual offering periods.

         o        For each offering period, the subscription price will be equal
                  to 85% of the lesser of the NYSE closing price for shares on
                  the first day of the offering period and the last day of the
                  offering period.

         o        The maximum fair value of the shares that may be subscribed
                  per employee per offering period is $12,500.

         The first tranche of the Employee Stock Purchase Plan was offered in
November 2000 and the second tranche has now been launched, with the
subscription period ending May 21, 2001.

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<PAGE>


ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.

Major Shareholders

         The following table sets forth certain information with respect to the
ownership of our Common Shares as of April 28, 2001.

   Shareholders                                    Common Shares Owned (1)
------------------                              --------------------------------
                                                 Number                     %
                                                --------                  ------
STMicroelectronics Holding II B.V.
 ("ST Holding II")........................      389,483,280                43.55


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

(1)      Following the 2:1 stock split and 3:1 stock split effected by us on
         June 16, 1999, and May 5, 2000, respectively.

         ST Holding is 50% owned by FT1CI, a group of French shareholders that
are indirectly controlled by the French government, and 50% owned by
Finmeccanica S.p.A., also directly and indirectly controlled by the Italian
government. FT1CI, the group of French shareholders, is comprised of France
Telecom, the French state-controlled telephone company, and CEA-Industrie, a
corporation controlled by the French atomic energy commission, who hold through
FT1CI. Finmeccanica is an Italian holding company owned by both the Italian
Ministry of Treasury, which controls important actions of Finmeccanica due to
its significant holding in it, Istituto per la Ricostruzione Industriale-IRI
S.p.A. in liquidazione ("I.R.I.", the holding company for Italian state-owned
industrial and commercial interests) and the public. The Italian Ministry of
Treasury has appointed a majority of the members of Finmeccanica's Board of
Directors and pursuant to the provisions of its articles of association and
Italian law, retains veto rights over certain major transactions involving
Finmeccanica. The shares of France Telecom are listed on Euronext Paris and the
New York Stock Exchange. Certificats d'investissement of CEA-Industrie are
listed on Euronext Paris. The shares of Finmeccanica are listed on the Milan
Stock Exchange.

         The chart below illustrates the current shareholding structure as of
April 28, 2001:

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

         Description of Shareholding Structure: STMicroelectronics N.V. is owned
43.55% by STMicroelectronics Holding II B.V. and 56.45% by the public.
STMicroelectronics II B.V. is a wholly owned subsidiary of STMicroelectronics
Holding N.V., which is 50% owned by a group of French shareholders and 50% owned
by a group of Italian shareholders. The French shareholder, FT1CI, is owned 51%
by CEA-Industrie and 49% by France Telecom. The Italian shareholder,
Finmeccanica, is owned 5% by I.R.I., 32.4% by the Italian Ministry of Treasury,
and 62.6% by the public.

Shareholder Agreements

         In connection with our formation, Thomson-CSF and STET, as our
shareholders, entered into a shareholders agreement on April 30, 1987. In
connection with the formation of ST Holding in 1989, which coincided with the
acquisition by Thorn EMI of its interest in STMicroelectronics N.V., the
shareholders agreement (as amended, the "Holding Shareholders Agreement") was
amended to apply to the parties' ownership in ST Holding. The rights and
obligations of Thomson-CSF and STET under the Holding Shareholders Agreement
were

                                       65
<PAGE>

subsequently transferred to or assumed by, as the case may be, FT2CI for
Thomson-CSF, and Finmeccanica and MEI for STET. As a result of the merger of
FT1CI and FT2CI, the rights and obligations of FT2CI under the Holdings
Shareholders Agreement have been transferred to FT1CI. In connection with the
transfer by Finmeccanica of its interest in ST Holding to MEI, the rights and
obligations of Finmeccanica under the Holding Shareholders Agreement were
transferred to or assumed by, as the case may be, MEI. Finally, following the
merger of MEI into Finmeccanica (effective on December 31, 1999), Finmeccanica
acquired all of the obligations and rights of MEI under the Holding Shareholders
Agreement.

         The Holding Shareholders Agreement contemplates that the parties shall
agree upon common proposals and jointly exercise their powers of decision and
their full control of the strategies and actions of ST Holding and us. Under the
Holding Shareholders Agreement, the Supervisory Board of ST Holding, which is
composed of three representatives of the French Owner and three representatives
of the Italian Owner, and our Supervisory Board, each one within its respective
sphere of competence, must give their respective prior approval before ST
Holding, STMicroelectronics N.V., or any of our subsidiaries may: (i) modify our
articles of incorporation; (ii) change our authorized share capital, issue,
acquire or dispose of our shares, change any shareholder rights or issue any
instruments granting an interest in our capital or profits; (iii) be liquidated
or dispose of all or a substantial and material part of our assets or any shares
we hold in any of our subsidiaries; (iv) enter into any merger, acquisition or
joint venture agreement (and, if substantial and material, any agreement
relating to intellectual property) or form a new company; (v) approve such
company's draft consolidated balance sheets and financial statements or any
profit distribution by such company; or (vi) enter into any agreement with any
of the direct or indirect French or Italian Owners outside the normal course of
business. The Holding Shareholders Agreement also provides that our long-term
business plans and annual budgets and for our subsidiaries, as well as any
significant modifications thereto, shall be approved in advance by the
Supervisory Board of each of ST Holding and STMicroelectronics, each one within
its respective sphere of competence. In addition, the Supervisory Board of ST
Holding shall also decide upon operations of exceptional importance contained in
the annual budget even after financing thereof shall have been approved.

         Pursuant to the terms of the Holding Shareholders Agreement, ST Holding
and STMicroelectronics are not permitted, as a matter of principle, to operate
outside the field of semiconductor products. The parties to the Holding
Shareholders Agreement also undertake to refrain directly or indirectly from
competing with us in the area of semiconductor products, subject to certain
exceptions, and to offer us opportunities to commercialize or invest in any
semiconductor product developments by them. Any financing or capital provided by
the parties to ST Holding or us is intended to be provided pro rata based on the
parties' respective shareholdings in ST Holding.  See further details below.

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

         Pursuant to the terms of the Holding Shareholders Agreement and for the
duration of such agreement, FT1CI (the "French Owner"), on the one hand, and
Finmeccanica (the "Italian Owner"), on the other hand, have agreed to maintain
equal interests in our share capital. See further details below.

         We have been informed that the shareholders of FT1CI have also entered
into a separate shareholder agreement that requires the consent of the Board of
Directors, with a two-thirds majority, for certain actions taken by ST Holding,
STMicroelectronics and our subsidiaries. These agreements provide for the
management of the interests of CEA-Industrie and France Telecom in ST Holding
and us, with the object of defining between them the positions, strategies and
decisions to be taken by the French Owner in ST Holding affecting the management
of ST Holding, and STMicroelectronics and our subsidiaries. We are not a party
to such agreement.

         The agreement between the shareholders of FT1CI (CEA-Industrie and
France Telecom) provides that the following acts with respect to ST Holding or
us must be approved by three-quarters of the Board of Directors of

                                       66
<PAGE>

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

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

         Pursuant to the principal Italian privatization law, certain special
government powers may be introduced into the by-laws of firms considered
strategic by the Italian government. In the case of Finmeccanica, these powers
were established by decrees adopted by the Minister of the Treasury on November
8, 1999 and Finmeccanica's by-laws were subsequently amended on November 23,
1999. The special powers of the Minister of the Treasury (who will act in
agreement with the Minister of Industry) include (i) the approval or disapproval
of the acquisition of material interests in Finmeccanica's share capital, (ii)
approval of material shareholders' agreements relating to Finmeccanica's share
capital, (iii) appointment of members of Finmeccanica's board of directors and
board of statutory auditors, and (iv) powers to veto resolutions to dissolve
Finmeccanica, transfer its business, merge, conduct spin-offs, sell businesses
or lines of business, including the transfer of equity participations in
subsidiaries or affiliates, transfer its registered office outside of Italy,
change Finmeccanica's corporate purposes or amend or modify any of the Minister
of the Treasury's special powers.

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

         The French and Italian shareholders of ST Holding agreed in a document
dated August 31, 1999, to continue to manage their interest in us through ST
Holding until at least December 31, 2000, and they agreed (i) to jointly hold
100% of ST Holding's capital and voting rights, (ii) to maintain equality
between the shareholdings of

                                       67
<PAGE>

the French and Italian shareholders, (iii) to ensure that ST Holding maintains
more than 40% of our share capital and voting rights on a fully diluted basis
after exercise or conversion of all stock options and convertible securities,
and (iv) to jointly exercise their decision-making powers and monitor strategies
and actions as part of ST Holding's management bodies. Both the French and
Italian governments have the authority to veto certain decisions of the French
and Italian shareholders, respectively, as explained above. ST Holding has
informed us that its shareholders have not extended this agreement. Therefore,
we cannot exclude the possibility that the percentage of our common stock and of
our voting rights held by ST Holding may change at any time. Any such
transaction, or publicity concerning such a potential transaction, could affect
the market price of our common shares and cause the market price of our common
shares to drop significantly.

         On May 31, 1999, our shareholders at the annual general meeting
approved the creation of 180,000,000 Preference Shares (540,000,000 Preference
Shares, as adjusted for the 3:1 stock split implemented in May 2000). These
Preference Shares entitle a holder to full voting rights at any meeting of
shareholders and to a preferential right to dividends. On May 31, 1999, we
entered into an option agreement with ST Holding II, which provides that
Preference Shares shall be issued to ST Holding II upon request subject to the
adoption of a resolution of our Supervisory Board recognizing that a hostile
takeover or similar action exists and giving our consent to the exercise of the
option and upon payment of at least 25% of the par value of the Preference
Shares to be issued. The option is contingent upon ST Holding II retaining at
least 33% of our issued share capital.

Related Party Transactions

         We have in the normal course of our business taken certain equity
positions, in each case less than 20% of the share capital of the companies in
question. In this context, we have entered into development contracts where
certain of these companies provide us services on arms' length terms. These
contracts are not material to our business.

         We have formed a joint venture research and development center with
France Telecom R&D and LETI in the form of a GIE named "Centre Commun de
Microelectronique de Crolles". France Telecom R&D is a research laboratory that
is wholly owned by France Telecom, one of our indirect shareholders. The
Laboratoire d'Electronique et de Technologie d'Instrumentation is a wholly owned
research laboratory of CEA, one of our indirect shareholders. See "Item 4:
Information on the Company--Research and Development" and "--Major
Shareholders." The research center is housed at our Crolles, France
manufacturing facility, and is developing sub-micron process technologies. The
joint venture with France Telecom R&D was created in 1990 before France Telecom
became our indirect shareholder. The activity of the Centre Commun de
Microelectronique de Crolles is directed towards sub 0.13-micron technologies
with a view to preparing the technology to begin production of 300mm wafers and
associated wafer fabrication processes. The tripartite cooperation is intended
to last until the end of 2002.

         We participate in certain programs sponsored by the French and Italian
governments for the funding of research and development and industrialization
through direct grants as well as low interest financing. See "Item 4:
Information on the Company -- Public Funding." The shareholders of ST Holding,
the corporate parent of our principal shareholder, are controlled, directly or
indirectly, by the governments of the Republics of France and Italy. See
"--Principal Shareholders."

         Sales to our shareholders and our affiliates totaled $0.2 million in
2000.

ITEM 8.  FINANCIAL INFORMATION

Legal Proceedings

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

         We are currently involved in certain legal proceedings; however, we do
not believe that the ultimate resolution of pending legal proceedings will have
a material adverse effect on our financial condition.

                                       68
<PAGE>

Dividend policy

         On April 25, 2001, our shareholders approved the payment of a cash
dividend with respect to the year ended December 31, 2000 of $0.04 per share
payable to shareholders of record as of April 27, 2001. This dividend was
approximately 2.5% of our earnings for 2000. In 2000, we paid a dividend of
$0.03 per share, which represented 4.9% of our earnings for 1999. In 1999, we
paid a dividend of $0.027 per share, which represented approximately 5.5% of our
earnings for 1998. In the future, we may consider proposing dividends
representing a similar proportion of our earnings for a particular year.

ITEM 9.  THE OFFER AND LISTING.

Trading History of the Company's Shares

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

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

         The table below indicates the range of the high and low prices in U.S.
dollars for the ADSs on the New York Stock Exchange and the high and low prices
in euros for the Common Shares on Euronext Paris and the Italian Stock Exchange
during each quarter in 1998, 1999 and, to date in 2000. In December 1994, we
completed the Initial Public Offering of 21,000,000 Common Shares at an initial
price to the public of $22.25 per share. On June 16, 1999, we effected a 2:1
stock split and on May 5, 2000, we effected a 3:1 stock split. The table below
has been adjusted to reflect the split. Each range is based on the highest or
lowest rate within each day for Common Share price ranges for the relevant
exchange.

                                       69
<PAGE>

<TABLE>
<CAPTION>

                                 New York Stock Exchange     Euronext Paris Price per     Italian Stock Exchange
                                  Price per Common Share         Common Share (1)       Price per Common Share (2)
                                --------------------------- --------------------------- ----------------------------
        Calendar Period             High          Low           High          Low           High          Low
        ---------------             ----          ---           ----          ---           ----          ---
<S>                                 <C>           <C>       <C>          <C>            <C>             <C>
Annual information for the past five years
1996.........................       $12.02        $4.75     Euro10.09    Euro3.58           --             --
1997.........................       $16.51        $8.58     Euro15.83    Euro7.96           --             --
1998.........................       $15.29        $5.98     Euro14.16    Euro5.01       Lira 23,166.64  Lira 9,833.32
1999.........................       $51.33       $13.42     Euro51.67   Euro11.47       Euro51.67       Euro10.68
2000.........................       $73.88       $39.06     Euro76.93   Euro39.53       Euro76.67       Euro40.35

    Quarterly  information  for the  past two
    years
1999
   First quarter...............     $17.94       $13.44     Euro16.17   Euro11.47       Euro 16.00      Euro10.68
   Second quarter..............     $24.17       $16.33     Euro23.00   Euro14.83       Euro 23.33      Euro14.83
   Third quarter...............     $27.13       $21.27     Euro26.07   Euro20.03       Euro 26.15      Euro20.27
   Fourth quarter..............     $51.33       $25.00     Euro51.67   Euro23.05       Euro 51.67      Euro23.17
2000
   First quarter...............     $73.88       $40.67     Euro76.93   Euro39.53       Euro76.67       Euro40.35
   Second quarter..............     $69.94       $46.88     Euro75.90   Euro50.50       Euro74.33       Euro51.30
   Third quarter...............     $68.13       $46.94     Euro74.50   Euro53.50       Euro72.90       Euro56.05
   Fourth quarter..............     $52.38       $39.06     Euro60.90   Euro44.20       Euro60.80       Euro44.45
2001
   First quarter...............     $48.70       $29.35     Euro52.45   Euro31.55       Euro52.35       Euro31.60
   Second quarter
       (through April 23, 2001)     $41.13       $31.05     Euro44.85   Euro35.00       Euro44.30       Euro35.20


   Monthly information for most recent six months
   October 2000................    $52.38       $40.06     Euro59.65    Euro46.15       Euro59.60       Euro46.60
   November 2000...............    $52.25       $39.06     Euro60.90    Euro47.12       Euro60.80       Euro47.20
   December 2000...............    $51.44       $40.69     Euro58.55    Euro44.20       Euro56.70       Euro44.45
   January 2001................    $48.70       $37.00     Euro52.45    Euro37.65       Euro52.35       Euro38.15
   February 2001...............    $47.60       $31.20     Euro50.85    Euro34.00       Euro50.85       Euro34.05
   March 2001..................    $38.40       $29.35     Euro42.48    Euro31.55       Euro42.30       Euro31.60
</TABLE>


----------------------
Source: Reuters

(1)      For periods prior to January 1, 1999, the share prices on Euronext
         Paris have been converted into euro at the official exchange rate of
         Euro 1.00 = FF 6.55957.

(2)      For periods prior to January 1, 1999, the share prices on the Italian
         Stock Exchange have been converted into euro at the official exchange
         rate of Euro 1.00 = Lit. 1,936.27. The shares have been listed on the
         Italian Stock Exchange since June 5, 1998.

         At December 31, 2000, there were 889,881,287 Common Shares issued and
outstanding, of which 45,234,378 or 5% were registered in the Common Share
registry maintained on our behalf in New York.

                                       70
<PAGE>

1998 Liquid Yield OptionTM Notes

         Our 1998 Liquid Yield OptionTM Notes ("LYONs") are traded on the New
York Stock Exchange and Euronext Paris. The table below indicates the range of
the high and low prices on the New York Stock Exchange and the high and low
prices for the LYONs on Euronext Paris, in both cases as a percentage of
principal amount at maturity, during each quarter in 1999 and to date in 2000.
Each range is based on the highest or lowest rate at the end of each closing day
on the relevant exchange. We have issued a redemption notice for these LYONs and
intend to redeem them at a redemption price of $885.22 per $1,000 principal
amount on June 11, 2001. According to the information available to us, on May
11, 2001, approximately $45.6 million in total indebtedness was outstanding
under the 1998 LYONs. Based on the amount outstanding on May 11, 2001, if all
remaining holders of the 1998 LYONs chose to convert them into Common Shares
before the redemption date, 2,772,291 Common Shares would be issued.

