Last year was a period of solid achievement for STMicroelectronics. Progressively improving financial performance culminated in a record fourth quarter in which we posted the highest quarterly revenues, gross profits and net income in the Company’s history. This was also a year of great recognition for ST.

• Several prestigious awards were accorded to ST in 1999, under scoring our long-standing commitment to business excellence:
  the Malcolm Baldrige National Quality Award to our American team,
  the Singapore Quality Award, the Moroccan National Quality Award, and the EPA Climate Protection Award (US). These, together with ST’s previous honors the Malaysian Prime Minister Quality Award, the Malta Quality Award and the European Quality Award illustrate the success of our Company’s unified Total Quality and Environmental Management philosophy on four continents.

• ST’s fundamental strengths and strategically advantageous position
  were also recognized by the capital markets. In September 1999, we
  successfully completed one of the largest offerings of the year, a com-
  bination of equity and debt that yielded total proceeds of over $3 bil-
  lion, of which $925 million was raised by ST to fund future growth. The
  confidence in our Company shown by global investors continued throu-
  ghout the year, making ST the best performing stock in the CAC40
  on the Paris Bourse and among the best performers on the New York
  Stock Exchange and the Milan Stock Exchange in 1999.
  
  Importantly, ST was able to post strong financial performance, chara-
  cterized by significant operating leverage, while investing heavily in
  future growth.
  
  Revenues exceeded $5 billion, a 19% increase over 1998 levels. Net
  income reached $547 million, a 33.1% gain over the prior year, and
  earnings per diluted share were $1.87, almost 30% above 1998 levels,
  after a 4.3% increase in the weighted number of shares outstanding.

• Invested a record $836 million in Research and Development, 21%
  more than the prior year

• Filed a record 751 new patent applications Started equipping two new
  8-inch wafer modules at the Rousset (France) and Agrate (Italy) fabs

• Increased capital expenditures to $1.35 billion, with $1.6 billion worth
  of new equipment and facilities in place by year-end

• Completed acquisitions with an aggregate value of $160 million that
  strengthened our intellectual property portfolio

These investments, combined with ST’s worldwide leadership in key applications and products, position us to capture an increasingly greater share of the markets we serve during this exciting period of industry growth. In 1999, ST’s revenues from telecom and consumer applications increased 26.8% and 27.3%, respectively, over 1998 and together accounted for 48.7 percent of total sales. Automotive was up 12.7%; computer peripherals gained 11.2%; and industrial applications, which include smartcards, increased 13.9% over year-ago levels. Differentiated products increased 19.5% in 1999 to $3,168 million and represented 62.7% of full-year revenues. Sales of Flash memory products more than doubled, bringing us closer to our goal of becoming the leading supplier of non-volatile memories. And revenues from strategic customers reached a record $2.1 billion, more than 25% above 1998 levels, growing at a faster rate than total revenues. In each successive quarter in 1999, we faced challenges and opportunities. The success of the year and our record fourth quarter performance reflected the high levels of innovation and flexibility that our Company has maintained even as we have grown to be an organization of 35,000 people, serving customers through a global design, manufacturing and marketing presence. Record backlog and the continued strength of order rates led us to state in our January 20, 2000 release that we expected first quarter 2000 revenues to exceed fourth quarter 1999 levels. This is in contrast with normal seas- onal patterns and is a function of ST’s marketplace leadership as well as the strong industry recovery that is under way. We also noted that a modest increase in gross margin was expected, despite the use of external foundry services to supplement our internal capacity to meet the unprecedented demand for ST products. In recognition of the Company’s 1999 performance and its prospects for 2000, ST has again recommended corporate initiatives designed to further the direct participation of its shareholders in the Company’s financial success. We have proposed for shareholder approval the distribution of a $0.09 per share dividend, representing an increase of 12.5% over last year’s cash payment, after adjustment for the 2-for-1 stock split effected on June 18, 1999. Also, we have proposed a subsequent 3-for-1 stock split due to the significant appreciation of ST’s share price on all three of the Exchanges on which it trades. 1999 marked the completion of ST’s fifth year as a public company. Throughout this period, ST has remained committed to its strategic growth plan. The senior management group that developed and arti- culated thisplan has remained in place, guiding our Company through the most protracted downturn in the history of the semiconductor industry while preparing it to emerge as an even stronger force in the market upturn. Our Company has also remained consistent in its commitment to the environment, which we believe will continue to distinguish us in this new century. In 1999, we further strengthened our resolve to lead the way in the semiconductor industry; ST’s next major goal is for the entire Company to be completely CO2 emission neutral by the year 2010. ST has entered the year 2000 in a strong competitive position. Our ongoing investments in technology, in upgrading and expanding our manufacturing machine, and in reducing the “time to market” of our products have enabled us to forge solid partnerships with our customers and other industry leaders. The Company’s financial position is strong; its leadership in key products and applications is unmatched. To fully take advantage of the opportunities that are before us, we will count on the support of all of our stakeholders. I would like to personally express my appreciation for the contributions of our employees, strategic partners, customers, investors and directors to our superior performance in 1999. We look forward to keeping you up to date on our progress.