A Cornerstone for Growth of the Philips Group

Philips Semiconductors

Philips Semiconductors …

A Cornerstone for Growth
of the Philips Group

Arthur van der Poel
Member, Board of Management
Royal Philips Electronics

Philips Semiconductors

Topics Today

1 Group perspective on Philips Semiconductors
2 Investments for Growth
3 Semiconductor markets today

Philips Semiconductors

Topics Today

1 Group perspective on Philips Semiconductors
2 Investments for Growth
3 Semiconductor markets today

Philips Semiconductors

Philips a Technology Company

• Research, Semiconductors, Components, and parts

of Consumer Electronics are at the heart of the High
Growth Technology Company

• Lighting is a world leader and growth will come from

better performance and technology driven innovation

• Medical Systems is a technology driven business with

growth opportunities from our recent investments

• DAP is a mix of brand businesses with some important

technology components (e.g., Shavers and Dental Care)

… with a strong Brand and Cash Flow

Philips Semiconductors

Semiconductors has shown
Solid Financial Performance

Million Euro

1996 1997 1998 1999 2000

Sales 3,064 3,793 3,963 4,557 6,812

Growth 9% 24% 4% 15% 49%

IFO 369 773 765 620 1,346

% of sales 12% 20% 19% 14% 20%

Philips Semiconductors

5 years of Strong Business Achievements

We focused
our business and developed

successful strategies in
wireless, display drivers,
identification and networking

Philips Semiconductors

5 years of Strong Business Achievements

Consolidated top position
in conventional markets
Recognized leadership in
RF and Video Processing

Philips Semiconductors

5 years of Strong Business Achievements

Reinforced manufacturing
leadership

Joined premier league in CMOS
Technology

Developed creative R&D &
manufacturing solutions
(SSMC, IMEC, Crolles2)

Philips Semiconductors

5 years of Strong Business Achievements

Recognized leadership
in platform architecture

Philips Semiconductors

5 years of Strong Business Achievements

Successful
integration

of VLSI
acquisition

Philips Semiconductors

VLSI Acquisition Major Success

An excellent example of the success in growing our
business. We set out three objectives for the acquisition:

• Grow market share in the communications market
• Improve our capabilities in ASICs and the development

platforms

• Introduce more ‘Silicon Valley’ entrepreneurism into the

culture

Philips Semiconductors

Opportunities for Improvement

• Increase top-line growth
• Build greater customer intimacy with industry leaders
• Improve position in Digital CE

Philips Semiconductors

Topics Today

1 Group perspective on Philips Semiconductors
2 Investments for Growth
3 Semiconductor markets today

Philips Will Continue to Invest Philips Semiconductors
for Future Revenues
2001
Euro billion

2

R&D

1.5 Capex

Original 2001 plan

1

0.5

0 1998 1999 2000
1997

Philips Semiconductors

Topics Today

1 Group perspective on Philips Semiconductors
2 Investments for Growth
3 Semiconductor markets today

Philips Semiconductors

Semiconductors Market
Growth Forecasts

Expected percentage growth from 2000 to 2001

WSTS Dataquest

December 2000 20 25

May2001 -14 -17
-26
August 2001 -251)

1) May forecast updated for Q2 actuals

Philips Semiconductors

A snapshot of today’s situation

• Q3 sales expected 17-18% sequential decline
• Order intake in some areas improving but with short

delivery times

• Corrective actions are taking effect

– Capex

– Cost & headcount

– Inventories

• Utilization rates expected to improve in Q4
• Further capacity rationalization and cost base reduction

Philips took quick action to adapt Philips Semiconductors
to the changing market
Q4 est.
CAPEX (M€) Q1 Q2 Q3 est. 50
420 350 130

Restructuring/ 0 90 20 90
Headcount

reduction (M€)

Inventories 100 95 83 79
(index 100 in Q1)

Headcount 37,160 36,400 34,000 33,000
(people)

Philips Semiconductors

Summary

• Our Philips Semiconductors division has shown

strong financial performance, which has created
a solid foundation for the future

• The Philips group strongly supports the Semiconductor

division in its focus on growth

• Despite today’s difficult market environment, Philips

continues to see Semiconductors as an attractive
growth market

Philips Semiconductors

Philips Semiconductors …

A Cornerstone for Growth
of the Philips Group

Arthur van der Poel
Member Board of Management
Royal Philips Electronics