<TABLE>
<CAPTION>

                                                  New York Stock Exchange                   Euronext Paris
                                                       Price per LYON                       Price per LYON
                                               -------------------------------    ------------------------------------
Calendar Period                                     High            Low                 High              Low
---------------                                     ----            ---                 ----              ---
<S>                                                   <C>            <C>                 <C>              <C>
Annual information for the past five years
1998........................................          89%            69.87%              88.88%           69.25%
1999........................................         277.75%         88.88%             277.25%           87.63%
2000........................................         389.25%        221.47%             379.20%          222.70%

Quarterly information for the past two years
1999
   First quarter...............................      105.04%         88.88%             104.00%           87.63%
   Second quarter..............................      129.66%         98.92%             132.75%          100.19%
   Third quarter...............................      147.03%        119.98%             146.25%          119.94%
   Fourth quarter..............................      277.75%        141.64%             277.25%          143.51%
2000
   First quarter...............................      389.25%        227.94%             379.20%          319.80%
   Second quarter..............................      368.59%        283.47%             368.05%          301.35%
   Third quarter...............................      360.71%        263.38%             361.18%          263.75%
   Fourth quarter..............................      276.67%        221.47%             276.65%          222.70%
2001
   First quarter...............................      256.96%        159.90%             254.13%          169.15%
   Second quarter
       (through April 23, 2001)................      209.06%        172.48%             208.50%          171.62%


Monthly information for most recent six months
   October 2000................................      270.45%        221.47%             268.38%          222.70%
   November 2000...............................      276.67%        222.10%             276.65%          226.13%
   December 2000...............................      265.09%        230.70%             255.88%          229.78%
   January 2001................................      256.96%        199.79%             254.13%          203.98%
   February 2001...............................      251.91%        169.17%             221.53%          208.10%
   March 2001 .................................      202.83%        159.50%             203.90%          169.15%

</TABLE>

----------------------
Source: Bloomberg


                                       71
<PAGE>

1999 Liquid Yield OptionTM Notes

         Our 1999 Liquid Yield OptionTM Notes ("LYONs") are traded on the New
York Stock Exchange and Euronext Paris. The table below indicates the range of
the high and low prices on the New York Stock Exchange and the high and low
prices for the LYONs on Euronext Paris, in both cases as a percentage of
principal amount at maturity, during each quarter in 1999 and to date in 2000.
Each range is based on the highest or lowest rate at the end of each closing day
on the relevant exchange.

<TABLE>
<CAPTION>

                                                       New York Stock                       Euronext Paris
                                                  Exchange Price per LYON                   Price per LYON
                                               -------------------------------    ------------------------------------
Calendar Period                                     High            Low                 High              Low
---------------                                     ----            ---                 ----              ---
<S>                                                  <C>            <C>                 <C>              <C>
Annual information for the past five years
1999........................................         138.09%         81.56%             140.25%           81.94%
2000........................................         192.10%        118.27%             192.10%          118.44%

Quarterly information for the past two years
1999
   Third quarter (since September 16).......          84.06%         81.56%              84.5%            82%
   Fourth quarter...........................         138.09%         81.88%             140.25%           81.94%
2000
   First quarter............................         192.10%        119.13%             192.10%          118.48%
   Second quarter...........................         182.66%        143.30%             183.25%          142.95%
   Third quarter............................         179.23%        135.65%             195%             134.75%
   Fourth quarter...........................         142.06%        118.27%             201.75%          160%
2001
   First quarter............................         132.62%         94.54%             146.50%          102.50%
   Second quarter
       (through April 23, 2001).............         114.79%        100.20%             114.41%          100.65%

Monthly information for most recent six months
   October 2000................................      138.63%        119.03%             139.20%          118.64%
   November 2000...............................      142.06%        118.27%             141.72%          118.44%
   December 2000...............................      136.06%        121.23%             136.25%          121.77%
   January 2001................................      132.62%        110.13%             132.83%          109.56%
   February 2001...............................      130.50%         97.68%             130.82%           98.26%
   March 2001 .................................      116.66%         94.54%             112.23%           94.61%
</TABLE>


----------------------
Source: Bloomberg


Market Information

Euronext Paris

         On September 22, 2000, upon successful completion of an exchange offer,
the ParisBourse SBF SA, or the "SBF", the Amsterdam Stock Exchanges and the
Brussels Stock Exchanges merged to create Euronext, the first pan-European
exchange. Through the exchange offer, all the shareholders of SBF, the Amsterdam
Stock Exchange and the Brussels Stock Exchanges contributed their shares to
Euronext N.V., a Dutch holding company. Securities quoted on exchanges
participating in Euronext will be traded over a common Euronext platform, with
central clearinghouse, settlement and custody structures. However, these
securities will remain listed on their local exchanges. As part of Euronext,
Euronext Paris retains responsibility for the admission of shares to Paris
Bourse's trading markets as well as the regulation of those markets.

         Securities approved for listing by Euronext Paris are traded in one of
three markets. The securities of most large public companies are listed on the
Premier Marche with the Second Marche available for small and medium-sized
companies. Trading on the Nouveau Marche was introduced in March 1996 to allow
companies seeking



                                       72
<PAGE>

development capital to access the stock market. Securities of certain other
companies are traded on a non-regulated over-the-counter market, the Marche
Libre-OTC, which is also operated by Euronext Paris.

         The Common Shares are listed on the Premier Marche. Shares listed on
Euronext Paris are placed in one of four categories depending on the volume of
transactions. The Common Shares are listed in the category known as Continu A,
which includes the most actively traded shares (with a minimum daily trading
volume of FF 250,000 or twenty trades).

         Official trading of listed securities on Euronext Paris is transacted
through providers of investment services (investment companies and other
financial institutions) and takes place continuously on each business day from
9:00 a.m. to 5:30 p.m., with a pre-opening session from 7:15 a.m. to 9:00 a.m.
and a pre-closing session from 5:30 p.m. to 5:35 p.m. during which transactions
are recorded but not executed and a closing auction at 5:35 p.m. Any trade
effected after the close of a stock exchange session will be recorded, on the
next Euronext Paris trading day, at the closing price for the relevant security
at the end of the previous day's session.

         Euronext Paris publishes a daily Official Price List that includes
price information on each listed security. Euronext Paris has introduced
continuous trading by computer for most listed securities.

         Trading in the listed securities of an issuer may be suspended by
Euronext Paris if quoted prices exceed certain price limits defined by the
regulations of Euronext Paris. In particular, if the quoted price of a Continu A
security varies by more than 10 percent from the previous day's closing price,
trading may be suspended for up to 15 minutes. Further suspensions for up to 15
minutes are also possible if the price again varies by more than five percent.
Euronext Paris may also suspend trading of a listed security in certain other
limited circumstances, including, for example, the occurrence of unusual trading
activity in such security.

         Trades of securities listed on the Premier Marche are settled on a cash
basis on the third trading day following the trade. Market intermediaries are
also permitted to offer investors a deferred settlement service (service de
reglement differe) for a fee. The deferred settlement service is only available
for trades in securities which either (i) are a component of the Index SBF 120
or (ii) have both a total market capitalization of at least Euro 1 billion and
a daily average volume of trades of at least Euro 1 million. The Common Shares
are eligible to the deferred settlement service. Investors can elect on the
determination date (date de liquidation), which is the fifth trading day before
the end of the month, either to settle the trade by the last trading day of the
month or to pay an additional fee and postpone the settlement decision to the
determination date of the following month.

         Ownership of equity securities traded on a deferred settlement basis
passes at the time of registration of the securities in the shareholders'
account. In accordance with French securities regulations, any sale of shares
executed on a deferred settlement basis during the month of a dividend payment
date is deemed to occur after the payment of the dividend. In such cases, the
purchaser' account is credited with an amount equal to the dividend paid and the
seller's account is debited by the same amount.

Securities Trading in Italy

         The Mercato Telematico Azionario (the "MTA"), the Italian automated
screen-based quotation system on which our Common Shares are listed, is
organized and administered by Borsa Italiana S.p.A. ("Borsa Italiana") subject
to the supervision of the CONSOB, the public authority charged, inter alia, with
regulating investment companies, securities markets and public offerings of
securities in Italy to ensure the transparency and regularity of dealings and
protect investors. Borsa Italiana was established to manage the Italian
regulated financial markets (including the MTA) as part of the implementation in
Italy of the EU Investment Services Directive pursuant to Legislative Decree No.
415 of July 23, 1996 (the "Eurosim Decree") and as modified by Legislative
Decree 58 of February 24, 1998 (the "Financial Act"). Borsa Italiana became
operative in January 1998, replacing the administrative body Consiglio di Borsa,
and has issued rules governing the organization and the administration of the
Italian stock exchange, futures and options markets as well as the admission to
listing on and trading in these markets. The shareholders of Borsa Italiana are
primarily financial intermediaries.

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

                                       73
<PAGE>

of all trades effected during the trading day net of trades executed on a
"cross-order" basis, and a "reference price", calculated for each security as a
weighted average of the last 10% of the trades effected during such day, are
reported daily.

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

         Italian law requires that trading of equity securities, as well as any
other investment services, may be carried out on behalf of the public only by
registered securities dealing firms and banks (with minor exceptions). Banks and
investment services firms organized in a member nation of the EU are permitted
to operate in Italy provided that the intent of the bank or investment services
firm to operate in Italy is communicated to (i) Bank of Italy and to (ii) Bank
of Italy and CONSOB, respectively, by the competent authority of the member
state. Non-EU banks and non-EU investment services firms may operate in Italy
subject to a specific authorization granted by a decree of the Italian Ministry
of Treasury and a resolution of the CONSOB, respectively.

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

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

ITEM 10.  ADDITIONAL INFORMATION

Memorandum and articles of association

         We were incorporated under the law of The Netherlands by deed of May
21, 1987. Set forth below is a summary of certain provisions of our articles of
association and relevant Dutch corporate law. The summary below does not purport
to be complete and is qualified in its entirety by reference to the articles of
association and relevant Dutch corporate law.

         References herein to shares include common and preference shares and
references herein to shareholders include common and preference shareholders,
unless otherwise provided.

         Share Capital

         Our authorized share capital is Euro 1,809,600,000, consisting of
1,200,000,000 common shares and 540,000,000 preference shares, nominal value of
Euro1.04 per share. As of March 31, 2001, 890,310,233 common shares were
outstanding, as well as options to acquire 26,844,061 common shares. No
preference shares are currently outstanding. Pursuant to a shareholders'
resolution adopted at the annual general meeting on April 25, 2001, our
Supervisory Board has been authorized for a period of five years to resolve upon
(i) the issuance of any number of new ordinary or preference shares, (ii) the
terms and conditions of an issuance of shares; (iii) waiver of existing
shareholders' pro rata preemptive rights; and (iv) granting of rights to
subscribe for ordinary shares and or preference shares.

         Shares are issued in registered form only. The preference shares are
intended to protect us from a hostile take-over or similar action. Share
registers are maintained in New York by The Bank of New York, the New York
Transfer Agent and Registrar (the "New York Registry"), and in Amsterdam, The
Netherlands, by Netherlands

                                       74
<PAGE>

Management Company B.V., the Dutch Transfer Agent and Registrar (the "Dutch
Registry"). Shares of New York Registry held through The Depository Trust
Company ("DTC") are registered in the name of Cede & Co., the nominee of DTC,
and shares of Dutch Registry held through the French clearance and settlement
system, Euroclear France, are registered in the name of Euroclear France or its
nominee.

         Dividends

         Our Supervisory Board may establish reserves out of our annual profits,
upon proposal of our Managing Board. The portion of our annual profits that
remains after the establishment of reserves is at the disposal of the general
meeting of shareholders. If the general meeting of shareholders resolves to
distribute profits, preference shareholders shall first be paid a percentage
equal to the Euribor interest for one-year cash loans computed over the paid up
capital on the preference shares, provided that the amount paid to preference
shareholders may not exceed the total amount resolved to be distributed to
shareholders. If the paid up capital of the preference shares is increased or
decreased in the financial year in respect of which the dividend is paid, the
payment thereon will be adjusted accordingly. The profits remaining after
payment has been made to preference shareholders may be distributed to the
common shareholders.

         Our general meeting of shareholders may declare distributions out of
our share premium reserve and other reserves available for shareholder
distributions under Dutch law, upon the proposal of our Supervisory Board.
Pursuant to a resolution of our Supervisory Board, distributions approved by the
general meeting of shareholders may be fully or partially made in the form of
our new shares to be issued. We may not pay dividends if the payment would
reduce shareholders' equity below the paid-up and called portion of the share
capital, plus the reserves which are required by statute. Our Supervisory Board
may, subject to certain statutory provisions, distribute one or more interim
dividends in respect of any year before the accounts for such year have been
approved and adopted at a general meeting of shareholders. Rights to cash
dividends and distributions that have not been collected within five years after
the date on which they became due and payable shall revert to us.

         At December 31, 2000, the amount of retained earnings available to pay
dividends under Dutch law was approximately $5,263 million. Retained earnings
for purposes of this calculation are based on our unconsolidated accounts using
generally accepted accounting principles in The Netherlands ("Dutch GAAP"). The
only material difference between our Dutch GAAP and U.S. GAAP accounts resulted
because we canceled our accumulated deficit through a share capital reduction in
1993. Under U.S. GAAP, as this operation was not a quasi-reorganization, the net
effect of the par value reduction was applied against capital surplus. At
December 31, 2000, under U.S. GAAP, we had accumulated earnings of approximately
$3,977 million.

         As approved by the annual general meeting of shareholders on May 31,
1999, we paid a cash dividend in respect of the year ended December 31, 1998 of
$0.027 per common share on June 15, 1999 to shareholders of record as of June 1,
1999. As approved by the annual general meeting on April 26, 2000, we paid on
May 4, 2000 a cash dividend in respect of the year ended December 31, 1999 of
$0.03 per share issued and outstanding as per April 28, 2000. As approved by the
annual general meeting on April 25, 2001, we paid on May 11, 2001 a cash
dividend in respect of the year ended December 31, 2000 of $0.04 per share
issued and outstanding at April 27, 2001. In the event that dividends are
declared in the future, we expect that we would pay such dividends in U.S.
dollars, although dividends may be declared in other currencies. Cash dividends
to holders of shares of Dutch Registry will be paid to the Dutch Transfer Agent
and Registrar who will, if necessary, convert such dividends into French francs
or Italian lira at the rate of exchange on the date such dividends are paid, for
disbursement to such holders. Cash dividends to holders of shares of New York
Registry will be paid to the New York Transfer Agent and Registrar, who will, if
necessary, convert such dividends into U.S. dollars at the rate of exchange on
the date such dividends are paid, for disbursement to such holders.

         Shareholder Meetings and Voting Rights

         Each registered shareholder has the right to attend general meetings of
shareholders, either in person or represented by a person holding a written
proxy, to address shareholder meetings and to exercise voting rights, subject to
the provisions of the articles of association. Our ordinary general meetings of
shareholders are held at least annually, within six months after the close of
each financial year, in Amsterdam, Haarlemmermeer (Schiphol Airport), Rotterdam
or The Hague, The Netherlands. Extraordinary general meetings of shareholders
may be held as often as our Supervisory Board deems necessary, and must be held
upon the written request of registered holders

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of at least 10% of the total outstanding share capital to our Managing Board
or our Supervisory Board specifying in detail the business to be dealt with.

         We will give notice by mail to registered holders of shares of each
shareholders' meeting, and will publish notice thereof in a national daily
newspaper distributed throughout The Netherlands and in at least one daily
newspaper in each country other than the United States in which the shares are
admitted for official quotation. Such notice shall be given no later than the
twenty-first day prior to the day of the meeting and shall either state the
business to be considered or state that the agenda is open to inspection by the
shareholders at our offices. We are exempt from the proxy rules under the United
States Securities Exchange Act of 1934. Euroclear France will provide notice of
general meetings of shareholders to, and compile voting instructions from,
holders of shares held directly or indirectly through Euroclear France. DTC will
provide notice of general meetings of shareholders to holders of shares held
directly or indirectly through DTC and the New York Transfer Agent and Registrar
will compile voting instructions. In order for holders of shares held directly
or indirectly through Euroclear France to attend general meetings of
shareholders in person, such holders must withdraw their shares from Euroclear
France and have such shares registered directly in their name or in the name of
their nominee. In order for holders of shares held directly or indirectly
through DTC to attend general meetings of shareholders in person, such holders
need not withdraw such shares from DTC but must follow rules and procedures
established by the New York Transfer Agent and Registrar.

         Each share is entitled to one vote. Unless otherwise required by the
articles of association or Dutch law, resolutions of general meetings of
shareholders require the approval of a majority of the votes cast at a meeting
at which at least one-third of the outstanding share capital is present or
represented.

         The articles of association allow for separate meetings for holders of
common shares and for holders of preference shares. At a meeting of holders of
preference shares at which the entire issued capital of shares of such class is
represented, valid resolutions may be adopted even if the requirements in
respect of the place of the meeting and the giving of notice have not been
observed, provided that such resolutions are adopted by unanimous vote. Also,
valid resolutions of preference shareholder meetings may be adopted outside a
meeting if all holders of preference shares and holders of a right of usufruct
on preference shares indicate by letter, telegram, telex communication or
facsimile that they vote in favor of the proposed resolution, provided that no
depositary receipts for preference shares have been issued with our cooperation.

         Approval of Annual Accounts and Discharge of Management Liability

         Each year, our Managing Board must prepare annual accounts and submit
them to the general meeting of shareholders for approval within five months
after the end of our financial year, unless the general meeting of shareholders
has extended this period by a maximum of six months on account of special
circumstances.

         Adoption of our annual accounts by the general meeting of shareholders
discharges the members of our Managing Board and our Supervisory Board from
liability in respect of the exercise of their duties during the financial year
concerned, unless an explicit reservation is made by the general meeting of
shareholders and without prejudice to the provisions of Dutch law relating to
liability of members of supervisory boards and managing boards upon bankruptcy
of a company pursuant to articles 138 and 149 of Book 2 of the Dutch Civil Code.
Under Dutch law, this discharge does not extend to matters not disclosed to
shareholders.

         Liquidation Rights

         In the event of our dissolution and liquidation, after payment of all
debts and liquidation expenses, the holders of preference shares shall, if
possible, receive the paid up portion of the nominal amount of their preference
shares. Any assets then remaining shall be distributed among the registered
holders of common shares in proportion to the nominal value of their
shareholdings.

         Issue of Shares; Preemptive Rights

         Unless limited or eliminated by the general meeting of shareholders or
our Supervisory Board as described below, registered holders of common shares
have a pro rata preemptive right to subscribe for any newly issued common
shares, except for common shares issued for consideration other than cash and
common shares issued to our employees or of one of our group companies.
Shareholders do not have a preemptive right to subscribe for any newly issued
preference shares. Holders of preference shares have no preemptive rights.

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         The general meeting of shareholders, upon proposal and on the terms and
conditions set by our Supervisory Board, has the power to issue shares. The
general meeting of shareholders may also authorize our Supervisory Board, for a
period of no more than five years, to issue shares and to determine the terms
and conditions of share issuances. At the general meeting of shareholders held
on April 25, 2001, our Supervisory Board was delegated this authority for a
period of five years.

