State of the Market

Field Trip 2006 - London, May 23rd

State of the Market

Jean-Philippe DauvinGroup Vice President

Chief Economist

Jean-Philippe DauvinState of the Market

The World Economy in 2006The World Economy in 2006

Rest of Asia5%

India6%

China16%

Central & Latin America

8% Middle East & Africa

4%

Former SSR8%

North America23%

Europe23%

Japan7%

Estimated in purchasing power paritySource : BIPE

$50 trillion; 30% larger than 5 years agoWW Growth in 2006 around 4%

2006 growth3%

2006 growth6%

Jean-Philippe DauvinState of the Market

0

1

10

100

1000

1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005

SC Market $ Billions

-25%

0%

25%

50%

75%SC Market % Growth

SC Market % Growth SC Current Market Trend Line

Source : WSTS, ST

Semiconductor Market CyclesSemiconductor Market Cycles

Jean-Philippe DauvinState of the Market

First Quarter 2006 Semiconductor Market Results

2.9%2.4%1.1Other Memory45.4%-12.8%3.0NAND

7.3%-1.3%59.1Total Market

2.7%-5.4%2.0NOR8.9%-1.9%23.0ASP

-8.9%6.4%3.0MCU20.1%3.1%3.7Std Lin. & Logic

1.8%0.5%3.8Discrete10.5%-0.1%3.9Opto-3.3%5.8%6.6DRAM6.8%-4.9%8.8MPU

Year-on-year growth (%)

Sequential growth (%)$B marketProducts families

Source : WSTS

Jean-Philippe DauvinState of the Market

Semiconductor Market Cycle Build-UpSemiconductor Market Cycle Build-Up2004

CapacityCapacityCapacity$247 B$227 B$213 B

Silicon PervasionInventoryEnd-demand

2006 Est.

Silicon PervasionInventoryEnd-demand

2005

Silicon PervasionInventoryEnd-demand

Source : WSTS, ST estimates

19%

9%5%

2%

28%

2%7% 6.5% 8.5%

UnitGrowth

ASPGrowth

MarketGrowth

UnitGrowth

ASPGrowth

MarketGrowth

UnitGrowth

ASPGrowth

MarketGrowth

Jean-Philippe DauvinState of the Market

2006 End-Demand Assumptions2006 End-Demand Assumptions

140

178204

76150

132718

18165

14627

150M of units ’06

Personal Medical

HDD <3.5”HDD 3.5”PC LaptopPC Desktop

3G Handsets2G & 2.5G Handsets

MP3 + PMPGaming

Digital STBDigital TVAnalog TVMajor Applications Growth over ’05 (%)

10%

29%0%

17%2%

-3%

40%18%

28%110%

-6%

95%

Source : ST estimates

Jean-Philippe DauvinState of the Market

Semiconductor Inventory Level TrendsSemiconductor Inventory Level Trends

1.0

1.5

0.3

-0.7

0.1

1.0

1.8

1.00.7 0.6

-0.3

-0.7

-0.2

0.2

Q103

Q203

Q303

Q403

Q104

Q204

Q304

Q404

Q105

Q205

Q305

Q405

Q106E

Q206E

Excess semiconductor inventories relative to target

(US$B)

Source : iSuppli

Depletinginventory

Buildinginventory

Jean-Philippe DauvinState of the Market

23%26%

23%21%

Q1 05 Q2 05 Q3 05 Q4 05

Capex-to-sales ratio

%

21% 20% 21%19%

Q1 06 Q2 06E Q3 06E Q4 06E

Capex-to-sales ratio

%

Capital Spending TrendCapital Spending Trend

Capex2006 over 2005

8% growth$50B

Avg. ’0620%

Capex2005 over 2004

-2% growth$47B

Avg. ’0521%

Source : ST Estimate

Jean-Philippe DauvinState of the Market

12%

8% 8%7.3%

Q1 06A Q2 06E Q3 06E Q4 06E

Y-o-Y growth %

-1.3%

2%

5%

2%

Q1 06A Q2 06E Q3 06E Q4 06E

Sequential growth %

2006 Semiconductor Market GrowthForecast by Quarter2006 Semiconductor Market GrowthForecast by Quarter

Source : WSTS, ST

2006market growth

8.5%

2006market size

$247B

Jean-Philippe DauvinState of the Market

2006 Semiconductor Market Growth ForecastProducts Families

Source : ST estimates

26%13.4NAND

2474.4

8.596.712.215.315.717.127.136.4

$B in ’06

8.5%Total Market

1%MCU

Growthover ’05 (%)Products families

1%

6%9%

15%3%

15%6%4%

Other Mem.

