We also regularly incur costs to develop IP internally or acquire it from third parties without any guarantee of realizing the anticipated value of such expenditures if our competitors develop technologies that are more accepted than ours, or if market demand does not materialize as anticipated. In addition to amortization expenses relating to purchased IP, the value of these assets may be subject to impairment with associated charges being made to our Consolidated Financial Statements. See “Item 5. Operating and Financial Review and Prospects”. There is no assurance that our IP purchases will be successful and will not lead to impairments and associated charges.

We may face greater risks due to the international nature of our business, including in the countries where we, our customers or our suppliers operate, such as:

Risks Related to Our Operations

We are constantly monitoring our product portfolio and cannot exclude that additional steps in this repositioning process may be required; further, we cannot assure that any strategic repositioning of our business, including executed and possible future acquisitions, dispositions or joint ventures, will be successful and may not result in further impairment and associated charges.

Acquisitions and divestitures involve a number of risks that could adversely affect our operating results, including the risk that we may be unable to successfully integrate businesses or teams we acquire with our culture and strategies on a timely basis or at all, and the risk that we may be required to record charges related to the goodwill or otherlong-term assets associated with the acquired businesses. Changes in our expectations due to changes in market developments that we cannot foresee have in the past resulted in our writing off amounts associated with the goodwill of acquired companies, and future changes may require similar furtherwrite-offs in future periods. We cannot be certain that we will be able to achieve the full scope of the benefits we expect from a particular acquisition, divestiture or investment. Our business, financial condition and results of operations may suffer if we fail to coordinate our resources effectively to manage both our existing businesses and any acquired businesses. In addition, the financing of future acquisitions or divestitures may negatively impact our financial conditionposition and could require us to needraise additional funding from the capital markets.

These and other factors may cause a materially adverse effect on our results of operations and financial condition.

In less favorable industry environments, we are driven to reduce prices in response to competitive pressures and we are also faced with a decline in the utilization rates of our manufacturing facilities due to decreases in product demand. Reduced average selling prices and demand for our products both adversely affect our results of operations. Since the semiconductor industry is characterized by high fixed costs, we are not always able to cut our total costs in line with revenue declines. Furthermore, in periods of lower customer demand for our products, our fabs do not operate at full capacity and the costs associated with the excess capacity are charged directly to cost of sales as unused capacity charges. Additionally, a significant number of our manufacturing facilities are located in France and Italy and their cost of operation have been significantly affected by the rise over the last few years of the Euro against the U.S. dollar, our reporting currency. See “Item 5. Operating and Financial Review and Prospects”. While markets improved in 2010, the difficult conditions experienced in 2008 and 2009 had a significant effect on the capacity utilization and related manufacturing efficiencies of our fabs and, consequently, our gross margins. We cannot guarantee that such market conditions, and increased competition in our core product markets, will not lead to further price erosion, lower revenue growth rates and lower margins.

A significant variation of the value of the U.S. dollar against the principal currencies that have a material impact on us (primarily the Euro, but also certain other currencies of countries where we have operations)operations, such as the Singapore dollar) 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.currencies, in particular with respect to the Euro. Currency exchange rate fluctuations affect our results of operations because our reporting currency is the U.S. dollar, in which we receive the major partportion of our revenues, while, more importantly, we incur a significant portion of our costs in currencies other than the U.S. dollar. Certain significant costs incurred by us, such as a significant part of our manufacturing labor costs, selling, general and administrative (“SG&A”) expenses, and R&D expenses, and — in certain jurisdictions — depreciation charges are incurred in the currencies of the jurisdictions in which our operations are located, which mainly includes the Euro zone. Our effective average exchange rate, which reflects actual exchange rate levels combined with the impact of cash flow hedging programs, was $1.36$1.31 to €1.00 in 2010, compared to $1.37 to €1.00 in 2009.

As a result of our choice to maintain control of a certain portion of our advanced and proprietary manufacturing technologies to better serve our customer base, and to develop our strategic alliances, significant amounts of capital to maintain or upgrade our facilities could be required in the future. We monitor our capital expenditures taking into consideration factors such as trends in the semiconductor market and capacity utilization. WhileThese expenditures may increase in the last three years our aggregate capital expenditures decreased, as expressed in terms of percentage to sales,future if we are planning in 2011 capital expenditures of approximately $1.1 billion to $1.5 billionrequired to upgrade andor expand the capacity of our manufacturing facilities in order to respond to the increasingcustomer demand from customers andfor increased quantities or for new more advanced products in certain segments particularly for micro-electro-mechanical systems (“MEMS”), Automotive and Smartphone and Tablet platforms.we serve. There is no assurance that future market demand and products required by our customers will meet our expectations. Failure to invest appropriately or in a timely manner could have a material adverse effect on our business, and results of operations. See “Item 5. Operating and Financial Review and Prospects — Liquidity and Capital Resources”.