         The general meeting of shareholders, upon proposal by the Supervisory
Board, also has the power to limit or exclude preemptive rights in connection
with new issuances of shares. Such a resolution of the general meeting of
shareholders requires the approval of at least two-thirds of the votes cast at a
general meeting of shareholders at which at least 50% of the outstanding share
capital is present or represented. The general meeting of shareholders may
authorize our Supervisory Board, for a period of no more than five years, to
limit or exclude preemptive rights. At the general meeting of shareholders held
on April 25, 2001, our Supervisory Board was delegated this authority for a
period of five years.

         Acquisition of Shares

         We may acquire shares, subject to certain provisions of Dutch law and
of our articles of association, if and to the extent that (i) the shareholders'
equity less the payment required to make the acquisition does not fall below the
sum of the paid-up and called-up portion of the share capital and any reserves
required by Dutch law and (ii) the aggregate nominal value of shares that we or
our subsidiaries acquire, hold or hold in pledge would not exceed one-tenth of
our issued share capital. Share acquisitions may be effected by our Managing
Board, subject to the approval of our Supervisory Board, only if the general
meeting of shareholders has authorized the Managing Board to effect such
repurchases, which authorization may apply for a maximum period of 18 months. We
may not vote shares we hold. Our articles of association have been amended
effective as of May 5, 2000 by the general annual meeting on April 26, 2000 to
provide that we shall be able to acquire shares in our own share capital in
order to transfer these shares under employee stock option or stock purchase
plans, without an authorization of the general meeting of shareholders being
required.

         Capital Reduction

         Upon proposal by our Supervisory Board, the general meeting of
shareholders may resolve to reduce our issued share capital by canceling shares
held by us or by reducing the nominal value of shares, subject to certain
statutory provisions. Upon proposal by our Supervisory Board, the general
meeting of shareholders also may cancel all preference shares against payment of
the amount paid up on those shares, subject to certain statutory provisions.

         Amendment of the Articles of Association

         The articles of association may be amended if amendments are proposed
by our Supervisory Board and approved by a simple majority of the votes cast at
a general meeting of shareholders at which at least one-third of the outstanding
share capital is present or represented. The complete proposal for the amendment
must be made available for inspection by the shareholders and the other persons
entitled to attend general meetings of shareholders at our offices as from the
day of the notice convening such meeting until the end of the meeting. Any
amendment of the articles of association that negatively affects the rights of
the holders of a certain class of shares, requires the prior approval of the
meeting of holders of such class of shares.

         Managing Board

         Responsibility for our management lies with our Managing Board. Our
Managing Board consists of such number of members as resolved by the general
meeting of shareholders upon the proposal of the Supervisory Board.

         The members of the Managing Board are appointed for three-year terms by
the general shareholders' meeting. Our Supervisory Board appoints one of the
members of the Managing Board to be chairman of the Managing Board. The
remuneration and other conditions of employment of the members of the Managing
Board are determined by the Supervisory Board.

         The Managing Board and each member of the Managing Board is authorized
to represent us. Resolutions of our Managing Board require the approval of a
majority of its members. Under the articles of association, the Managing Board
is required to obtain prior approval from the Supervisory Board for:

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<PAGE>

         o        all proposals to be submitted to a vote at the general meeting
                  of the shareholders,

         o        the formation of all companies, acquisition or sale of any
                  participation and the entering into of any joint venture or
                  participation agreement,

         o        all of our multi-annual plans and the budget for the upcoming
                  year, covering investment policy, policy regarding research
                  and development, as well as commercial policy and objectives,
                  general financial policy and policy regarding personnel, and

         o        all acts, decisions or operations covered by the above list
                  and constituting a significant change with respect to
                  decisions already adopted by the Supervisory Board or not
                  provided for in the above list and as specifically laid down
                  by the Supervisory Board in a resolution adopted by it to that
                  effect. The Supervisory Board has, by resolution, specified
                  additional resolutions of the Managing Board that require
                  its approval.

         In addition, under the articles of association, our Managing Board
must obtain prior approval from the general meeting of shareholders for
decisions relating to:

         o        the sale of all or of an important part of our assets or
                  business enterprise(s), and

         o        the entering into of mergers, acquisitions or joint ventures
                  that the Supervisory Board considers of material significance.

         The general meeting of shareholders may by resolution specify
additional resolutions that require its approval.

         The general meeting of shareholders may suspend or dismiss one or more
members of the Managing Board at a meeting at which at least one-half of the
outstanding share capital is present or represented. A quorum of one-third is
required if a suspension or dismissal is proposed by the Supervisory Board. The
Supervisory Board may suspend members of the Managing Board, but a general
meeting of shareholders must be convened within three months after such
suspension to confirm or reject the suspension.

         Supervisory Board

         Our Supervisory Board advises our Managing Board and is responsible for
supervising the policies pursued by the Managing Board and the general course of
our affairs. In addition, certain resolutions by the Managing Board require the
prior approval of the Supervisory Board, and the Supervisory Board may by
resolution specify additional resolutions that require such approval.
Resolutions of the Supervisory Board require the approval of three-quarters of
its members, In fulfilling their duties, members of the Supervisory Board must
serve our interests.

         The members of the Supervisory Board are appointed by the general
meeting of shareholders. The general meeting of shareholders, upon proposal of
the Supervisory Board, determines the number of the members of the Supervisory
Board, provided that there shall always be at least six supervisory directors.
The remuneration of the members of the Supervisory Board is determined by the
general meeting of shareholders. The general meeting of shareholders may dismiss
or suspend the members of the Supervisory Board with a simple majority vote.

         Each member of the Supervisory Board must resign no later than three
years after he has been appointed, but may offer himself for re-election
following the expiry of his term of office. Each member of the Supervisory Board
must retire at the annual general meeting of shareholders held in the financial
year in which he reaches the statutory maximum age of members of the Supervisory
Board (currently 72 years).

         Disclosure of Holdings

         Under the Dutch Act on Disclosure of Holdings in listed companies ("Wet
melding zeggenschap in ter beurze genoteerde vennootschappen 1996"), registered
shareholders and beneficial owners must promptly notify us and the Securities
Board of The Netherlands established in Amsterdam if their holding in us
reaches, exceeds or falls below 5%, 10%, 25%, 50% or 66% of the capital interest
and/or voting rights, including rights to acquire capital interest and/or voting
rights, of us. Failure to comply constitutes a criminal offense and could result
in criminal as well as civil sanctions, including suspension of voting rights
and the right to acquire the same. We must in turn

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inform the Conseil des Marches Financiers of all such notifications provided by
registered shareholders and beneficial owners to us.

         Limitations on Right to Hold or Vote Shares

         There are currently no limitations imposed by Dutch law or by the
articles of association on the right of non-resident holders to hold or vote the
shares.

Exchange controls

         None.

Taxation

         Certain Dutch tax consequences for holders of Common Shares

         Following is a summary of the principal Dutch tax consequences of the
ownership and disposition of Common Shares.

         It applies only to a holder of Common Shares who is neither resident
nor deemed to be resident in The Netherlands for Dutch tax purposes and, in the
case of an individual, has not elected to be treated as a resident of The
Netherlands for Dutch income tax purposes (a "Non-Resident Shareholder"). The
summary does not apply to any Non-Resident Shareholder who is or has been or is
deemed to be or has been deemed to be an employee of us or of any entity related
to us.

         It is a general summary that does not discuss every aspect of Dutch
taxation that may be relevant to a Non-Resident Shareholder, for instance if
such holder is subject to special circumstances or if such holder is subject to
special treatment under applicable law. This summary assumes that we are
organized and that our business will be conducted in the manner outlined in this
annual report on Form 20-F. Changes in our organizational structure or the
manner in which we conduct our business may invalidate the contents of this
summary. Furthermore, this summary assumes that each transaction with respect to
Common Shares is at arm's length.

         Unless stated otherwise, this summary is based on Dutch tax laws in
effect as of the date of this annual report on Form 20-F. These laws are subject
to change, which changes may have retroactive effect. A change to such laws may
invalidate the contents of this summary. This summary will not be updated to
reflect changes in laws.

         EACH INVESTOR SHOULD CONSULT HIS PROFESSIONAL TAX ADVISOR REGARDING THE
PARTICULAR TAX CONSEQUENCES OF HIS OWNING AND DISPOSING OF COMMON SHARES.

         Withholding tax

         Dividends we distribute to Non-Resident Shareholders are generally
subject to a withholding tax imposed by The Netherlands at a rate of 25%. The
concept "dividends we distribute," as used in this summary, includes (but is not
limited to) the following:

         (i)      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;

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

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

         (iv)     partial repayment of capital, recognized as paid-in for Dutch
                  dividend withholding tax purposes, if and to the extent that
                  there are net profits (zuivere winst), unless (a) the general
                  meeting of our shareholders has resolved in advance to make
                  such repayment and (b) the par value of the

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                  Common Shares concerned has been reduced by an equal amount by
                  way of an amendment of our articles of association.

         If a Non-Resident Shareholder is resident in a country with which The
Netherlands has concluded a double taxation treaty that is in effect, such
Non-Resident Shareholder may be eligible for a full or partial relief from the
Dutch dividend withholding tax provided that such relief is duly claimed.
Legislation is in force, but not effective, pursuant to which withholding tax
will only be creditable or refundable to the beneficial owner of dividends we
distribute. The Dutch tax authorities have taken the position that the
beneficial ownership test can also be applied to deny relief from Dutch dividend
withholding tax under double taxation treaties. Following consultations with the
Dutch financial sector, the Dutch government has announced its intention to
submit a new legislative proposal on the subject of beneficial ownership of
dividends. The intention is that this new legislation will take effect
retroactively to April 27, 2001.

         We are not required to withhold dividend tax from a dividend we
distribute to a Non-Resident Shareholder, who is resident in the Netherlands
Antilles or Aruba or in a member state of the European Union or in a country
that has concluded a double taxation treaty with The Netherlands, to the extent
that the temporary special distribution tax, discussed below in the section
"Distribution tax," applies to the distribution.

         Dutch -- U.S. double taxation treaty

         Under the Dutch -- United States double taxation treaty of December 18,
1992 (the "Dutch -- U.S. Treaty"), the dividend withholding tax rate on
dividends we distribute in respect of Common Shares held by a resident of the
United States who is entitled to the benefits of the Dutch -- U.S. Treaty will
generally be reduced to 15%. As a rule, if the 15% rate is applicable under the
Dutch -- US Treaty, we may apply this rate at source if, at the payment date,
the relevant shareholders have submitted a duly signed form IB 92 USA. Only
where the person entitled to relief has not been able to claim the relief at
source, will he be entitled to a refund of the excess tax withheld. In that case
he should as yet file a form IB 92 USA and state the circumstances that
prevented him from claiming relief at source.

         Dividends paid by us to qualifying U.S. pension funds and qualifying
U.S. exempt organizations may be eligible for full relief of the Dutch dividend
withholding tax.

         Distribution tax

         We are subject to a temporary special distribution tax at a rate of 20%
to the extent that dividends we distribute during the period from January 1,
2001 up to and including December 31, 2005 are classified as "excessive." For
purposes of this distribution tax, dividends we distribute are considered to be
"excessive" to the extent that during a particular calendar year the total
thereof exceeds the highest of the following three amounts:

         (i)      4% of our market capitalization at the beginning of the
                  relevant calendar year;

         (ii)     twice the amount of the average annual dividends (exclusive of
                  extraordinary distributions) that we distributed in the three
                  calendar years immediately preceding January 1, 2001; and

         (iii)    our consolidated commercial result for the preceding book
                  year, subject to certain adjustments.

         See the section "Withholding tax" for a discussion of the concept
"dividends we distribute."

         The special distribution tax will not be levied if and to the extent
the aggregate amount of dividends we distribute during the period from January
1, 2001 up to and including December 31, 2005 exceeds the fair market value of
our assets ending on December 31, 2000, net of liabilities and provisions and
reduced by our paid-in capital.

           The special distribution tax will be reduced in proportion to the
percentage of our shares that were held, at the time of the "excessive"
distribution, during an uninterrupted period of three years, by individuals or
entities (other than investment institutions (beleggingsinstellingen) as defined
in the Dutch Corporate Income Tax Act 1969) holding at least 5% of our nominal
paid-in capital, provided such shareholders are resident in The Netherlands, the
Netherlands Antilles or Aruba, or in a member state of the European Union, or in
a country that has concluded a double taxation treaty with The Netherlands. In
that connection, shares that have been held since September 14, 1999 are deemed
to have been held during an uninterrupted periodof three years. The special
distribution tax is not

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a withholding tax; it is imposed directly on us. Therefore, if it is reduced
because there are shareholders who own at least 5% of our paid-in capital, we
will receive the benefit of the reduction and it will inure indirectly to all of
our shareholders, not only to the shareholders whose shareholdings caused the
reduction to apply.

Taxes on income and capital gains

         Individuals

         A Non-Resident Shareholder who is an individual will not be subject to
any Dutch taxes on income or capital gains in respect of dividends we distribute
(other than the withholding tax described above) or in respect of any gain
realized on the disposal of Common Shares, unless:

         (i)      such holder derives profits from an enterprise, whether as an
                  entrepreneur (ondernemer) or pursuant to a co-entitlement to
                  the net worth of such enterprise (other than as an
                  entrepreneur or a shareholder), which enterprise is, in whole
                  or in part, carried on through a permanent establishment or a
                  permanent representative in The Netherlands and such holder's
                  Common Shares are attributable to that enterprise, or

         (ii)     such holder derives benefits from Common Shares that are
                  taxable as benefits from miscellaneous activities in The
                  Netherlands (resultaat uit overige werkzaamheden in
                  Nederland), or

         (iii)    such holder's Common Shares form part or are deemed to form
                  part of a substantial interest (aanmerkelijk belang) in us
                  that does not form part of the assets of an enterprise.

         See the section "Withholding tax" for a discussion of the concept
"dividends we distribute."

         A Non-Resident Shareholder who is an individual may, inter alia, derive
benefits from Common Shares that are taxable as benefits from miscellaneous
activities in The Netherlands:

         (i)      if the investment activities of such individual go beyond the
                  activities of an active portfolio investor, for instance in
                  case of the use of insider knowledge (voorkennis) or
                  comparable forms of special knowledge; or

         (ii)     if such individual makes Common Shares available or is deemed
                  to make Common Shares available, legally or in fact, directly
                  or indirectly, to certain connected individuals, associations
                  or entities.

         The holder of Common Shares has a substantial interest in us if such
holder - alone or together with his partner (partner) - has, directly or
indirectly, the ownership of, or certain rights, for instance a right of
usufruct, over shares of us representing 5% or more of our total issued and
outstanding capital (or the issued and outstanding capital of any class of
shares), or rights to acquire, directly or indirectly, shares, whether or not
already issued, that represent at any time 5% or more of our total issued and
outstanding capital (or the issued and outstanding capital of any class of
shares) or the ownership of, or certain rights, for instance a right of
usufruct, over profit participating certificates (winstbewijzen) that relate to
5% or more of our annual profit or to 5% or more of our liquidation proceeds. If
a holder of Common Shares has a substantial interest pursuant to the previous
sentence, his Common Shares form part of a substantial interest. Furthermore,
the holder's Common Shares form part of a substantial interest in us if such
holder's partner or any of the relatives by blood or by marriage in the direct
line (including foster-children) of the holder or of his partner holds shares
that form part of, or are deemed to form part of, a substantial interest in us.
Finally, if a holder's Common Shares do not form part of a substantial interest
pursuant to the two previous sentences, they may be deemed to form part of a
substantial interest in us if they have been acquired or are deemed to have been
acquired by such holder under a non-recognition provision.

         Entities

         A Non-Resident Shareholder who is (a) a legal person, or (b) a
partnership or other form of association without legal personality that has a
capital that is wholly or partly divided into shares, or (c) a trust or a form
of co-investment (doelvermogen) or a similar legal form that is for Dutch
purposes taxable as a corporation, will not be subject to any Dutch taxes on
income or capital gains in respect of any payment under the Common Shares or in
respect of any gain realized on the disposal of Common Shares, provided that the
following two conditions are satisfied.

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<PAGE>

         (i)      All of the following are true:

                  -        such holder derives profits from an enterprise,
                           whether as an entrepreneur (ondernemer) or pursuant
                           to a co-entitlement to the net worth of such
                           enterprise (other than as an entrepreneur or a
                           shareholder), which enterprise is, in whole or in
                           part, carried on through a permanent establishment or
                           a permanent representative in the Netherlands;

                  -        such holder's Common Shares are attributable to that
                           enterprise; and

                  -        the benefits derived from such holder's Common Shares
                           are not exempt under the participation exemption (as
                           laid down in the Dutch Corporate Income Tax Act
                           1969).

         (ii)     If such holder's Common Shares form part or are deemed to form
                  part of a substantial interest (aanmerkelijk belang) in us,
                  these Common Shares form part of the assets of an enterprise.

         See the section "Taxes on income and capital gains - Individuals" for a
discussion of the concept "substantial interest in us."

         Gift and inheritance taxes

         No gift tax or inheritance taxes will arise in The Netherlands with
respect to an acquisition of Common Shares by way of a gift by, or on the death
of, a Non-Resident Shareholder, unless:

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

         (ii)     in the case of a gift of Common Shares by an individual who at
                  the time of the gift was a Non-Resident Shareholder, such
                  individual dies within 180 days after the date of the gift,
                  while (at the time of his death) being resident or deemed to
                  be resident in The Netherlands.

         For purposes of Dutch gift and inheritance tax, an individual who holds
Dutch nationality will be deemed to be resident in The Netherlands if he has
been resident in The Netherlands at any time during the ten years preceding the
date of the gift or his death. For purposes of Dutch gift tax, an individual not
holding Dutch nationality will be deemed to be resident in The Netherlands if he
has been resident in The Netherlands at any time during the twelve months
preceding the date of the gift.

         Other taxes and duties

         No Dutch registration tax, transfer tax, stamp duty or any other
similar documentary tax or duty will be payable in The Netherlands in respect of
or in connection with the delivery of the Common Shares.

