Semiconductor devices, generally referred to as integrated circuits, or ICs, enable a wide variety of everyday electronic products and systems to capture, process, store and transmit data. In addition to their familiar use in computers, semiconductors also increasingly enable or control functions in mobile telephones, digital still cameras, digital audio players, DVD recorders, digital TVs, electronic gaming consoles and other telecom, consumer, automotive and industrial electronic devices.

Semiconductor devices generally fall within three broad categories: processors, which process instructions; logic devices, which capture, manipulate and transmit data or monitor or control functions within electronic devices; and memory devices, which store data in digital form. Electronic devices generally require a combination of processing, logic and memory functions. Although these may be combined on a single chip, the three are more typically produced on separate chips and then integrated in a module or chipset or in an end product through hardware and software interfaces.

According to Gartner, DRAM sales in calendar year 2005 were $25 billion, representing 50% of the $50 billion semiconductor memory industry, which in turn represented 21% of the $235 billion semiconductor industry. Sales of flash memory reached $19 billion or 38% of the semiconductor memory industry in calendar year 2005.

Density of a DRAM chip is the amount of data it can store and is usually measured in megabits (Mb) or gigabits (Gb). Density of a DRAM module is measured in megabytes (MB) and gigabytes (GB), where each byte contains eight bits. DRAM chips are currently offered in a variety of densities for different end uses, generally ranging from 4Mb to 1Gb per chip, or 128MB to 8GB per module for high-end modules. In recent years, the maximum density of standard DRAM chips has generally doubled every 24 months. Smaller amounts of older generations of DRAM (4Mb, 16Mb, 64Mb and 128Mb densities) continue to be supplied for applications where memory density is less critical, such as printers. The industry is currently moving from a 256Mb standard density to a 512Mb density. According to Gartner, the percentage of standard chips produced with 512Mb was 14% in calendar year 2004 and increased to 43% in 2005.

The Company currently offers standard DRAM products for PCs, notebooks and workstations, as well as technologically more advanced DRAM products for infrastructure, graphics, mobile and consumer applications. The Company also offers a small number of non-volatile NAND-compatible flash memory products.

The Company sells the majority of its standard DRAM products for use in PC and workstations, to desktop and notebook computer manufacturers and to distributors who sell DRAMs on to smaller original equipment manufacturers and contract manufacturers. The Company’s standard modules, including Unbuffered DIMMs and SO-DIMMs, are used primarily for PCs and notebooks, while its more specialized modules such as High-Density SO-DIMMs and Micro-DIMMs are typically used in high-end notebook computers and sub-notebooks.

In addition to standard DRAMs, the Company designs, manufactures and sells technologically more advanced DRAM components and modules for use in servers, networking and storage equipment and a variety of specialty DRAMs for use primarily in graphics, as well as in mobile and consumer applications.

The Company currently offers data flash memory products, primarily in the form of cards and to a lesser extent in component form, for use in digital still cameras, USB flash drives, digital audio players and mobile phones. The Company is currently engaged in technology review and development in this area in order to move its small flash memory production to a more competitive footing. The Company started sales of its NAND-compatible flash memory products based on its 170nm TwinFlash technology in early 2004.

Cost of goods sold increased by €509 million, or 57%, from €887 million in the six months ended March 31, 2005 to €1,396 million in the six months ended March 31, 2006.

In the six months ended March 31, 2006, research and development expenses increased by 5%, from €204 million to €215 million.

Net result decreased from a net income of €122 million in the six months ended March 31, 2005, to net loss of €136 million in the six months ended March 31, 2006.