In an increasingly complex and competitive environment, we may need to invest in other companies, in IP and/or in technology developed either by us or by third parties to maintain or improve our position in the market. We may also consider acquisitionsmarket or to complement or expand our existing business. In addition, a portion of the outstanding cash is devoted to redeem maturing indebtedness. Although there are no current plans to issue new debt or equity, theThe foregoing may also require us to issuesecure additional financing, including through the issuance of debt, equity or both; theboth. The timing and the size of any new share or bond offering would depend upon market conditions as well as a variety of factors, and anyfactors. In addition, the capital markets may from time to time offer terms of financing that are particularly favorable. We cannot exclude that we may access the capital markets opportunistically to take advantage of market conditions. Any such transaction or any announcement concerning such a transaction could materially impact the market price of our common shares. If we are unable to access such capital on acceptable terms, this may adversely affect our business and results of operations.

We are dependent on alliances to develop or access new technologies, particularly in light of the increasinghigh levels of investment required for R&D activities, and there can be no assurance that these alliances will be successful. We are a member of the International Semiconductor Development Alliance (“ISDA”), a technology alliance led by IBM with GlobalFoundries, Freescale, Infineon, Renesas, Samsung and Toshiba to develop complementary metal-on silicon oxide semiconductor (“CMOS”) process technology used in semiconductor development and manufacturing for 32/28-nm and 22/20-nm nodes. This alliance also includes collaboration on IP development and platforms to speed the design of

System-on-Chip (“SoC”) devices in CMOS process technologies. In 2009, we also entered into an agreement with IBM to develop value-added derivative SoC technologies in Crolles, France.

Our operating results are 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. These factors include, among others, the cyclicality of the semiconductor and electronic systems industries, capital requirements, inventory management, availability of funding, competition, new product developments, technological changes, manufacturing problems and manufacturing problems.effective tax rates. For example, if anticipated sales or shipments do not occur when expected, expenses and inventory levels in a given quarter can be disproportionately high, and our results of operations for that quarter, and potentially for future quarters, may be adversely affected. In addition, our effective tax rate currently takes into consideration certain favorable tax rates and incentives, which, in the future, may not be available to us. See Note 23 to our Consolidated Financial Statements.

A number of other factors could lead to fluctuations in quarterly and annual operating results, including:

12

In periods of industry overcapacity or when our key customers encounter difficulties in their end markets, orders are more exposed to cancellations, reductions, price renegotiation or postponements, which in turn reduce our management’s ability to forecast the next quarter or full year production levels, revenues and margins. For these reasons and others that we may not yet have identified, our revenues and operating results may differ materially from our expectations or guidance as visibility is reduced. See “Item 4. Information on the Company — Backlog”.

We derive and expect to continue to derive significant sales from the telecommunications, consumer, computer and communication infrastructure,peripherals, automotive and industrial markets. Growth of demand in these market segments havehas fluctuated significantly in the past, and may in the future, based on numerous factors, including:

We cannot predict the rate, or the extent to which, the telecommunications, consumer, computer and communication infrastructure,peripherals, automotive and industrial markets will grow. In 2009, the declineChanges in these markets, resultedcoupled with a lower penetration of certain of our customers could result in slower growth and a decline in demand for our products, which had a material adverse effect on our business, financial condition and results of operations.

Our business is dependent upon our ability to attract and retain new customers.customers who are successful in identifying and serving new potential,fast-growing markets. The competition for such new customers or new markets is intense. There can be no assurance that we will be successful in attracting and retaining new customers.customers or be able to identify early on any new market prospects. Our failure to do so could materially adversely affect our business, financial position and results of operations.

Our business is also dependent upon continuing to supply existing large customers, their business success and the fit of our product offering with their productsroad-map. Our customers’ products strategy may change from time to time and we have no certainty that our business, financial position and results of operations will not be affected.