         United States Taxation

         The following discussion is a summary of certain U.S. federal income
tax consequences of the ownership and disposition of Common Shares by you if you
are a U.S. Holder, as defined below. This summary applies to you only if you are
a beneficial owner of Common Shares (a) who owns, directly or indirectly, less
than 10% of our voting stock, (b) who is (i) an individual citizen or resident
of the United States for U.S. federal income tax purposes, (ii) a U.S. domestic
corporation, (iii) an estate whose income is subject to U.S. federal income
taxation regardless of its source, or (iv) a trust if a court within the United
States is able to exercise primary supervision over its administration and one
or more U.S. persons have the authority to control all of the substantial
decisions of the trust, (c) who holds the Common Shares as capital assets, (d)
whose functional currency is the U.S. dollar, (e) who is a resident of the
United States and not also a resident of The Netherlands for purposes of the
Convention, (f) who is entitled under the "limitation on benefits" provisions
contained in the Convention to the benefits of the Convention and (g) who does
not have a permanent establishment or fixed base in The Netherlands (a "U.S.
Holder"). Certain holders (including, but not limited to, United States
expatriates, tax-exempt organizations, persons subject to the alternative
minimum tax, securities broker-dealers and certain other financial institutions,
persons holding the Common Shares in a hedging transaction or as part of a
straddle or conversion transaction or holders whose functional currency is not
the U.S. dollar) may be subject to special rules not discussed below. Because
this is a

                                       82
<PAGE>

general summary, investors are advised to consult their own tax advisors with
respect to the U.S. federal, state, local and applicable foreign tax
consequences of the ownership and disposition of Common Shares.

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

         Dividends

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

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

         Sale or other disposition of Common Shares

         Upon a sale or other disposition of Common Shares, you will recognize
capital gain or loss for U.S. federal income tax purposes in an amount equal to
the difference between the amount realized and your tax basis in such Common
Shares. Any such gain or loss, if any, will generally be U.S. source gain or
loss and will be treated as long-term gain or loss if your holding period in the
Common Shares exceeds one year. If you are an individual, any capital gain
generally will be subject to U.S. federal income tax at preferential rates if
specified minimum holding periods are met. The deductibility of capital losses
is subject to significant limitations.

         U.S. information reporting and backup withholding

         Dividend payments with respect to Common Shares and proceeds from the
sale, exchange or redemption of Common Shares may be subject to information
reporting to the Internal Revenue Service ("IRS") and possible U.S. backup
withholding at a 31% rate. Backup withholding will not apply, however, to a
holder who furnishes a correct taxpayer identification number or certificate of
foreign status and makes any other required certification or who is otherwise
exempt from backup withholding. U.S. persons who are required to establish their
exempt status generally must provide such certification on IRS Form W-9
("Request for Taxpayer Identification Number and Certification"). Non-U.S.
holders generally are not subject to U.S. information reporting or backup
withholding. However, such holders may be required to provide certification of
non-U.S. status in connection with payments received in the United States or
through U.S.-related financial intermediaries. Finalized Treasury regulations
have

                                       83
<PAGE>

generally expanded the circumstances under which U.S. information reporting
and backup withholding may apply. Holders of Common Shares should consult their
tax advisors regarding the application of the U.S. information reporting and
backup withholding rules, including the finalized Treasury regulations.

         Backup withholding is not an additional tax. Amounts withheld as backup
withholding may be credited against a holder's U.S. federal income tax
liability, and a holder may obtain a refund of any excess amounts withheld under
the backup withholding rules by filing the appropriate claim for refund with the
IRS and furnishing any required information.

Documents on display

         The documents filed by us with the U.S. Securities and Exchange
Commission can be read at its public reference facilities at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549.

ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         We are exposed to changes in financial market conditions in the normal
course of business due to our operations in different foreign currencies and our
ongoing investing and financing activities. Market risk is the uncertainty to
which future earnings or asset/liability values are exposed due to operating
cash flows denominated in foreign currencies and various financial instruments
used in the normal course of operations. We have established policies,
procedures and internal processes governing our management of market risks and
the use of financial instruments to manage our exposure to such risks.

         We are exposed to changes in interest rates primarily as a result of
our borrowing activities which include long-term debt used to fund business
operations. We borrow in U.S. dollars as well as in other currencies from banks
and other sources. We primarily enter into debt obligations to support general
corporate and local purposes including capital expenditures and working capital
needs. The nature and amount of our long-term debt can be expected to vary as a
result of future business requirements, market conditions, and other factors.
The principal interest rate risks to which we are exposed relate to our
investment portfolio and long-term debt obligations. We primarily utilize
fixed-rate debt and do not expect changes in interest rates to have a material
effect on income or cash flows in 2001.

         The functional currency of our subsidiaries is generally the local
currency. Our operating cash flows are denominated in various foreign currencies
as a result of our international business activities and certain of our
borrowings are exposed to changes in foreign exchange rates. We continually
evaluate our foreign currency exposure based on current market conditions and
the business environment. In order to mitigate the impact of changes in foreign
currency exchange rates, we enter into forward exchange contracts. The magnitude
and nature of such activities are explained further in Note 22 to the
Consolidated Financial Statements.

         We place our cash and cash equivalents with high credit quality
financial institutions. We manage the credit risks associated with financial
instruments through credit approvals, investment limits and centralized
monitoring procedures but do not normally require collateral or other security
from the parties to the financial instruments with off-balance sheet risk. We
are averse to principal loss and manage the safety and preservation of our
invested funds by limiting default risk, market risk and reinvestment risk.

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

         Forward contracts outstanding as of December 31, 2000 have remaining
terms of one to 3 months, which matured mainly during the first quarter of 2001.
The notional amounts of foreign exchange forward contracts totaled $780.4
million at December 31, 2000, and $611.6 million at December 31, 1999. The
principal currencies covered are the U.S. dollar, the euro, the Italian lira,
the Japanese yen and the Swiss franc.

         We do not anticipate any material adverse effect on our financial
position, result of operations or cash flows resulting from the use of our
instruments in the future. There can be no assurance that these strategies will
be
                                       84
<PAGE>

effective or that transaction losses can be minimized or forecasted accurately.
We do not use financial instruments for speculative or trading purposes.

         The information below summarizes our market risks associated with cash
equivalents, debt obligations, and other significant financial instruments as of
December 31, 2000. The information below should be read in conjunction with
Notes 4, 14 and 22 to the Consolidated Financial Statements.

         The table below presents principal amounts and related weighted-average
interest rates by year of maturity for our investment portfolio and debt
obligations (in thousands of U.S. dollars, except percentages):

<TABLE>
<CAPTION>
                                                                                                     Fair value at
                                                                                                     December 31,
                             2001       2002     2003    2004     2005    Thereafter      TOTAL          2000
                            ------     ------   ------  ------   ------   ----------     -------        -----
<S>                          <C>       <C>      <C>      <C>      <C>       <C>          <C>           <C>
Assets:
Cash equivalents.....      2,295,703                                                    2,295,703      2,295,703
Average interest rate          6.57%                                                        6.57%
Long-term debt:
Fixed rate...........        105,972   111,572  84,457   57,555   47,492    2,339,406    2,806,454     3,325,678
Average interest rate          5.72%     6.01%   5.91%    5.45%    5.01%        3.26%       3.62%
</TABLE>

                                                            Amounts in thousands
                                                              of U.S. dollars
                                                           ---------------------
Long-term debt by currency as of December 31, 2000:
   U.S. dollar.........................................          2,445,569
   Italian lira........................................            128,398
   French franc........................................            199,593
   Other currencies....................................             32,894
                                                                    ------
TOTAL in U.S. dollars..................................          2,806,454
                                                                 =========


                                                            Amounts in thousands
                                                              of U.S. dollars
                                                           ---------------------
Long-term debt by currency as of December 31, 1999:
   U.S. dollar........................................           1,157,366
   Italian lira.......................................             192,432
   French franc.......................................              82,993
   Other currencies...................................              12,355
                                                                    ------
TOTAL in U.S. dollars.................................           1,445,146
                                                                 =========

                                       85
<PAGE>


         The following table provides information about our foreign exchange
forward contracts at December 31, 2000 (in thousands of U.S. dollars):
<TABLE>
<CAPTION>

                                                                               Average Contractual
                                                                                 Forward Exchange
           Buy                        Sell               Notional Amount               Rate          Fair Value
         -------                    --------           -------------------           --------        ----------
<S>                              <C>                         <C>                     <C>             <C>
Foreign currency forward exchange contracts to buy U.S. dollars for foreign currencies:
   U.S. dollar........           Euro                        273,082                     0.89        (12,772)
   U.S. dollar........           French franc                 25,000                     7.30           (845)
   U.S. dollar........           Italian lira                 96,112                 1,738.98          18,779
   U.S. dollar........           Malaysian ringgit           106,063                     3.79             206
   U.S. dollar........           Singapore dollar             94,360                     1.73             (11)
                                                              ------

    Total.............                                       594,617                                    5,357
                                                             =======                                    =====

Foreign currency forward exchange contracts to buy euro for foreign currencies:
   Euro...............           Malaysian ringgit             5,155                     3.25             415
   Euro...............           U.S. dollar                  60,000                     0.85           6,121
                                                              ------                                    -----
   Total..............                                        65,155                                    6,536
                                                              ======                                    =====

Foreign currency forward exchange contracts to buy Japanese yen for foreign
currencies:
   Japanese yen.......           Euro                         26,108                   101.51         (1,465)
   Japanese yen(1)....           French franc                 12,619                     7.08         (1,959)
   Japanese yen.......           Malaysian ringgit             3,684                     0.03            (71)
                                                               -----                                     ----
   Total..............                                        42,411                                  (3,495)
                                                              ======                                  =======

Foreign currency forward exchange contracts to buy Swiss francs for foreign currencies
   Swiss franc........           Euro                          1,833                     1.52             (6)
   Swiss franc........           French franc                  2,138                     4.36            (26)
   Swiss franc........           U.S. dollar                  31,765                     1.67             771
                                                              ------                                      ---
   Total..............                                        35,736                                      739
                                                              ======                                      ===

Foreign currency forward exchange contracts to buy Singapore dollars for foreign currencies:
   Singapore dollar...           Euro                            418                    1.61              (2)
   Singapore dollar...           Japanese yen                 21,035                    0.02              323
                                                              ------                                      ---
   Total..............                                        21,453                                      321
                                                              ======                                      ===

Foreign currency forward exchange contracts to buy French francs for foreign
currencies:
   French franc.......           U.S. dollar                  15,000                     7.79           1,551
                                                              ------                                    -----
   Total..............                                        15,000                                    1,551
                                                              ======                                    =====

Foreign currency forward exchange contracts to buy Swedish kroners for foreign currencies
   Swedish kroner.....           U.S. dollar                   4,560                     9.49               7
                                                               -----                                        -
   Total..............                                         4,560                                        7
                                                               =====                                        =

Foreign currency forward exchange contracts to buy British pounds for foreign currencies:
   British pound......           French franc                  1,491                   11.06             (73)
                                                               -----                                     ----
   Total..............                                         1,491                                     (73)
                                                               =====                                     ====

   TOTAL..............                                       780,423                                   10,943
                                                             =======                                   ======
</TABLE>

----------------------
(1)  Forward exchange rate for 100 Japanese yen.

                                       86
<PAGE>


         The following table provides information about our foreign exchange
forward contracts at December 31, 1999 (in thousands of U.S. dollars):

<TABLE>
<CAPTION>
                                                                               Average Contractual
                                                                                 Forward Exchange
           Buy                        Sell               Notional Amount               Rate          Fair Value
---------------------------    --------------------    --------------------    --------------------- ------------
<S>                              <C>                         <C>                     <C>                <C>
Foreign currency forward exchange contracts to buy U.S. dollars for foreign currencies:
   U.S. dollar........           Euro                         50,373                     1.02           (943)
   U.S. dollar........           British pound                34,790                     1.62              61
   U.S. dollar........           Italian lira                144,066                 1,785.35           8,062
   U.S. dollar........           Malaysian ringgit           131,760                     3.79             185
                                                             -------                                    -----
   Total..............                                       360,989                                    7,365
                                                             =======                                    =====

Foreign currency forward exchange contracts to buy Singapore dollars for foreign currencies:
   Singapore dollar...           Euro                          4,968                    1.68               31
   Singapore dollar...           Japanese yen (1)             36,186                    1.61            (410)
   Singapore dollar...           U.S. dollar                  77,600                    1.66              180
                                                              ------                                    -----
   Total..............                                       118,754                                    (199)
                                                             =======                                    =====

Foreign currency forward exchange contracts to buy French francs for foreign
currencies:
   French franc.......           U.S. dollar                  43,000                     6.43           (547)
                                                              ------                                    -----
   Total..............                                        43,000                                    (547)
                                                              ======                                    =====

Foreign currency forward exchange contracts to buy Japanese yen for foreign
currencies:
   Japanese yen.......           Euro                         19,558                  104.92              460
   Japanese yen(1)....           French franc                 17,015                    6.16              696
                                                              ------                                    -----
   Total..............                                        36,573                                    1,156
                                                              ======                                    =====

Foreign currency forward exchange contracts to buy euro for foreign currencies:
   Euro...............           Malaysian ringgit               781                    3.85              (2)
   Euro...............           U.S. dollar                  23,000                    1.02              379
                                                              ------                                    -----
   Total..............                                        23,781                                      377
                                                              ======                                    =====

Foreign currency forward exchange contracts to buy Swiss francs for foreign currencies
   Swiss franc........           French franc                  2,706                    4.09              (2)
   Swiss franc........           U.S. dollar                  16,345                    1.58            (236)
                                                              ------                                    -----
   Total..............                                        19,051                                    (238)
                                                              ======                                    =====

Foreign currency forward exchange contracts to buy Swedish kroners for foreign currencies:
   Swedish kroner.....           U.S. dollar                   7,000                    8.43             (56)
                                                               -----                                    -----
   Total..............                                         7,000                                     (56)
                                                               =====                                    =====

Foreign currency forward exchange contracts to buy British pounds for foreign currencies:
   British pound......           French franc                  2,419                   10.19               81
                                                               -----                                    -----
   Total..............                                         2,419                                       81
                                                               =====                                    =====

   TOTAL..............                                       611,567                                    7,939
                                                             =======                                    =====
</TABLE>

----------------------
(1)      Forward exchange rate for 100 Japanese yen.

ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

         Not applicable.


                                       87
<PAGE>


                                     PART II

ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

         None.

ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
          PROCEEDS

         None.

ITEM 15.  [RESERVED]

ITEM 16.  [RESERVED]


                                       88
<PAGE>

                                    PART III

ITEM 17.  FINANCIAL STATEMENTS

         Not applicable.

ITEM 18.  FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

                                                                                                             Page
<S>                                                                                                          <C>
Financial Statements:
Report of Independent Accountants for Years Ended December 31, 2000, 1999 and 1998................            F-2
Consolidated Statement of Income for the Years Ended December 31, 2000, 1999 and 1998.............            F-3
Consolidated Balance Sheet as at December 31, 2000 and 1999.......................................            F-4
Consolidated Statement of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998.........            F-5
Consolidated Statement of Changes in Shareholders' Equity for the Years Ended December 31, 2000,
   1999 and 1998..................................................................................            F-6
Notes to Consolidated Financial Statements........................................................            F-7

Financial Statement Schedules:
For each of the three years in the period ended December 31, 2000 Schedule II
Valuation and
   Qualifying Accounts............................................................................            S-1
Report of Independent Accountants on Financial Statement Schedule.................................            S-2

</TABLE>

ITEM 19.  EXHIBITS

         1.1 Articles of Association, as amended as of May 5, 2000, of
STMicroelectronics N.V. (incorporated by reference to the Annual Report on Form
20-F for the year ended December 31, 1999, as filed with the Commission on June
27, 2000)

         4.1 Indenture, dated as of November 16, 2000, among STMicroelectronics
N.V. as issuer and The Bank of New York, as Trustee, of our Zero Coupon Senior
Convertible Bonds due 2010

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

         10.1 Consent of PricewaterhouseCoopers N.V.


                                       89
<PAGE>


                                  CERTAIN TERMS

ADSL............................asymetrical digital subscriber line
ASD.............................application-specific discrete technology
ASIC............................application-specific IC
ASSP............................application-specific standard product
ATM.............................asynchronous transfer mode
BCD.............................bipolar, CMOS and DMOS process technology
BiCMOS..........................bipolar and CMOS process technology
CAD.............................computer aided design
CDMA............................code division multiple access
CIM.............................computer integrated manufacturing
CMOS............................complementary metal oxide silicon
DMOS............................diffused metal oxide silicon
DRAMS...........................dynamic random access memory
DSP.............................digital signal processor
EMAS............................the Eco-Management and Audit Scheme (EAMS)
                                is the voluntary European Community scheme
                                for companies performing industrial
                                activities for the evaluation and
                                improvement of environmental performance
EEPROM..........................electrically erasable programmable read-only
                                memory
EPROM...........................erasable programmable read-only memory
GPS.............................global positioning system
HCMOS...........................high-speed complementary metal-oxide-silicon
IC..............................integrated circuit
IGBT............................insulated gate bipolar transistors
ISDN............................integrated services digital network
JavaCard(TM)applets.............application software for smartcard developed
                                on Java platform
Java............................operating system developed by Sun Microsystems.
Kbit............................Kilobit
Mbit............................Megabit
MCUs............................microcontrollers units
MIPS............................million instructions per second
MOS.............................metal oxide silicon process technology
MOSFET..........................metal oxide silicon field effect transistor
MPEG............................motion picture experts group
NVRAM...........................nonvolatile SRAM
OEM.............................original equipment manufacturer
OTP.............................one-time programmable
PROM............................programmable read-only memory
RAM.............................random access memory
RF..............................radio frequency
RISC............................reduced instruction set computing
ROM.............................read-only memory
SAM.............................serviceable available market
SLIC............................subscriber line interface card
SPC.............................statistical process control
SRAM............................static random access memory
TAM.............................total available market
VLSI............................very large scale integration
VDSL............................very high-bit rate digital subscriber line
VoIP............................voice over Internet protocol
WCDMA...........................wide-band CDMA


                                       90
<PAGE>


                                   SIGNATURES

         The registrant hereby certifies that it meets all of the requirements
for filing on Form 20-F and that it has duly caused and authorized the
undersigned to sign this Annual Report on its behalf.