NORASP/DSP

Std Lin. & LogicDiscreteOptoDRAMMPU

Jean-Philippe DauvinState of the Market

2006 Semiconductor Market GrowthMacro-Segments2006 Semiconductor Market GrowthMacro-Segments

10%

9%

6%

8.5%

9%

6%

Telecom

Consumer

Automotive

Computer

Industrial & Other

Total market

Source : ST estimates

Jean-Philippe DauvinState of the Market

Economic Imbalances Generate Market Potential

Source : International Labour Office, Estin & Co, ST

0102030405060708090

100110120

0 500 000 1 000 000 1 500 000 2 000 000 2 500 000Active population (in thousands)

M onthly salaries(incl. charges)

India

Euro Zone

USA Japan

South Korea + Taiwan

Eastern Europe

BrazilMexico

Russia ChinaIndonesia

New applications

New customers

Jean-Philippe DauvinState of the Market

New Application and New Customers Drive Semiconductor MarketNew Application and New Customers Drive Semiconductor Market

Subscriber growth momentum continues : 84.3 million subscribers at the end of February 2006

2006

India sixth-largest cellular market subscriber base : 75.3 million subscribers at the end of 2005, 48 million at the end of 2004

2005

India cellular connections exceeded fixed-line

2004

We project 280 million subscribers by 2010, Only 24% of population equipped

CustomerApplication

$16

$4 $3$11

$68

$18

$7

$32

Semi Display Battery Others (incl.Electromechanical)

Handsethigh-end

3G cost : $125

Handsetlow-end

cost : $34

Source : iSuppli

Jean-Philippe DauvinState of the Market

975 915 900 9601130 1200 1290 1350 1420 1500

1060

2000 2001 2002 2003 2004 2005 2006E 2007E 2008E 2009E 2010E

US$B

Source : iSuppli, ST

Looking Ahead:World Electronic Systems GrowthLooking Ahead:World Electronic Systems Growth

6%5%4%8%6%7%10%7%-2%-7%15%

Annual growth

rate

Back to growthat 6% per year

Low growthat 2% per year

Jean-Philippe DauvinState of the Market

Semiconductor Market GrowthSemiconductor Market Growth

0

50

100

150

200

250

300

350

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

E

2007

E

2008

E

2009

E

2010

E

$B worldmarket

Source : WSTS, ST

2% per year 8% per year12% per year

Developed countriesinstalled-base renewal

Equipping developed countries Developedcountries saturated Equipping developing

countries

Jean-Philippe DauvinState of the Market

Semiconductor Market Forecast 2005-2010Product FamiliesSemiconductor Market Forecast 2005-2010Product Families

Source : WSTS, ST

2010 : $340B

8%MPU

7%MCU

5%DRAM

5%Discrete

8%Total Market CAGR 2005-2010

8%Std Lin. & Logic

11%ASP

11%Flash

12%Opto

CAGR 2005-2010 % 2010 Market Breakdown

DRAM10%

MCU4%

ASP41%

Opto8%Flash

11%

MPU14%

Discrete6%

Std Lin. & Logic

6%

Jean-Philippe DauvinState of the Market

Semiconductor Market Forecast 2005-2010ApplicationsSemiconductor Market Forecast 2005-2010Applications

Source : WSTS, ST

2010 : $340B

7%Industrial & Govt

8%Total market CAGR 2005-2010

CAGR 2005-2010 %

9%Automotive

8%Computer

9%Consumer

10%Telecom

2010 Market Breakdown

Industrial & Gov't9%

Telecom25%

Automotive8%

Computer42%

Consumer16%

Jean-Philippe DauvinState of the Market

Semiconductor Market Forecast 2005-2010RegionsSemiconductor Market Forecast 2005-2010Regions

2010 Market Breakdown

Europe15%

Japan17%

Other Asia/Pac.

31%

Americas16%

China21%

2010 : $340BSource : WSTS, ST

15%Developing regions

6%Developed regions

5%Japan

8%Total market CAGR 2005-2010

CAGR 2005-2010 %

11%Other Asia/Pac. Including India

6%Europe

6%Americas

18%China