A substantial portion of our sales is derived from several large customers, some of whom have entered into strategic alliancesagreements with us. As of December 31, 2010, our largest customer, the Nokia group of companies, accounted for 13.9% of our 2010 net revenues, compared to 16.1% in 2009 and 17.5% in 2008. We cannot guarantee that our largest customers will continue to book the same level of sales with us and our joint ventures that they have in the past, or will not solicit alternative suppliers or will continue to succeed in the markets they serve. Many of our key customers operate in cyclical businesses that are also highly competitive, and their own demands and market positions may vary considerably. In recent years, certain customers of the semiconductor industry have experienced consolidation.consolidation and have vertically integrated their businesses. Such consolidations and vertical integrations may impact our business in the sense that our relationships with the new entities could be either reinforced or jeopardized pursuant thereto. Our customers have in the past, and may in the future, vary order levels significantly from period to period, request postponements to scheduled delivery dates or modify their bookings. We cannot guarantee that we will be able to maintain or enhance our market share with our key customers or distributors. If we were to lose important design wins for our products with our key customers, or if any key customer or distributor were to reduce or change its bookings, seek alternate suppliers, increase its product

Our operating results can also vary significantly due to impairment of goodwill, other intangible assets and equity investments booked pursuant to acquisitions, joint venture agreements and to the purchase of technologies and licenses from third parties, which has increased significantly since 2008 due to M&A transactions.parties. Because the market for our products is characterized by rapidly changing technologies, and because of significant changes in the semiconductor industry, and the potential failure of our business initiatives, our future cash flows may not support the value of goodwill and other intangibles registered in our consolidated balance sheet.sheets (“Consolidated Balance Sheets”). We are required to perform an impairment test of our goodwill on an annual basis.basis, which is done in the third quarter. In addition, we are also required to assess the carrying values of intangible and tangible assets when impairment indicators exist. As a result of such tests, we could be required to book an impairment charge in our consolidated statement of income if the carrying value in our consolidated balance sheetConsolidated Balance Sheets is in excess of the fair value. The amount of any potential impairment is not predictable as it depends on our estimates of projected market trends, results of operations and cash flows. Any potential impairment, if required, could have a material adverse impact on our results of operations.

We performed our annual impairment test in the third quarter of 20102013 and, with the exception of a $56 million impairment charge with respect to our Digital Convergence Group (“DCG”) business, we incurred no chargeother impairment charges as the fair value generatedof those reporting units exceeded their carrying value. See “Item 5. Operating and Financial Review and Prospects — Overview — Critical Accounting Policies Using Significant Estimates — Impairment of goodwill”, “— Intangible assets subject to amortization” and “— Income (loss) onEquity-method Investments”.

We depend on patents to protect our rights to our technology and may face claims of infringing the IP rights of others.

We depend on our ability to obtain patents and other IP rights covering our products and their design and manufacturing processes. We intend to continue to seek patents on our inventions relating to product designs and

manufacturing processes. However, the process of seeking patent protection can be long and expensive, 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 IP and therefore either be unavailable to us or be made available to us subject to adverse terms and conditions. We have in the past used our patent portfolio to negotiate broad patentcross-licenses with many of our competitors enabling us to design, manufacture and sell semiconductor products, without fear of infringing patents held by such competitors. We may not, however, in the future be able to obtain such licenses or other rights to protect necessary IP on favorable terms for the conduct of our business, and such failure may adversely impact our results of operations.

We have from time to time received, and may in the future receive, communications alleging possible infringement of patents and other IP rights. Some of those claims are made by so callednon-practicing entities against which we are unable to assert our own broad patent portfolio to lever licensing terms and conditions. Competitors with whom we do not have patentcross-license agreements may also develop technologies that are protected by patents and other IP rights and which may be unavailable to us or only made available on unfavorable terms and conditions. We may therefore become involved in costly litigation brought against us regarding patents, mask works, copyrights, trademarks or trade secrets. We are currently involved in several lawsuits. See “Item 8. Financial Information — Legal Proceedings”. IP litigation may also involve our customers who in turn may seek indemnification from us should we not prevail and/or who may decide to curtail their orders for those of our products over which claims have been asserted. Such lawsuits may therefore have a material adverse effect on our business. We may be forced to stop producing substantially all or some of our products or to license the underlying technology upon economically unfavorable terms and conditions or we may be required to pay damages for the prior use of third party IP and/or face an injunction.

The outcome of IP litigation, given the complex technical issues it involves, is inherently uncertain and may divert the efforts and attention of our management and other specialized technical personnel. Furthermore, litigation can result in significant costs and, if not resolved in our favor, could materially and adversely affect our business, financial condition and results of operations.

We operate in many jurisdictions with highly complex and varied tax regimes. Changes in tax rules or the outcome of tax assessments and audits could cause a material adverse effect on our results.