                                      STMICROELECTRONICS N.V.

Date:    May 15, 2001

                                      By:  /s/     Pasquale Pistorio
                                         ---------------------------------------
                                          Name:    Pasquale Pistorio
                                          Title:   President and
                                                   Chief Executive Officer



                                       91
<PAGE>


                         INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
                                                                                                             Page
<S>                                                                                                          <C>
Financial Statements:
Report of Independent Accountants for Years Ended December 31, 2000, 1999 and 1998................            F-2
Consolidated Statement of Income for the Years Ended December 31, 2000, 1999 and 1998.............            F-3
Consolidated Balance Sheet as at December 31, 2000 and 1999.......................................            F-4
Consolidated Statement of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998.........            F-5
Consolidated Statement of Changes in Shareholders' Equity for the Years Ended December 31, 2000,
   1999 and 1998..................................................................................            F-6
Notes to Consolidated Financial Statements........................................................            F-7

Financial Statement Schedules:
For each of the three years in the period ended December 31, 2000 Schedule II
Valuation and
   Qualifying Accounts............................................................................            S-1
Report of Independent Accountants on Financial Statement Schedule.................................            S-2

</TABLE>



                                      F-1

<PAGE>


                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Supervisory Board and Shareholders of
STMicroelectronics N.V:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of cash flows and of changes in shareholder's
equity present fairly, in all material respects, the financial position of
STMicroelectronics N.V. and its subsidiaries at December 31, 2000 and December
31, 1999, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.


/s/ PricewaterhouseCoopers N.V.

PricewaterhouseCoopers N.V.
Amsterdam, The Netherlands
February 1, 2001



                                      F-2
<PAGE>

                            STMicroelectronics N.V.
                        CONSOLIDATED STATEMENT OF INCOME

<TABLE>
<CAPTION>
                                                                                      Year ended
                                                               -----------------------------------------------------
                                                               December 31,           December 31,      December 31,
In thousands of U.S. dollars except per share amounts             1998                   1999               2000
--------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                    <C>               <C>
Net sales                                                       4,210,618              5,023,109         7,764,404

Other revenues                                                     37,134                 33,167            48,799
                                                               -----------------------------------------------------
Net revenues                                                    4,247,752              5,056,276         7,813,203

Cost of sales                                                  (2,622,943)            (3,054,476)       (4,216,921)
                                                               -----------------------------------------------------
Gross profit                                                    1,624,809              2,001,800         3,596,282

Selling, general and administrative                              (488,072)              (534,178)         (703,675)

Research and development                                         (689,785)              (835,964)       (1,026,348)

Other income and expenses                                          76,458                 39,840           (83,533)
                                                               -----------------------------------------------------
Operating income                                                  523,410                671,498         1,782,726

Net interest income                                                 8,691                 35,624            46,703
                                                               -----------------------------------------------------
Income before income taxes and minority interests                 532,101                707,122         1,829,429

Income tax expense                                               (120,351)              (157,214)         (375,119)
                                                               -----------------------------------------------------
Income before minority interests                                  411,750                549,908         1,454,310
                                                               -----------------------------------------------------
Minority interests                                                   (629)                (2,656)           (2,207)
                                                               -----------------------------------------------------
Net income                                                        411,121                547,252         1,452,103
                                                               -----------------------------------------------------

Earnings per share (Basic)                                           0.49                   0.64              1.64
                                                               -----------------------------------------------------
Earnings per share (Diluted)                                         0.48                   0.62              1.58

The accompanying notes are an integral part of these consolidated financial statements
</TABLE>


                                      F-3

<PAGE>


                            STMicroelectronics N.V.
                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                                As at
                                                             ------------------------------------
                                                             December 31,            December 31,
In thousands of U.S. dollars                                    1999                    2000
-------------------------------------------------------------------------------------------------
<S>                                                           <C>                     <C>
Assets

Current assets

Cash and cash equivalents                                     1,823,086               2,295,703
Marketable securities                                              --                    35,155
Trade accounts and notes receivable                             913,282               1,496,446
Inventories                                                     619,402                 876,476
Other receivables and assets                                    435,784                 554,035
                                                              ---------------------------------
Total current assets                                          3,791,554               5,257,815
                                                              ---------------------------------
Intangible assets, net                                          179,947                 286,121
Property, plant and equipment, net                            3,873,019               6,201,071
Investments and other non-current assets                         85,783                 135,488
                                                              ---------------------------------
                                                              4,138,749               6,622,680
                                                              ---------------------------------
Total assets                                                  7,930,303              11,880,495
                                                              ---------------------------------

Liabilities and shareholders' equity
Current liabilities

Bank overdrafts                                                  26,471                  35,599
Current portion of long-term debt                                96,669                 105,972
Trade accounts and notes payable                                998,881              1,745, 553
Other payables and accrued liabilities                          381,845                 509,165
Accrued and deterred income tax                                 189,308                 299,638
                                                              ---------------------------------
Total current liabilities                                     1,693,174               2,695,927
                                                              ---------------------------------

Long-term debt                                                1,348,477               2,700,482
Reserves for pension and termination indemnities                108,294                 110,244
Other non-current liabilities                                   191,660                 216,235
                                                              ---------------------------------
                                                              1,648,431               3,026,961
                                                              ---------------------------------
Total liabilities                                             3,341,605               5,722,888
                                                              ---------------------------------
Commitments and contingencies
                                                              ---------------------------------
Minority interests                                               24,757                  32,958
                                                              ---------------------------------

Common stock                                                  1,112,680               1,133,739
Capital surplus                                               1,395,307               1,689,824
Accumulated result                                            2,551,817               3,977,316
Accumulated other comprehensive income                         (495,863)               (676,230)
                                                              ---------------------------------
Shareholders' equity                                          4,563,941               6,124,649
                                                              ---------------------------------
Total liabilities and shareholders' equity                    7,930,303              11,880,495
                                                              ---------------------------------

The accompanying notes are an integral part of these consolidated financial statements
</TABLE>


                                      F-4
<PAGE>


                            STMicroelectronics N.V.
                      CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                       Year ended
                                                           ------------------------------------------------------------
                                                           December 31,            December 31,            December 31,
In thousands of U.S. dollars                                  1998                    1999                     2000
-----------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                     <C>                     <C>
Cash flows from operating activities:

  Net income                                                 411,121                 547,252               1,452,102

  Add (deduct) non-cash items:

      Depreciation and amortization                          704,004                 806,789               1,108,180
      Amortization of discount on convertible debt             4,657                  12,576                  29,077
      Other non-cash items                                     5,240                   4,285                  10,133
      Minority interest in net income of subsidiaries            629                   2,656                   2,207
      Deferred taxes                                          34,333                  28,711                  (4,535)

   Changes in assets and liabilities:

      Trade accounts and notes receivable                   (115,879)               (164,564)               (631,049)
      Inventories                                            (18,807)                (38,340)               (299,993)
      Trade accounts and notes payable                        45,982                 208,899                 579,436
      Other assets and liabilities, net                      (58,733)                 61,018                 186,214
                                                           ----------------------------------------------------------
Net cash provided by operating activities                  1,012,547               1,469,282               2,431,772
                                                           ----------------------------------------------------------
Cash flows from investing activities:

   Payment for purchases of tangible assets                 (947,253)             (1,347,537)             (3,317,600)
   Other investing activities                                (18,997)               (190,290)               (249,543)
                                                           ----------------------------------------------------------
Net cash used in investing activities                       (966,250)             (1,537,827)             (3,567,143)
                                                           ----------------------------------------------------------
Cash flows from financing activities:

   Proceeds from issuance of long-term debt                  424,955                 756,836               1,661,202
   Repayment of long-term debt                               (72,396)                (48,080)                (87,223)
   Increase (decrease) in short-term facilities             (233,261)               (110,308)                 30,665
   Capital increase                                          233,334                 230,437                  38,175
   Dividends paid                                                 --                 (22,848)                (26,603)
                                                           ----------------------------------------------------------
Net cash provided by financing activities                    352,632                 806,037               1,616,216
                                                           ----------------------------------------------------------
   Effect of changes in exchange rates                          (334)                (15,158)                 (8,228)
                                                           ----------------------------------------------------------
Net cash increase                                            398,595                 722,334                 472,617
                                                           ----------------------------------------------------------
Cash and cash equivalents at beginning of the period         702,157               1,100,752               1,823,086
                                                           ----------------------------------------------------------
Cash and cash equivalents at end of the period             1,100,752               1,823,086               2,295,703
                                                           ----------------------------------------------------------

The accompanying notes are an integral part of these consolidated financial statements
</TABLE>


                                      F-5
<PAGE>


                            STMicroelectronics N.V.
           CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
In thousands of U.S. dollars, except per share amounts                                              Accumulated
                                                                                                       Other
                                                  Common           Capital         Accumulated     Comprehensive     Shareholders'
                                                   Stock           Surplus            Result       Income (Loss)         Equity
                                                ------------------------------------------------------------------------------------

                                                ------------------------------------------------------------------------------------
<S>                                             <C>                 <C>             <C>               <C>              <C>
Balance as of December 31, 1997                 1,073,990           930,945         1,616,292         (313,781)        3,307,446

Capital increase                                   22,753           204,581                                              227,334

Comprehensive income:

  Net Income                                                                          411,121                            411,121

  Other comprehensive income, net of tax                                                               137,409           137,409
                                                                                                                       -------------
Comprehensive income                                                                                                     548,530
                                                ------------------------------------------------------------------------------------
Balance as of December 31, 1998                 1,096,743         1,135,526         2,027,413         (176,372)        4,083,310
                                                ------------------------------------------------------------------------------------
Capital increase                                   15,937           259,781                                              275,718

Comprehensive income:

  Net Income                                                                          547,252                            547,252

  Other comprehensive loss, net of tax                                                                (319,491)         (319,491)
                                                                                                                       -------------
Comprehensive income                                                                                                     227,761

Dividends, $0.027 per share                                                           (22,848)                           (22,848)
                                                ------------------------------------------------------------------------------------
Balance as of December 31, 1999                 1,112,680         1,395,307         2,551,817         (495,863)        4,563,941
                                                ------------------------------------------------------------------------------------
Capital increase                                   21,059           294,517                                              315,576

Comprehensive income:

  Net Income                                                                        1,452,103                          1,452,103

  Other comprehensive loss, net of tax                                                                (180,367)         (180,367)
                                                                                                                       -------------
Comprehensive income                                                                                                   1,271,736

Dividends, $0.03 per share                                                            (26,604)                           (26,604)
                                                ------------------------------------------------------------------------------------
Balance as of December 31, 2000                 1,133,739         1,689,824         3,977,316         (676,230)        6,124,649
                                                ------------------------------------------------------------------------------------

The accompanying notes are an integral part of these consolidated financial statements
</TABLE>


                                      F-6
<PAGE>
                             STMICROELECTRONICS N.V.
                   Notes to consolidated financial statements

            (In thousands of U.S. dollars, except per share amounts)

1.   The Company

     STMicroelectronics N.V. (formerly known as SGS-THOMSON Microelectronics
     N.V.) (the "Company") was formed in 1987 by the combination of the
     semiconductor business of SGS Microelettronica (then owned by Societa
     Finanziaria Telefonica (S.T.E.T.), an Italian corporation) and the
     non-military business of Thomson Semiconducteurs (then owned by
     Thomson-CSF, a French corporation) whereby each company contributed their
     respective semiconductor businesses in exchange for a 50% interest in the
     Company. The Company designs, develops, manufactures and markets a broad
     range of semiconductor integrated circuits and discrete devices that are
     used in a wide variety of microelectronic applications.

     The Company is registered in The Netherlands with its statutory domicile
     in Amsterdam.

     At December 31, 2000, the Company was 43.77% (December 31, 1999: 44.80%)
     owned by STMicroelectronics Holding II B.V., and 56.23% by the public
     (December 3l, 1999: 55.20%).

     At December 31, 1999, and at December 31, 2000, STMicroelectronics Holding
     II B.V. was 100% owned by STMicroelectronics Holding N.V.

     At December 31, 1999, STMicroelectronics Holding N.V. was owned as follows:

     - 50% by FT1CI, a French holding company, whose shareholders are
       CEA-Industrie (51%) and France Telecom (49%).

     - 50% by Finmeccanica, an Italian holding company, whose shareholders are
       Istituto per la Ricostruzione Industriale S.p.a. (I.R.I.) (54.2%), the
       Italian Ministry of Treasury (28.9%) and the public (16.9%).

     At December 31, 2000, STMicroelectronics Holding N.V. was owned as follows:

     - 50% by FT1CI, a French holding company, whose shareholders are
       CEA-Industrie (51%) and France Telecom (49%).

     - 50% by Finmeccanica, an Italian holding company, whose shareholders are
       Istituto per la Ricostruzione Industriale S.p.a. (I.R.I.) (5.0%), the
       Italian Ministry of Treasury (32.4%) and the public (62.6%).

2.   Summary of accounting policies

     2.1) Principles of consolidation

          The accompanying consolidated financial statements have been prepared
          in accordance with accounting principles generally accepted in the
          United States of America (U.S. GAAP).

          The Company's consolidated financial statements include the assets,
          liabilities and results of operations of its majority-owned
          subsidiaries. The ownership of other interest holders is reflected as
          minority interests. Intercompany balances and transactions have been
          eliminated in consolidation.

     2.2) Use of estimates

          The preparation of financial statements in accordance with U.S. GAAP
          requires management to make estimates and assumptions that affect the
          amounts reported in the financial statements and accompanying notes to
          the financial statements.
          Actual results could differ from those estimates and may affect
          amounts reported in future periods.

     2.3) Foreign currency

          The U.S. dollar is the reporting currency for the Company because the
          dollar is the currency of reference in terms of market pricing in the
          world-wide semiconductor industry. Furthermore, there is no currency
          in which the majority of transactions are denominated, and revenues
          from external sales in U.S. dollars exceed revenues in any other
          currency.


                                      F-7
<PAGE>


                             STMICROELECTRONICS 1.V.
                   Notes to consolidated financial statements

            (In thousands of U.S. dollars, except per share amounts)


          The functional currency of each subsidiary throughout the group is
          generally the local currency.
          For consolidation purposes, assets and liabilities of these
          subsidiaries are translated at current rates of exchange at the
          balance sheet date. Income and expense items are translated at the
          average exchange rate for the period. The effects of translating the
          financial position and results of operations from local functional
          currencies are included in "other comprehensive income".

          Assets, liabilities, revenue, expenses, gains or losses arising from
          foreign currency transactions are recorded in the functional currency
          of the recording entity at the exchange rate in effect at the date of
          the transaction. At each balance street date, recorded balances
          denominated in a currency other than the recording entity's functional
          currency are translated at the exchange rate prevailing at that date.
          The related exchange gains and losses are recorded in the income
          statement.

          The Company conducts its business on a global basis in various major
          international currencies. As a result, it is exposed to adverse
          movements in foreign currency exchange rates.
          The Company utilizes foreign exchange forward contracts and currency
          options to cover foreign currency exposure. For the forward contracts
          and currency options that are considered identifiable hedges,
          recognition of gains and losses is deferred until settlement of the
          underlying commitments. Realized gains and losses are recorded as
          other income or expense when the underlying exposure materializes or
          the hedged transaction is no longer expected to occur. The discount or
          premium on these forward contracts designated as a hedge, are recorded
          as an asset or liability and amortized to interest expense over the
          terms of the contract. For the forward contracts and currency options
          that are not considered identifiable hedges, recognition of gains and
          losses is recognized at each reporting period, based on the fair
          market value of the forward contract. Realized gains or losses are
          recorded as other income and expense.

     2.4) Reclassifications

          Certain prior year amounts have been reclassified to conform with the
          current year presentation.

     2.5) Income recognition

          * Sales

          Revenue on sales of semiconductor products is recognized upon transfer
          of the ownership of the goods at shipment. A portion of the Company's
          sales are made to distributors who participate in certain programs
          common in the semiconductor industry whereby the distributors are
          allowed to return merchandise under certain circumstances and may
          receive future price reductions. Provision is made at the time of sale
          for estimated product returns and price protection which may occur
          under programs the Company has with these customers.

           * Fundings

          Government fundings are recognized as the related costs are incurred,
          commencing when the fundings' contract is signed with the relevant
          government department or agency. Government fundings for research and
          development are included in "other income and expenses". Government
          fundings for capital expenditures are deducted from the cost of the
          related fixed assets and reduce depreciation over the assets'
          remaining estimated useful lives.

          * Other revenue

          Other revenue consists of co-development contract fees, certain
          contract indemnity payments and patent royalty income. Other revenue
          is recognized rateably over the term of the agreement.

          In December 1999, the Securities and Exchange Commission released
          Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
          Statements" ("SAB 101"), providing the staff's view on
          applying generally accepted accounting principles to selected revenue
          recognition issues. The Company adopted SAB 101 in the fourth quarter
          of 2000, as required. The adoption of SAB 101 did not have a material
          effect on the Company's financial position or overall trends in
          results of operations.

     2.6) Advertising costs

          Advertising costs are expensed as incurred. Advertising expenses for
          1998, 1999 and 2000 were $16,012. $21,102 and $30,421, respectively.


                                      F-8
<PAGE>

                            STMICROELECTRONICS N.V.
                   Notes to consolidated financial statements

            (In thousands of U.S. dollars, except per share amounts)


     2.7) Research and development

          Research and development costs are charged to expense as incurred.
          Research and development costs include costs incurred by the Company
          as well as the Company's share of costs incurred by other research and
          development interest groups.

     2.8) Start-up costs

          Start-up costs incurred in the Company's new manufacturing
          facilities, before reaching a minimum level of production, are
          included in "other income and expenses" in the accompanying
          consolidated statement of income.

     2.9) Income taxes

          The provision for current taxes represents the income taxes expected
          to be payable for the current year. Deferred tax assets and
          liabilities are recorded for all temporary differences arising between
          the tax and book bases of assets and liabilities and for the benefits
          of tax credits and loss carryforwards. Those deferred tax assets and
          liabilities are measured using the enacted tax rates at which they are
          expected to be realized or paid. A valuation allowance is provided
          where necessary to reduce deferred tax assets to the amount expected
          to be "more likely than not" realized in the future.