We operate in many jurisdictions with highly complex and varied tax regimes. Changes in tax rules or the outcome of tax assessments and audits could have a material adverse effect on our results in any particular quarter. Our tax rate is variable and depends on changes in the level of operating results within various local jurisdictions and on changes in the applicable taxation rates of these jurisdictions, as well as changes in estimated tax provisions due to new events. We currently receive certain tax benefits in some countries, and these benefits may not be available in the future due to changes in the local jurisdictions. As a result, our effective tax rate could increase in the coming years.

In line with our strategic repositioning of our product segments exceededportfolio, the carrying valueacquisition or divestiture of their assets. In addition, we performed an impairment testbusinesses in different jurisdictions could materially affect our effective tax rate.

We evaluate our deferred tax asset position and the need for a valuation allowance on a regular basis. This assessment requires the exercise of judgment on the part of our Wirelessmanagement with respect to, among other things, benefits that could be realized from available tax strategies and future taxable income, as well as other positive and negative factors. The ultimate realization of deferred tax assets onis dependent upon, among other things, our ability to generate future taxable income that is sufficient to utilize losscarry-forwards or tax credits before their expiration or our ability to implement prudent and feasible tax planning strategies. The recorded amount of total deferred tax assets could be reduced, resulting in a quarterly basis,loss in our consolidated income statement, a decrease in our total assets and, consequently, in our stockholders’ equity, if our estimates of projected future taxable income and benefits from available tax strategies are reduced as a result of the ongoing losses suffereda change in management’s assessment or due to other factors, such as divestitures, or if changes in current tax regulations are enacted that segment and concluded that no charges are required basedimpose restrictions on the current plantiming or extent of our joint-venture ST-Ericsson. However, manyability to utilize tax loss and creditcarry-forwards in the future. A change in the estimated amounts and the character of the factors usedfuture result may require additional valuation allowances, resulting in assessing fair values for such assets are outside ofa negative impact on our control and the estimates used in such analysesconsolidated income statement.

We are subject to change. Due to the ongoing uncertaintypossibility of the current market conditions, which may continue to negatively impact our market value, we will continue to monitor the carrying valueloss contingencies arising out of tax claims, assessment of uncertain tax positions and provisions for specifically identified income tax exposures. There are currently tax audits ongoing

in certain of our assets. If market and economic conditions further deteriorate, thisjurisdictions, which could result in future non-cash impairment charges against income. Further impairment charges could also result from new valuations triggered by changesmaterial adjustments in our product portfoliotax position. There can be no assurance that we will be successful in resolving potential tax claims that arose or strategic transactions,can arise from these audits. We have booked provisions on the basis of the best current understanding; however, we could be required to book additional provisions in future periods for amounts that cannot be assessed at this stage. Our failure to do so and/or the need to increase our provisions for such as ST-Ericsson, especially if ST-Ericsson, is unable to successfully compete.

Our ability to meet our customers’ demand to manufacture our products depends upon obtaining adequate supplies of quality raw materials on a timely basis. A number of materials are available only from a limited number of suppliers, or only 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 ajust-in-time basis, as well as other materials such as copper and gold whose prices on the world markets have fluctuated significantly during recent periods. Although supplies for the raw materials we currently use are adequate, shortages could occur in various essential materials due to interruption of supply or increased demand in the industry. In addition, the costs of certain materials such as copper and gold, have increased due to market pressures and we may not be able to pass on such cost increases to the prices we charge to our customers. We also purchase semiconductor manufacturing equipment from a limited number of suppliers and, because such equipment is complex, it is difficult to replace one supplier with another or to substitute one piece of equipment for another. In addition, suppliers may extend lead times, limit our supply or increase prices due to capacity constraints or other factors. Furthermore, suppliers tend to focus their investments on providing the most technologically advanced equipment and materials and may not be in a position to address our requirements for equipment or materials of older generations. Shortages of supplies have in the past impacted and may in the future impact the semiconductor industry, in particular with respect to silicon wafers due to increased demand and decreased production. Although we work closely with our suppliers to avoid these types of shortages, there can be no assurancesassurance that we will not encounter these problems in the future. Our quarterly or annual results of operations would be adversely affected if we were unable to obtain adequate supplies of raw materials or equipment in a timely

We currently use outside contractors both for front and back-end activities, and it is likely that we will increasingly rely on foundries for a growing portion of our needs.front andback-end activities. The foundries we contract with are primarily manufacturers ofhigh-speed complementarymetal-on silicon oxide semiconductor (“HCMOS”) wafers, and nonvolatile memory technology, while ourback-end subcontractors engage in the assembly and testing of a wide variety of packaged devices. If our outside suppliers are unable to satisfy our demand, or experience manufacturing difficulties, delays or reduced yields, our results of operations and ability to satisfy customer demand could suffer. Our internal manufacturing costs include depreciation and other fixed costs, while costs for products outsourced are based on market conditions. Prices for these services also vary depending on capacity utilization rates at our suppliers, quantities demanded, product technology and geometry. Furthermore, these outsourcing costs can vary materially from quarter to quarter and, in cases of industry shortages, they can increase significantly further, negatively impacting our gross margin.