    2.10) Earnings per share

          Basic earnings per share are computed by dividing net income by the
          weighted average number of common shares outstanding during the
          period.
          Diluted earnings per share are computed by dividing net income (less
          interest expense, net of tax effects, related to convertible debt) by
          the weighted average number of common shares and common share
          equivalents outstanding during the period. The weighted average shares
          used to compute diluted earnings per share include the incremental
          shares of common stock relating to outstanding options and convertible
          debt to the extent such incremental shares are dilutive.

    2.11) Cash equivalents

          All highly liquid investments purchased with an original maturity of
          ninety days or less are considered to be cash equivalents.

    2.12) Marketable securities

          Management determines the appropriate classification of debt and
          equity securities at the time of purchase and reassesses the
          classification at each reporting date. All marketable securities are
          classified as available-for-sale and are reported at fair value with
          net unrealized gains or losses reported as a separate component of
          comprehensive income in the statement of shareholders' equity.
          Unrealized losses that are other than temporary are recognized in net
          income. Gains and losses on securities sold are determined based on
          the specific identification method and are included in other income
          and expense.

    2.13) Inventories

          Inventories are stated at the lower of cost or market. Cost is
          computed on a currently adjusted standard basis which approximates
          actual cost on a current average basis.

    2.14) Intangible assets

          Intangible assets include the cost of technologies and licenses
          purchased from third parties, amortized over a period ranging from
          three to seven years, and goodwill acquired in business combinations
          amortized over its estimated useful life, generally three to five
          years.

          The carrying value of long-lived assets, including intangibles, is
          evaluated whenever changes in circumstances indicate the carrying
          amount of such assets may not be recoverable.
          In performing such review for recoverability, the Company compares the
          expected future cash flow to the carrying value of long-lived assets
          and identifiable intangibles. If the anticipated undiscounted future
          cash flows are less than the carrying amount of such assets, the
          Company recognizes an impairment loss for the difference between the
          carrying amount of the assets and their estimated fair value.


                                      F-9
<PAGE>


                             STMICROELECTRONICS N.V.
                   Notes to consolidated financial statements

            (In thousands of U.S. dollars, except per share amounts)

    2.15) Property, plant and equipment

          Property, plant and equipment are stated at cost, net of government
          fundings. Major renewals and improvements are capitalized; minor
          replacements, maintenance and repairs are charged to current
          operations. Depreciation is computed using the straight-line method
          over the following estimated useful lives:

                -----------------------------------------------------
                Buildings                                    33 years
                Leasehold improvements                       10 years
                Machinery and equipment                       6 years
                Computer and R&D equipment                  3-6 years
                Other                                       2-5 years
                -----------------------------------------------------

          Assets subject to leasing agreements and classified as capital leases
          are included in property, plant and equipment and depreciated over
          the shorter of the estimated useful life or the lease term.

          When property, plant or equipment is retired or otherwise disposed of,
          the net book value of the asset is removed from the Company's books
          and the net gain or loss is included in the determination of income.

    2.16) Investments

          The equity accounting method is used when the Company has both a 20%
          to 50% equity interest and the ability to exercise significant
          influence over the investee. The Company also holds certain equity
          investments constituting less than 20% ownership of the investee.
          These investments are carried at historical cost. Although the market
          value of the investments is not readily determinable, management
          believes the fair value of these investments exceeds their carrying
          amounts.

          For those investments with readily determinable market values, the
          Company has accounted for those investments as available-for-sale.
          These investments are reported at fair value with the net unrealized
          gains or losses reported as a separate component of comprehensive
          income in the statement of shareholders' equity. Unrealized losses
          that are other than temporary are recognized in net income.

    2.17) Pension and termination indemnities

          The Company sponsors various retirement plans for its employees; such
          plans include both defined benefit and defined contribution plans.
          Upon retirement, the Company's employees receive benefits provided by
          the pension plan arrangements. These plans conform with local
          regulations and practices of the countries in which the Company
          operates.

    2.18) Comprehensive income

          Comprehensive income is defined as the change in equity of a business
          during a period from transactions and circumstances related to
          non-owner sources, and includes all changes in equity except those
          resulting from investment by owners and distributions to owners.
          In the Company's case, "other comprehensive income" consists of
          foreign currency translation adjustments and the unrealized gain or
          loss on marketable securities.

    2.19) Stock splits

          In May 1999, the Company's shareholders approved a two-for-one stock
          split of the Company's common stock.
          The record date for the stock split was June 16, 1999, and the
          distribution date was June 17, 1999.
          In April 2000, the Company's shareholders approved a three-for-one
          stock split of the Company's common stock.
          The record date for the stock split was May 5, 2000, and the
          distribution date was May 6, 2000.
          All earnings per share amounts, references to common stock,
          shareholders' equity amounts and stock option plan data have been
          restated as if the stock splits had occurred as of the earliest period
          presented.

    2.20) New accounting pronouncements

          In June 1998, the Financial Accounting Standards Board issued
          Statement of Financial Accounting Standards No. 133 (FAS 133),
          "Accounting for Derivative Instruments and Hedging Activities". FAS
          133 is required to be adopted for fiscal years beginning after June
          15, 2000. This statement establishes accounting and reporting
          standards for derivative instruments and requires recognition of all
          derivatives as assets or liabilities in the balance sheet, and the
          measurement of those instruments at fair value. The Company has
          adopted the standards required by this statement in the first quarter
          of 2001. Management believes that adoption of FAS 133 has not had a
          material effect on the Company's financial position or results of
          operations.


                                      F-10
<PAGE>


                             STMICROELECTRONICS N.V.
                   Notes to consolidated financial statements

            (In thousands of U.S. dollars, except per share amounts)


3.  Consolidated entities

    The consolidated financial statements include the accounts of
    STMicroelectronics N.V. and the following entities as of December 31, 2000:

<TABLE>
<CAPTION>
                                                                                             Percentage
                                                                                             Ownership
                                                                                             (Direct or
Legal Seat                                   Name                                             Indirect)
-------------------------------------------------------------------------------------------------------
<S>                 <C>                      <C>                                                 <C>
United Kingdom      London                   STMicroelectronics LTD                              100
                    London                   Thomson Components LTD                              100
                    Bristol                  STMicroelectronics E.E.I.G.                         100
Canada              Nepean                   STMicroelectronics (Canada), Inc.                   100
Israel              Netania                  W.S.I. Ltd.                                         100
Sweden              Stockholm                STMicroelectronics A.B.                             100
Germany             Munich                   STMicroelectronics GmbH                             100
Switzerland         Geneva                   STMicroelectronics S.A.                             100
Malta               Malta                    STMicroelectronics LTD                              100
Spain               Madrid                   STMicroelectronics S.A.                             100
France              Paris                    STMicroelectronics S.A.                             100
                    Paris                    STMicroelectronics S.A.S.                           100
Italy               Milano                   STMicroelectronics S.R.L.                           100
                    Catania                  CO.RI.M.ME.                                         100
                    Milano                   Accent S.R.L.                                        51
Singapore           Singapore                STMicroelectronics PTE LTD                          100
                    Singapore                STMicroelectronics ASIA PACIFIC PTE LTD             100
Malaysia            Muar                     STMicroelectronics SDN BHD                          100
                    Muar                     STMicroelectronics (Malaysia) SDN BHD               100
Japan               Tokyo                    STMicroelectronics KK                               100
Hong Kong           Hong Kong                STMicroelectronics LTD                              100
Australia           Sydney                   STMicroelectronics PTY LTD                          100
United States       Dallas                   STMieroelectronics Inc.                             100
                    Rancho Bernardo          STMicroelectronics (RB), Inc.                       100
                    Dallas                   STMicroelectronics Leasing Co. Inc.                 100
                    La Jolla                 Metaflow Technologies Inc.                          100
                    Wilsonville              The Portland Group, Incorporated                    100
Brazil              Sao Paulo                STMicroelectronics Ltda                             100
Morocco             Casablanca               STMicroelectronics S.A.                             100
                    Casablanca               Electronic Holding S.A.                             100
China               Shenzhen                 Shenzhen STS Microelectronics Co. LTD                60
                    Shenzhen                 STMicroelectronics (Shenzen) Co. LTD.               100
India               New Delhi                STMicroelectronics PTE LTD                          100
Finland             Helsinki                 STMicroelectronics OY                               100
-------------------------------------------------------------------------------------------------------

</TABLE>


4.  Marketable securities and certain investments

    The marketable securities and certain investments had a cost basis of
    $31,831 and a fair value of $42,093 at December 31, 2000. The unrealized
    gain at December 31, 2000 related to these investments was $10,262. The
    Company did not own any marketable securities or investments accounted for
    at fair value at December 31, 1999. For fiscal years 1998, 1999 and 2000,
    gross realized gains and losses were $0, $0 and $8,952, respectively.



                                      F-11
<PAGE>


                             STMICROELECTRONICS N.V.
                   Notes to consolidated financial statements

            (In thousands of U.S. dollars, except per share amounts)


5.  Trade accounts and notes receivable

    Trade accounts and notes receivable consist of the following:

--------------------------------------------------------------------------------
                                                December 31,    December 31,
                                                --------------------------------
                                                   1999            2000
--------------------------------------------------------------------------------

    Trade accounts and notes receivable           924,872        1,512,270
    Less valuation allowance                      (11,590)         (15,824)
                                                --------------------------------

    Total                                         913,282        1,496,446
--------------------------------------------------------------------------------

    During 1998 no customer individually represented over ten percent of
    consolidated net revenues. In 1999, one customer represented 11.4% of
    consolidated net revenues and in 2000 one customer represented 13.4% of
    consolidated net revenues.

6.  Inventories

    Inventories consist of the following:
--------------------------------------------------------------------------------
                                                December 3l,    December 31,
                                                --------------------------------
                                                    1999            2000
--------------------------------------------------------------------------------

    Raw materials                                 101,590          88,501
    Work-in-process                               395,320         588,263
    Finished products                             122,492         199,712
                                                --------------------------------

    Total                                         619,402         876,476
--------------------------------------------------------------------------------

7.  Other receivables and assets

    Other receivables and assets consist of the following:

--------------------------------------------------------------------------------
                                                       December 31, December 31,
                                                       -------------------------
                                                           1999        2000
--------------------------------------------------------------------------------

Receivables from government agencies                     152,237     139,418
Taxes and other government receivables                    61,523      99,499
Down payment to suppliers                                 11,394      20,283
Loans to employees                                         3,557       3,914
Prepaid expenses                                          17,648      71,800
Sundry debtors                                            35,053      97,708
Deferred tax assets                                       73,079      71,651
Other                                                     81,293      49,762
                                                       -------------------------

Total                                                    435,784     554,035
--------------------------------------------------------------------------------

Receivables from government agencies relate to research and development
contracts, industrialization contracts and capital expenditures.

8.  Intangible assets

    Intangible assets consist of the following:

--------------------------------------------------------------------------------
                                                       December 31, December 31,
                                                       -------------------------
                                                           1999        2000
--------------------------------------------------------------------------------

Goodwill                                                  67,417      116,898
Technologies and licenses                                202,560      315,532
Less accumulated amortization                            (90,030)    (146,309)
                                                       -------------------------

Total                                                    179,947      286,121
--------------------------------------------------------------------------------


                                      F-12
<PAGE>


                             STMICROELECTRONICS N.V.
                   Notes to consolidated financial statements

            (In thousands of U.S. dollars, except per share amounts)

9.  Property, plant and equipment

      Property, plant and equipment consist of the following:

      --------------------------------------------------------------------------
      December 31, 1999                      Gross    Depreciation       Net
      --------------------------------------------------------------------------

      Land and buildings                     616,035     (132,973)     483,062
      Machinery and equipment              6,216,830   (3,266,819)   2,950,011
      Other tangible fixed assets            321,494     (235,968)      85,526
      Construction in progress               354,420           --      354,420
                                          --------------------------------------
      Total                                7,508,779   (3,635,760)   3,873,019
      --------------------------------------------------------------------------

      --------------------------------------------------------------------------
      December 31, 2000                      Gross    Depreciation       Net
      --------------------------------------------------------------------------

      Land and buildings                     710,456     (144,422)     566,034
      Machinery and equipment              8,698,233   (3,689,854)   5,008,379
      Other tangible fixed assets            385,581     (254,406)     131,175
      Construction in progress               495,483           --      495,483
                                          --------------------------------------
      Total                               10,289,753   (4,088,682)   6,201,071
      --------------------------------------------------------------------------

10. Investments and other non-current assets

      Investments and other non-current assets consist of the following:

      --------------------------------------------------------------------------
                                                      December 31,  December 31,
                                                      --------------------------
                                                         1999          2000
      --------------------------------------------------------------------------

      Investments                                        20,056       18,132
      Long-term deposits and receivables                 12,435       66,426
      Deferred tax assets                                33,373       15,916
      Debt issuance costs, net                           19,919       35,014
                                                     ---------------------------
      Total                                              85,783      135,488
      --------------------------------------------------------------------------

11. Shareholders' equity

    Public offerings of shares

      In connection with a secondary offering of common stock in June 1998, the
      Company issued 18,000,000 new shares of common stock, which resulted in an
      increase in common stock and capital surplus of $20,378 and $188,320,
      respectively. In connection with a secondary offering of common stock in
      September 1999, the Company issued 8,970,000 new shares of common stock,
      which resulted in an increase in common stock and capital surplus of
      $9,740 and $207,027, respectively.

    Outstanding shares

      The authorized share capital of the Company is EUR 1,809,600,000,
      consisting of 1,200,000,000 common shares and 540,000,000 preference
      shares each with a nominal value of EUR 1.04. As of December 31, 1998,
      1999 and 2000, the number of shares of common stock outstanding at a par
      value of EUR 1.04 was 854,868,636 shares, 869,424,420 shares and
      889,881,287 shares, respectively. There were no preference shares
      outstanding as of December 31, 1998, 1999 and 2000.

Preference shares

      In May 1999, the Company's shareholders approved the creation of
      540,000,000 preference shares. The preference shares entitle a holder to
      full voting rights and to a preferential right to dividends and
      distributions upon liquidation. In May 1999, the Company entered into an
      option agreement with ST Holding II B.V. in order to protect the Company
      from a hostile takeover or other similar action. The option agreement
      provides for 540,000,000 preference shares to be issued to ST Holding II
      B.V. upon their request based on approval by the Company's Supervisory
      Board. ST Holding II B.V. would be required to pay at least 25% of the
      par value of the preference shares to be issued, and to retain ownership
      of at least 33% of the Company's issued share capital.

Stock option plans

      In 1995, the Shareholders voted to adopt the 1995 Stock Option Plan (the
      "1995 Plan") whereby options for up to 33,000,000 shares may be granted in
      installments over a five year period. Under the 1995 Plan, the options may
      be granted to purchase shares of common stock at a price not lower than
      the market price of the shares on the date of grant, and generally vest
      over four years and are exercisable over a period of eight years.

      In 1996, the Shareholders voted to adopt the Supervisory Board Option Plan
      whereby each member of the Supervisory Board was eligible to receive,
      during the three year period 1996-1998, 18,000 options for 1996 and


                                      F-13
<PAGE>


                             STMICROELECTRONICS N.V.
                   Notes to consolidated financial statements

            (In thousands of U.S. dollars, except per share amounts)



      9,000 options for both 1997 and 1998, to purchase shares of common stock
      at the closing market price of the shares on the date of the grant. In the
      same three-year period, each professional of the Supervisory Board was
      eligible to receive 9,000 options for 1996 and 4,500 options for both 1997
      and 1998. Under the Plan, the options vest over one year and are
      exercisable for a period expiring eight years from the date of grant.

      In 1999, the Shareholders voted to renew the Supervisory Board Option Plan
      whereby each member of the Supervisory Board may receive, during the three
      year period 1999-2001, 18,000 options for 1999 and 9,000 options for both
      2000 and 2001, to purchase shares of capital stock at the closing market
      price of the shares on the date of the grant. In the same three-year
      period, each professional of the Supervisory Board may receive 9,000
      options for 1999 and 4,500 options for both 2000 and 2001.
      Under the Plan, the options vest over one year and are exercisable for a
      period expiring eight years from the date of grant.


A summary of stock option activity for the plans for the three years ended
December 31, 2000, follows:

                                                        Price Per Share
                                                        ---------------
                                           Number of                    Weighted
                                             Shares        Range        Average
                                         ---------------------------------------
Outstanding at December 31, 1997          12,000,180    $1.50-$14.23     $ 8.48

Options granted:
   1995 Plan                               3,900,000          $12.03     $12.03
   Supervisory Board Plan                     90,000          $12.03     $12.03
Options cancelled                            (57,390)   $6.04-$14.23     $ 8.00
Options exercised                           (344,460)   $1.54- $9.00     $ 2.14
                                         ---------------------------------------
Outstanding at December 31, 1998          15,588,330    $1.54-$14.23     $ 9.53

Options granted:
   1995 Plan                               8,878,200          $24.88     $24.88
   Supervisory Board Plan                    180,000          $24.88     $24.88
Options cancelled                           (161,640)   $6.04-$24.88     $14.30
Options exercised                         (2,767,200)   $1.33-$14.23     $ 5.47
                                         ---------------------------------------
Outstanding at December 31, 1999          21,717,690    $6.04-$24.88     $16.41

Options granted:
   1995 Plan                               7,570,890    $50.69-$62.01    $58.77
   Supervisory Board Plan                    103,500           $62.01    $62.01
Options cancelled                           (253,950)   $ 6.04-$62.01    $27.57
Options exercised                         (1,988,195)   $ 6.04-$24.88    $ 6.94
                                         ---------------------------------------
Outstanding at December 31, 2000          27,149,935    $6.04-$62.01     $28.98
--------------------------------------------------------------------------------

Stock options exercisable were as follows:

--------------------------------------------------------------------------------
                                       December 31,   December 31,  December 31,
                                       -----------------------------------------
                                          1998           1999          2000
--------------------------------------------------------------------------------
Options exercisable                      820,920       2,631,330     5,149,338
Weighted average exercise price            $4.92           $6.46         $9.72
--------------------------------------------------------------------------------

The weighted average remaining contractual life of options outstanding as of
December 3l, 1999 and December 31, 2000 was 6.4 and 6.1 years respectively.


                                      F-14
<PAGE>


                             STMICROELECTRONICS N.V.
                   Notes to consolidated financial statements

            (In thousands of U.S. dollars, except per share amounts)

      The range of exercise prices, the weighted average exercise price and the
      weighted average remaining contractual life of options outstanding as of
      December 31, 2000 was as follows:

          ----------------------------------------------------------------------
                                                                   Weighted
                                               Weighted            average
                              Option price      average            renaming
          Number of shares       range       exercise price    contractual life
          ----------------------------------------------------------------------
             3,017,360           $6.04           $6.04             3.2 years
             3,657,455          $14.23          $14.23             4.7 years
             3,885,840          $12.03          $12.03             5.6 years
             8,918,100          $24.88          $24.88             6.7 years
               126,840          $55.25          $55.25             7.1 years
             5,391,700          $62.01          $62.01             7.5 years
                70,000          $52.88          $52.88             7.7 years
             2,019,640          $50.69          $50.69             7.9 years
                63,000           $9.00           $9.00             3.8 years
          ----------------------------------------------------------------------

      The range of exercise prices, the weighted average exercise price and the
      weighted average remaining contractual life of options exercisable as of
      December 31, 2000 was as follows:

          ----------------------------------------------------------------------
                                                                   Weighted
                                               Weighted            average
                              Option price      average            renaming
          Number of shares       range       exercise price    contractual life
          ----------------------------------------------------------------------
             3,017,360           $6.04           $6.04             3.2 years
             1,843,978          $14.23          $14.23             4.7 years
                63,000           $9.00           $9.00             3.8 years
                45,000          $12.03          $12.03             5.6 years
               180,000          $24.88          $24.88             6.7 years
          ----------------------------------------------------------------------

Employee stock purchase plans

      In June 1998, the Company offered to certain of its employees worldwide
      the right to acquire up to 2,400 shares of capital stock per employee, at
      a price of $10.59 (63 French francs, 18,467 Italian lira) per share,
      representing a discount of twelve percent from the market price. A total
      of 1,729,794 shares were issued to participating employees worldwide as
      a result of the offering.

      In November 2000, the Company offered to certain of its employees
      world-wide the right to acquire up to 275 shares of capital stock per
      employee, at a price of $38.675 (45 Euro) per share, representing a
      discount of fifteen percent from the market price. A total of 559,929
      shares were issued to participating employees worldwide as a result of
      the offering.

Fair value of stock-based compensation

    The Company has various stock option plans and employee stock purchase
    plans, as described above. The Company applies the intrinsic-value-based
    method prescribed by Accounting Principles Board Opinion No. 25 "Accounting
    for Stock Issued to Employees" (APB 25), and related Interpretations, in
    accounting for stock-based awards to employees. Under APB 25, the Company
    generally recognizes no compensation expense with respect to such awards.

    Pro forma information regarding net income and earnings per share is
    required by Statement of Financial Accounting Standards No. 123 "Accounting
    for Stock-Based Compensation" (FAS 123) as if the Company had accounted for
    its stock-based awards to employees under the fair value method prescribed
    by FAS 123.

    The fair value of the Company's stock-based awards to employees was
    estimated using a Black-Scholes option pricing model.
    The fair value was estimated using the following weighted-average
    assumptions:

                                                    1998       1999       2000
                                                    ----       ----       ----

             Expected life (years)                     5          5           5
             Volatility                            38.2%      41.0%       42.2%
             Risk-free interest rate                5.4%       5.8%        6.0%
             Dividend yield                          ---       0.1%       0.05%

    The weighted average fair value of options granted during 1998, 1999 and
    2000 was $5.65, $11.08 and $27.12 per option, respectively.


                                      F-15
<PAGE>

                             STMICROELECTRONICS N.V.
                   Notes to consolidated financial statements

            (In thousands of U.S. dollars, except per share amounts)

    If compensation cost for the Company's stock-based compensation plans had
    been determined based on the fair value at the grant dates consistent with
    FAS 123, the Company's net income and earnings per share would have been
    adjusted to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
                                         Year ended                   Year ended                Year ended
                                         Dec 31, 1998                 Dec 31, 1999              Dec 31, 2000
                                         ------------                 ------------              ------------
    <S>                                       <C>                         <C>                     <C>
    Net income
      Pro forma                               393,398                      522,593                1,387,278
    Pro forma earnings per share
      Basic                                      0.47                         0.61                     1.57
      Diluted                                    0.46                         0.59                     1.51
</TABLE>

    These pro forma amounts include amortized fair values attributable to
    stock-based awards granted after December 31, 1995 only, and are therefore
    not representative of future pro forma amounts.

Retained earnings

    At December 31, 2000, the amount of retained earnings available to pay
    dividends under Dutch law was approximately $5,263,500 (1999: $3,653,000).
    Retained earnings for purposes of this calculation are based upon generally
    accepted accounting principles in The Netherlands. The Company's
    subsidiaries are subject to the laws of the countries in which they are
    domiciled. These laws may restrict the ability of the subsidiaries to
    transfer funds to the Company. Such restrictions are not considered to be
    significant as of December 31, 2000.

Other comprehensive income

    The accumulated balances related to each component of other comprehensive
    income were as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
                                                                   Foreign                      Accumulated
                                                                   currency      Unrealized       other
                                                                  translation   gains (losses)  comprehensive
                                                                 gains (losses) on securities  income (loss)
------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>           <C>            <C>
    Balance as of December 31, 1997                                 (313,781)        ---         (313,781)
    Other comprehensive income, net of tax                           137,409         ---          137,409
------------------------------------------------------------------------------------------------------------
    Balance as of December 31, 1998                                 (176,372)        ---         (176,372)
    Other comprehensive income, net of tax                          (319,49l)        ---         (319,491)
------------------------------------------------------------------------------------------------------------
    Balance as of December 31, 1999                                 (495,863)        ---         (495,863)
    Other comprehensive income, net of tax                          (190,629)      10,262        (180,367)
------------------------------------------------------------------------------------------------------------
    Balance as of December 31, 2000                                 (686,492)      10,262        (676,230)
------------------------------------------------------------------------------------------------------------
</TABLE>


                                      F-16
<PAGE>


                             STMICROELECTRONICS N.V.
                   Notes to consolidated financial statements

            (In thousands of U.S. dollars, except per share amounts)


12. Earnings per share

    For the years ended December 31, 1998, 1999 and 2000 earnings per share
    (EPS) was calculated as follows:
<TABLE>
<CAPTION>

                                                  Year ended              Year ended             Year ended
                                                  Dec 31, 1998            Dec 31, 1999           Dec 31, 2000
                                                  ------------            ------------           ------------

    Basic EPS
    ---------
    <S>                                             <C>                     <C>                     <C>
    Net income                                          411,121                 547,252               1,452,103
    Weighted average shares outstanding             845,112,048             859,111,668             885,728,493
    Basic EPS                                                 0.49                    0.64                    1.64

    Diluted EPS
    -----------

    Net income                                          411,121                 547,252               1,452,103
    Convertible debt interest, net of tax                 4,566                  13,387                  28,204
                                                    -----------             -----------             -----------
    Net income adjusted                                 415,687                 560,639               1,480,307

    Weighted average shares outstanding             845,112,048             859,111,668             885,728,493
    Dilutive effect of stock options                  3,795,378               7,995,558              13,831,539
    Dilutive effect of convertible debt              15,425,754              34,116,684              36,499,180
                                                    -----------             -----------             -----------
    Number of shares used in calculating EPS        864,333,180             901,223,910             936,059,212

    Diluted EPS                                               0.48                    0.62                    1.58
</TABLE>


13. Retirement plans

       The Company and its subsidiaries have a number of defined benefit
       pension plans covering employees in various countries. The plans
       provide for pension benefits, the amounts of which are calculated based
       on factors such as years of service and employee compensation levels.
       Eligibility is generally determined in accordance with local statutory
       requirements.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                                                                December 31,    December 31,
                                                                                                ----------------------------
                                                                                                      1999            2000
----------------------------------------------------------------------------------------------------------------------------
       Change in benefit obligation:
       <S>                                                                                           <C>            <C>
       Benefit obligation at beginning of year                                                        87,949        102,363
       Service cost                                                                                    8,087          7,762
       Interest cost                                                                                   5,693          6,189
       Benefits paid                                                                                  (3,110)        (2,532)
       Actuarial losses                                                                                9,137         14,053
       Foreign currency translation adjustments                                                       (3,656)        (5,964)
       Other                                                                                          (1,737)           634
                                                                                                ----------------------------
       Benefit obligation at end of year                                                             102,363        122,505
                                                                                                ----------------------------

       Change in plan assets:

       Plan assets at fair value at beginning of year                                                 83,287         99,448
       Actual return on plan assets                                                                   13,424          1,266
       Employer contributions                                                                          8,080          2,777
       Benefits paid                                                                                  (3,110)        (2,532)
       Foreign currency translation adjustments                                                       (2,286)        (6,076)
       Other                                                                                              53            405
                                                                                                ----------------------------
       Plan assets at fair value at end of year                                                       99,448         95,288
                                                                                                ----------------------------
       Funded status                                                                                  (2,915)       (27,217)
       Unrecognized prior service cost                                                                 7,853          6,967
       Unrecognized transition obligation                                                             (3,022)        (2,310)
       Unrecognized net actuarial gain (loss)                                                         (2,034)        16,957
                                                                                                ----------------------------
       Accrued benefit cost                                                                             (118)        (5,603)
                                                                                                ----------------------------

       Net amount recognized in the balance sheet consists of the following:

       Prepaid benefit cost                                                                            5,663          7,423
       Accrued benefit liability                                                                      (8,005)       (15,174)
       Intangible asset                                                                                2,224          2,148
                                                                                                ----------------------------
       Net amount recognized                                                                            (118)        (5,603)
                                                                                                ----------------------------
----------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                      F-17
<PAGE>


                             STMICROELECTRONICS N.V.
                   Notes to consolidated financial statements

            (In thousands of U.S. dollars, except per share amounts)

The components of the net periodic benefit cost includes the following:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
                                                                                 December 31,   December 31,   December 31,
                                                                                -------------------------------------------
                                                                                     1998           1999           2000
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>            <C>            <C>
Service cost                                                                        5,618          8,087          7,762
Interest cost                                                                       5,202          5,693          6,189
Expected return on plan assets                                                     (6,147)        (5,956)        (7,020)
Amortization of unrecognized transition obligation                                   (366)          (324)          (303)
Recognized gains and losses                                                            56            503             70
Recognition of prior service cost                                                     762            850            847
                                                                                -------------------------------------------
Net periodic benefit cost                                                           5,125          8,853          7,545
---------------------------------------------------------------------------------------------------------------------------


The weighted average assumptions used in the determination of the net pension
cost for the pension plans were as follows:

Assumptions                                                                          1998           1999          2000
                                                                                -------------------------------------------
Discount rate                                                                        7.16%          6.30%          6.22%
Salary increase rate                                                                 4.49%          3.81%          4.15%
Expected rate of return on funds                                                     8.42%          7.04%          6.20%
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

The Company also has defined contribution pension plans which provide
retirement benefits to certain of its employees.
The benefit accrues to the employees on a pro-rata basis, adjusted for
inflation, during their employment period and is based on the individuals'
salary. As of December 31, 1999 and 2000, the Company accrued $100,290 and
$99,961 respectively, for these defined contribution pension plans. The annual
cost of these plans amounted to approximately $13,800, $15,200 and $18,000 in
1998, 1999 and 2000 respectively.

14. Long-term debt
<TABLE>
<CAPTION>
       Long-term debt, all of which is unsecured, includes debt held by the following subsidiaries:
       -----------------------------------------------------------------------------------------------------------------
                                                                                               December 3l, December 3l,
                                                                                               -------------------------
                                                                                                    1999          2000
       -----------------------------------------------------------------------------------------------------------------
       <S>                                                                                        <C>           <C>
       STMicroelectronics S.A. (France)
       - 4.90%              Bank loan due 2002                                                    30,718         21,278
       - 4.88%              Bank loan due 2002                                                    30,718         21,278
       - 5.21%              Other bank loans                                                      21,557        157,037

       STMicroelectronics s.r.l. (Italy)
       - 5.68%              Bank loan due 2002                                                    52,033         32,928
       - 5.35%              Bank loan due 2006                                                    34,322         27,501
       - 4.22%              Other bank loans                                                      95,234         57,955

       STMicroelectronics N.V. (Netherlands)
       - 1.75%              Liquid Yield Option Notes (LYONs due 2008)                           398,251        112,520
       - 2.44%              Liquid Yield Option Notes (LYONs due 2009)                           725,813        743,371
       - 3.75%              Convertible Bonds (due 2010)                                              --      1,486,738

       STMicroelectronics (other countries)
       - 6.53%              Other bank loans                                                      56,500        145,848
                                                                                               -------------------------

       Total long-term debt                                                                    1,445,146      2,806,454

       Less current portion                                                                       96,669        105,972
                                                                                               -------------------------
       Long-term debt, less current portion                                                    1,348,477      2,700,482
       -----------------------------------------------------------------------------------------------------------------


                                      F-18
<PAGE>

                             STMICROELECTRONICS N.V.
                   Notes to consolidated financial statements

            (In thousands of U.S. dollars, except per share amounts)



       Long-term debt is denominated in the following currencies:
       -----------------------------------------------------------------------------------------------------------------

                                                                                               December 3l, December 31,
                                                                                               -------------------------
                                                                                                    1999           2000

       U.S. dollar                                                                             1,157,366      2,445,569
       Italian lira                                                                              192,432        128,398
       French franc                                                                               82,993        199,593
       Other                                                                                      12,355         32,894
                                                                                               -------------------------
       Total                                                                                   1,445,146      2,806,454
       -----------------------------------------------------------------------------------------------------------------
</TABLE>


    Aggregate future maturities of long-term debt outstanding are as follows:
    ----------------------------------------------------------------------------
                                                                    December 31,
                                                                    ------------
                                                                          2000
    ----------------------------------------------------------------------------
    2001                                                                 105,972
    2002                                                                 111,572
    2003                                                                  84,457
    2004                                                                  57,555
    2005                                                                  47,492
    Thereafter                                                         2,399,406
                                                                    ------------
    Total                                                              2,806,454
    ----------------------------------------------------------------------------

    In June 1998, the Company issued $513,852 face value of zero-coupon
    subordinated convertible notes (LYONs), due 2008, for net proceeds of
    $421,837. The notes are convertible at any time by the holders at the rate
    of 53.712 shares of the Company's common stock for each one thousand
    dollar face value of the notes. The notes may be redeemed by the holders on
    June 10, 2003 or by the Company on or after that date at the book value,
    payable in cash. The notes are subordinated to all the other existing and
    future indebtedness of the Company.

    In September 1999, the Company issued $918,530 face value of zero-coupon
    subordinated convertible notes (LYONs), due 2009, for net proceeds of
    $708,288. The notes are convertible at any time by the holders at the rate
    of 26.292 shares of the Company's common stock for each one thousand dollar
    face value of the notes. The notes may be redeemed by the holders on
    September 22, 2004 or by the Company on or after that date at the book
    value, payable in cash. The notes are subordinated to all the other
    existing and future indebtedness of the Company.

    In November 2000, the Company issued $2,145,923 face value of zero-coupon
    unsubordinated convertible bonds, due 2010, for net proceeds of $1,457,828.
    The debt discount of $665,923 is amortized straight-line over the term of
    the debt and recorded as interest expense. The notes are convertible at any
    time by the holders at the rate of 9.32 shares of the Company's common
    stock for each one thousand dollar face value of the notes. The notes may be
    redeemed by the holders on November 16, 2005 or by the Company on or after
    that date at the book value, payable in cash. The notes are unsubordinated
    to all the other existing and future indebtedness of the Company.

    During 1999, $52,476 face amount of convertible bonds were converted into
    939,528 shares of common stock. During 2000, $333,580 face amount of
    convertible bonds were converted into 17,908,743 shares of common Stock.

Credit facilities

    The Company has revolving line of credit agreements with several financial
    institutions totaling $884,000. At December 31, 2000, amounts available
    under the lines of credit are reduced by borrowings of $35,599 at an average
    interest rate of 6.47%.


                                      F-19
<PAGE>



                             STMICROELECTRONICS N.V.
                   Notes to consolidated financial statements

            (In thousands of U.S. dollars, except per share amounts)

15. Other payables and accrued liabilities

       Other payables and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
       --------------------------------------------------------------------------------------------------------------------
                                                                                                December 31,   December 31,
                                                                                                ---------------------------
                                                                                                   1999           2000
       --------------------------------------------------------------------------------------------------------------------
       <S>                                                                                       <C>            <C>
       Taxes other than income taxes                                                              64,950         50,228
       Salaries and wages                                                                        111,125        181,516
       Social charges                                                                             53,781         70,957
       Advances received on fundings                                                              38,686         10,562
       Commercial rebates                                                                         23,775         32,755
       Royalties payable                                                                          13,195         42,313
       Other                                                                                      76,333        120,834
                                                                                                ---------------------------
       Total                                                                                     381,845        509,165
       --------------------------------------------------------------------------------------------------------------------
</TABLE>

16. Other revenues

       Other revenues consist of the following:
<TABLE>
<CAPTION>
       --------------------------------------------------------------------------------------------------------------------
                                                                                 December 31,   December 31,   December 31,
                                                                                -------------------------------------------
                                                                                     1998           1999           2000
       --------------------------------------------------------------------------------------------------------------------
       <S>                                                                        <C>            <C>             <C>
       Licensing revenues                                                           1,765             --             --
       Miscellaneous sales                                                         27,833         30,205         41,229
       Other                                                                        7,536          2,962          7,570
                                                                                -------------------------------------------
       Total                                                                       37,134         33,167         48,799
       --------------------------------------------------------------------------------------------------------------------
</TABLE>

17. Other income and expenses

       Other income and expenses consist of the following:
<TABLE>
<CAPTION>
       --------------------------------------------------------------------------------------------------------------------
                                                                                 December 31,   December 31,   December 31,
                                                                                -------------------------------------------
                                                                                     1998          1999            2000
       --------------------------------------------------------------------------------------------------------------------
       <S>                                                                        <C>            <C>             <C>
       Research and development funding                                            63,531         60,352         42,065
       Start-up costs                                                             (12,609)       (24,736)      (115,137)
       Exchange gain, net                                                          19,019         14,653         15,767
       Other                                                                        6,517        (10,429)       (26,228)
                                                                                -------------------------------------------
       Total                                                                       76,458         39,840        (83,533)
       --------------------------------------------------------------------------------------------------------------------
</TABLE>


18. Net interest income

       Net interest income consists of the following:
<TABLE>
<CAPTION>
       --------------------------------------------------------------------------------------------------------------------
                                                                                 December 31,   December 31,   December 31,
                                                                                -------------------------------------------
                                                                                  1998              1999           2000
       --------------------------------------------------------------------------------------------------------------------
       <S>                                                                        <C>               <C>            <C>
       Income                                                                      54,294         81,888        111,403
       Expense                                                                    (45,603)       (46,264)       (64,700)
                                                                                -------------------------------------------
       Total                                                                        8,691         35,624         46,703

       Cash paid for interest was $48,569 in 1998, $48,086 in 1999 and $64,681
       in 2000. Capitalized interest was $5,487 in 1998, $8,317 in 1999 and
       $1,846 in 2000.

19. Income tax

       Income before income tax expense is comprised of the following:


                                      F-20
<PAGE>

                             STMICROELECTRONICS N.V.
                   Notes to consolidated financial statements

            (In thousands of U.S. dollars, except per share amounts)


       --------------------------------------------------------------------------------------------------------------------
                                                                                 December 31,   December 3l,   December 31,
                                                                                -------------------------------------------
                                                                                     1998           1999           2000
       --------------------------------------------------------------------------------------------------------------------
       Loss recorded in The Netherlands                                           (18,730)       (17,494)        (6,393)
       Income from foreign operations                                             550,831        724,616      1,835,822
                                                                                -------------------------------------------

       Income before income tax expense                                           532,101        707,122      1,829,429
       --------------------------------------------------------------------------------------------------------------------

       STMicroelectronics N.V. and its subsidiaries are individually liable for
       income tax. Tax losses can only offset profits generated by the taxable
       entity incurring such loss.

       Income tax expense is comprised of the following:
       --------------------------------------------------------------------------------------------------------------------
                                                                                 December 31,   December 31,   December 31,
                                                                                -------------------------------------------
                                                                                     1998           1999           2000
       --------------------------------------------------------------------------------------------------------------------
       Domestic taxes - current                                                    (3,886)        (4,353)        (7,585)
       Foreign taxes - current                                                    (82,132)      (130,904)      (342,837)
                                                                                -------------------------------------------
       Current taxes                                                              (86,018)      (135,257)      (350,422)
       Deferred taxes                                                             (34,333)       (21,957)       (24,697)
                                                                                -------------------------------------------

       Income tax expense                                                        (120,351)      (157,214)      (375,119)
       --------------------------------------------------------------------------------------------------------------------
</TABLE>

       The principal items comprising the differences in income taxes computed
       at The Netherlands statutory rate (35%) and the effective income tax rate
       are the following:

<TABLE>
<CAPTION>

       --------------------------------------------------------------------------------------------------------------------
                                                                                 December 31,   December 31, December 31,
                                                                                -------------------------------------------
                                                                                     1998           1999           2000
       --------------------------------------------------------------------------------------------------------------------
       <S>                                                                       <C>            <C>            <C>
       Income tax expense computed at statutory rate                             (186,235)      (247,493)      (640,300)
       Benefit (deductions) for financial reporting with no tax effect              7,864           (699)       (13,349)
       Variation in valuation allowance                                               397          3,107         (7,185)
       Other tax and credits                                                        2,995          8,549         (4,770)
       Earnings of subsidiaries taxed at different rates                           54,628         79,322        290,485
                                                                                -------------------------------------------
       Income tax expense                                                        (120,351)      (157,214)      (375,119)
       --------------------------------------------------------------------------------------------------------------------

       Permanent differences reflect mainly the effects of capital allowance
       programs and special tax incentive programs existing in some Asia Pacific
       and Mediterranean countries, and of various non-deductible items.
       Included in the line "Earnings of subsidiaries taxed at different rates"
       are benefits related to certain tax holidays totaling $41,758 in 1998,
       $49,911 in 1999, $225,193 in 2000.

       Deferred tax assets and liabilities consist of the following:
       --------------------------------------------------------------------------------------------------------------------
                                                                                                December 31,   December 31,
                                                                                                ---------------------------
                                                                                                    1999          2000
       --------------------------------------------------------------------------------------------------------------------

       Tax loss carryforwards and capital allowances                                              74,321         22,672
       Inventory                                                                                  41,256         32,702
       Other assets                                                                              111,447         67,375
                                                                                                ---------------------------

       Total deferred tax assets                                                                 227,024        122,749
       Valuation allowance                                                                       (12,251)         (5,066)
                                                                                                ---------------------------

       Deferred tax assets, net                                                                  214,773        117,683

       Fixed assets depreciation                                                                (272,184)      (191,632)
       Other liabilities                                                                         (52,979)       (25,086)
                                                                                                ---------------------------

       Deferred tax liabilities                                                                 (325,163)      (216,718)
                                                                                                ---------------------------

       Net deferred income tax liability                                                        (110,390)       (99,035)
       --------------------------------------------------------------------------------------------------------------------

       Deferred income taxes were classified in the consolidated balance as follows:


                                      F-21
<PAGE>

                             STMICROELECTRONICS N.V.

                   Notes to consolidated financial statements

            (In thousands of U.S. dollars, except per share amounts)


       --------------------------------------------------------------------------------------------------------------------
                                                                                                December 31,   December 31,
                                                                                                ---------------------------
                                                                                                    1999           2000
       --------------------------------------------------------------------------------------------------------------------
       Other receivables and assets                                                               73,079         71,651
       Investments and other non-current assets                                                   33,373         15,916

       Accrued and deferred income tax                                                           (31,072)        (8,041)
       Other non-current liabilities                                                            (185,770)      (178,561)

       Net deferred income tax liability                                                        (110,390)       (99,035)
       --------------------------------------------------------------------------------------------------------------------

       As of December 31, 2000, the Company and its subsidiaries have net
       operating loss carryforwards of $66,323 which expire between 2001 and
       2006.

       The Company paid $75,886 cash for income taxes in 1998, $99,930 cash for
       income taxes in 1999 and $242,929 cash for income taxes in 2000.
</TABLE>


20. Commitments

    Lease commitments

       The Company leases land. building, plant and equipment under
       non-cancellable lease agreements. As of December 31, 2000 the future
       minimum lease payments to which the Company was committed under operating
       leases were as follows:

       -------------------------------------------------------------------------
       Year
       -------------------------------------------------------------------------
       2001                                                               16,231
       2002                                                               12,524
       2003                                                               11,331
       2004                                                                9,681
       2005                                                                7,629
       Thereafter                                                         19,124
                                                                        --------
       Total                                                              76,520
       -------------------------------------------------------------------------

    Other commitments

       As of December 31, 2000, the Company had commitments of $1,670,263 for
       equipment purchases.

21. Contingencies

       The Company is involved in various lawsuits, claims, investigations and
       proceedings incidental to the normal conduct of its operations. These
       matters mainly include the risks associated with external patents
       utilization, various investigations, claims from customers and tax
       disputes. Management has accrued for these loss contingencies when the
       loss is probable and can be estimated. Management believes that these
       contingencies will not have a material adverse effect on the business,
       financial condition or results of operations of the Company.

       During 2000, the Company acquired a manufacturing facility. The terms of
       the agreement require the Company to pay additional amounts up to $40,000
       if certain conditions are met during the next three years. The contingent
       payments have not been recorded as of December 31, 2000, as it is not
       beyond a reasonable doubt that the amounts will be paid.


22. Financial Instruments and Risk Management

       Financial instruments and derivatives are used exclusively for purposes
       other than trading.

    Foreign exchange forward contracts and currency options

       The Company enters into foreign exchange forward contracts and currency
       options to manage exposure to fluctuations in foreign currency exchange
       rates and to cover a portion of both its probable anticipated, but not
       firmly committed. transactions and transactions with firm foreign
       currency commitments. These transactions include international sales by
       various subsidiaries in foreign currencies, foreign currency denominated
       purchases, intercompany sales and other intercompany transactions. Such
       contracts outstanding as of December 31, 2000 have remaining terms of one
       to three months, maturing mainly during the first quarter of 2001.


                                      F-22
<PAGE>


                             STMICROELECTRONICS N.V.
                   Notes to consolidated financial statements

            (In thousands of U.S. dollars, except per share amounts)


       The notional amounts of foreign exchange forward contracts totaled
       $611,567 and $780,423 at December 31, 1999 and 2000, respectively. The
       principal currencies covered are the US dollar, the euro, the Italian
       lira, the Japanese yen, and the Swiss franc.

       The risk of loss associated with purchased options is limited to premium
       amounts paid for the option contracts. The risk of loss associated with
       forward contracts is equal to the exchange rate differential from the
       time the contract is entered into until the time it is settled.

    Concentration of credit risk

       Financial instruments that potentially subject the Company to
       concentrations of credit risk consist primarily of interest-bearing
       investments, financial instruments with off-balance sheet risks
       (primarily forward contracts), and trade receivables. The Company places
       its cash and cash equivalents and certain other financial instruments
       with a variety of high credit quality financial institutions and has not
       experienced any material losses relating to such instruments. The Company
       invests its excess cash in accordance with its investment policy which
       aims to minimize credit risk.

       The Company controls the credit risks associated with financial
       instruments through credit approvals, investment limits and centralized
       monitoring procedures but does not normally require collateral or other
       security from the parties to the financial instruments with off-balance
       sheet risk. Concentrations of credit risk with respect to trade
       receivables are limited due to the large number of customers and their
       dispersion across many geographic areas. The Company monitors the
       creditworthiness of its customers to which it grants credit terms in
       the normal course of business. The Company does not anticipate
       non-performance by counterparties which could have a significant impact
       on its financial position or results of operations.

    Fair value or financial instruments

       The estimates of fair value were obtained using prevailing financial
       market information resulting from various valuation techniques. The
       methodologies used to estimate fair value are as follows:

       Cash and cash equivalents, accounts and notes receivable, bank
       overdrafts, short-term borrowings, accounts and notes payables

       The carrying amounts reflected in the consolidated financial statements
       are reasonable estimates of fair value because of the relatively short
       period of time between the origination of the instruments and their
       expected realization.

       Long-term debt and current portion of long-term debt

       The fair values of long-term debt were determined based on quoted market
       prices, and by estimating future cash flows on a borrowing-by-borrowing
       basis and discounting these future cash flows using the Company's
       incremental borrowing rates for similar types of borrowing arrangements.

       Foreign exchange forward contracts

       The fair values of these instruments are estimated based upon quoted
       market prices for the same or similar instruments.
<TABLE>
<CAPTION>
    ------------------------------------------------------------------------------------------------------------------------
                                                                           1999                            2000
                                                               -------------------------------------------------------------
                                                                   Carrying    Estimated        Carrying         Estimated
                                                                   Amount      Fair Value        Amount         Fair Value
    ------------------------------------------------------------------------------------------------------------------------
    <S>                                                        <C>              <C>           <C>              <C>
    Balance sheet
    - Bank loans (including current portion)                     321,082          323,482       463,825          465,922
    - Convertible debt                                         1,124,064        2,521,752     2,342,629        2,859,756

    Off-balance sheet
     -Forward exchange contracts                                  10,412            7,939         8,886           10,943
    ------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                      F-23
<PAGE>


                             STMICROELECTRONICS N.V.
                   Notes to consolidated financial statements

            (In thousands of U.S. dollars, except per share amounts)

23. Related party transactions

       Transactions with significant shareholders and their affiliates were as
       follows:
<TABLE>
<CAPTION>

       --------------------------------------------------------------------------------------------------------------------
                                                                                 December 31,   December 31,   December 31,
                                                                                -------------------------------------------
                                                                                       1998         1999          2000
       --------------------------------------------------------------------------------------------------------------------
       <S>                                                                        <C>           <C>             <C>
       Sales                                                                        5,608         19,033            196
       Research and development expenses                                          (16,215)       (16,958)       (13,663)
       Other purchases and expenses                                               (12,406)        (2,772)       (17,991)
       Accounts receivable                                                          1,872          6,222            774
       Accounts payable                                                            10,509          1,876          1,346
       --------------------------------------------------------------------------------------------------------------------
</TABLE>

24. Segment information

       In June 1997, the United States Financial Accounting Standards Board
       issued Statement of Financial Accounting Standards No. 131, "Disclosure
       about Segments of an Enterprise and Related Information" (FAS 131),
       which the Company adopted effective December 31, 1998. FAS 131 requires
       that enterprises report certain information about operating segments. It
       also requires that enterprises report certain information about their
       products and services, the geographic areas in which they operate, and
       their major customers.

       The Company concluded that it has two principal businesses and operates
       in two segments: the Semiconductor segment and the Subsystems segment.

       In the Semiconductor segment, the Company designs, develops, manufactures
       and markets a broad range of products, including discrete, memories and
       standard commodity components, ASICSs (full custom devices and semicustom
       devices) and ASSPs for analog, digital, and mixed-signal applications.
       In the Subsystems segment, the Company designs, develops, manufactures
       and markets subsystems and modules for the Telecom, Automotive and
       Industrial markets including mobile phone accessories, battery chargers,
       ISDN power supplies and in-vehicle equipment for electronic toll payment.
       The Subsystems segment does not meet the requirements for a reportable
       segment as defined in FAS 131. The accounting policies of the segments
       are the same as those described in the summary of significant accounting
       policies.

       The following is a summary of operations by entities located within the
       indicated geographic areas for 1998, 1999 and 2000. Long-lived assets
       consist of net property and equipment and other intangible assets.

<TABLE>
<CAPTION>
       Net revenues
       ---------------------------------------------------------------------------------
                                              December 31,   December 31,   December 31,
                                             -------------------------------------------
                                                  1998           1999           2000
       ---------------------------------------------------------------------------------
       <S>                                   <C>            <C>            <C>
       France                                  474,580        451,243        651,116
       Italy                                   171,143        174,087        249,588
       Germany                                 444,362        470,554        611,115
       Other European countries                737,112        828,879      1,484,654
       USA                                     978,662      1,222,743      1,761,783
       Singapore                             1,261,165      1,669,129      2,277,772
       Other countries                         180,728        239,641        777,175
                                             -------------------------------------------
       Total                                 4,247,752      5,056,276      7,813,203
       ---------------------------------------------------------------------------------


       Long-lived assets
       ---------------------------------------------------------------------------------
                                              December 31,   December 31,   December 31,
                                             -------------------------------------------
                                                  1998           1999           2000
       ---------------------------------------------------------------------------------
       France                                1,169,273      1,239,540      1,889,729
       Italy                                   899,689      1,117,241      1,650,506
       Germany                                   1,134          1,094          1,620
       Other European countries                 19,922        236,202        345,359
       USA                                     587,734        736,187      1,081,327
       Singapore                               216,817        245,386        649,116
       Other countries                         472,007        477,316        869,530
                                             -------------------------------------------
       Total                                 3,366,576      4,052,966      6,487,187
</TABLE>


                                      F-24
<PAGE>




                             STMICROELECTRONICS N.V.
                   Notes to consolidated financial statements

            (In thousands of U.S. dollars, except per share amounts)

25. Subsequent Events (Unaudited)

At the annual shareholders' meeting held on April 25, 2001, the shareholders
approved the payment of a cash dividend of $0.04 per share and the creation of a
new five-year stock option plan that provides for the granting to management and
selected employees of options to purchase up to a maximum of 60 million Common
Shares. On April 27, 2001, the Supervisory Board authorized the granting of
options to purchase 9,462,800 Common Shares under the new plan.

The Company issued a redemption notice for the LYONs due 2008 for a redemption
price of $885.22 per $1,000 principal amount on June 11, 2001. On May 11, 2001,
approximately $45,600 in total indebtedness was outstanding under the LYONs due
2008; based on this amount outstanding, if all remaining holders chose to
convert the instruments into Common Shares before the redemption date, 2,772,291
Common Shares would be issued.


                                      F-25
<PAGE>



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

<TABLE>
<CAPTION>

                                             Balance at                    Charged to                     Balance at
Valuation and qualifying accounts            beginning     Translation     costs and                        end of
deducted from the related asset accounts     of period     adjustment      expenses       Deductions        period
                                             ----------    ----------      ---------     ------------     ----------
<S>                                           <C>                            <C>          <C>             <C>
2000

Inventories..............................     42,137              --         73,835         (42,137)       73,835
Accounts Receivable .....................     11,590            (621)         4,869             (14)       15,824

1999

Inventories..............................     53,955              --         42,137         (53,955)       42,137
Accounts Receivable .....................     10,494            (452)         1,662            (114)       11,590

1998

Inventories..............................     68,182              --         53,955         (68,182)       53,955
Accounts Receivable......................     15,228              89         (3,741)         (1,082)       10,494

</TABLE>


                                      S-1
<PAGE>



                      Report of Independent Accountants on
                          Financial Statement Schedule

To the Supervisory Board of STMicroelectronics N.V.:

Our audits of the consolidated financial statements referred to in our report
dated February 1, 2001 appearing in this Annual Report on Form 20-F also
included an audit of the financial statement schedule listed in Item 18 of this
Form 20-F. In our opinion, this financial statement schedule presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.



PricewaterhouseCoopers N.V.
Amsterdam, The Netherlands
February 1, 2001




                                      S-2
<PAGE>



                                INDEX TO EXHIBITS

         1.1 Articles of Association, as amended as of May 5, 2000, of
STMicroelectronics N.V. (incorporated by reference to the Annual Report on
Form 20-F for the year ended December 31, 1999, as filed with the Commission on
June 27, 2000)

         4.1 Indenture, dated as of November 16, 2000, among STMicroelectronics
N.V. as issuer and The Bank of New York, as Trustee, of our Zero Coupon Senior
Convertible Bonds due 2010

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

         10.1 Consent of PricewaterhouseCoopers N.V.



                                      E-1