Our manufacturing processes are highly complex, require advanced and increasingly costly equipment and are continuously being modified or maintained 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 and production changes have increased andsub-micron technology has become more advanced using ever finer geometries, 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 bottlenecks and production difficulties that have caused delivery delays and quality control problems, as is common in the semiconductor industry. We cannot guarantee that we will not experience bottlenecks, production or transition difficulties in the future. In addition, during past periods of high demand for

our products, our manufacturing facilities have operated at high capacity, which has led to production constraints. Furthermore, if production at a manufacturing facility is interrupted, we may not be able to shift production to other facilities on a timely basis, or customers may purchase products from other suppliers. In either case, the loss of revenue and damage to the relationship with our customer could be significant. Furthermore, we periodically transfer production equipment between production facilities and must ramp up and test such equipment once installed in the new facility before it can reach its optimal production level.

Despite our corporate quality programs and commitment, our products may not in each case comply with specifications or customer requirements. We may face product liability or warranty claims based on epidemic, security or delivery failures. Although our general practice, in line with industry standards, is to contractually limit our liability to the repair, replacement or refund of defective products, warranty or product liability claims could result in significant expenses relating to compensation payments or other indemnification to maintain good customer relationships if a customer threatens to terminate or suspend our relationship pursuant to a defective product supplied by us. No assurance can be made that we will be successful in maintaining our relationships with customers with whom we incur quality problems, which could have a material adverse affecteffect on our business. Furthermore, we could incur significant costs and liabilities if litigation occurs to defend against such claims and if damages are awarded against us. In addition, it is possible for one of our customers to recall a product containing one of our parts. Costs or payments we may make in connection with warranty claims or product recalls may adversely affect our results of operations. There is no guarantee that our insurance policies will be available or adequate to protect us against such claims.

We are subject to many environmental laws and regulations wherever we operate that govern, among other things, the use, storage, discharge and disposal of chemicals, gases and other hazardous substances used in our manufacturing processes, air emissions, waste water discharges, waste disposal, as well as the investigation and remediation of soil and ground water contamination.

A number of environmental requirements in the European Union, including some that have only recently come into force, affect our business. See “Item 4. Information on the Company — Environmental Matters”. These requirements are partly under revision by the European Union and their potential impacts cannot currently be determined in detail. SuchThe implementation of such regulations however, could adversely affect our manufacturing costs or product sales by requiring us to acquire costly equipment, materials or greenhouse gas allowances, or to incur other significant expenses in adapting our manufacturing processes or waste and emission disposal processes. We are not in a position to quantify specific costs, in part because these costs are part of our business process. 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. As with other companies engaged in similar activities, any failure by us to control the use of, or adequately restrict the discharge of, chemicals or hazardous substances could subject us to future liabilities. Any specific liabilities we identify as probable would be reflected in our consolidated balance sheet.Consolidated Balance Sheets. To date, we have not identified any such specificprobable liabilities and have therefore not booked reserves for any specific environmental risks.

As is common in the semiconductor industry, success depends to a significant extent upon our key senior executives and R&D, 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 material adverse effect on us.

We have an option agreement (the “Option Agreement”) with an independent foundation, Stichting ContinuiteitContinuiteït ST (the “Stichting”), whereby we could issue a maximum of 540,000,000 preference shares in the event of actions considered hostile by our Managing Board and Supervisory Board, such as a creeping acquisition or an unsolicited offer for our common shares, which are unsupported by our Managing Board and Supervisory Board and which the board of the Stichting determines would be contrary to the interests of our Company, our shareholders and our other stakeholders. See “Item 7. Major Shareholders and Related Party Transactions — Major Shareholders — Shareholders’ AgreementsAgreement — Preference Shares”.

No preference shares have been issued to date. The effect of the issuance of preference shares pursuant to the Option Agreement may be to deter potential acquirers from effecting an unsolicited acquisition resulting in a change of control or otherwise taking actions considered hostile by our Managing Board and Supervisory Board. In addition, our shareholders have authorized us to issue additional capital within the limits of the authorization by our authorized share capital,shareholders’ meeting, subject to the requirements of our Articles of Association, without the need to seek a specific shareholder resolution for each capital increase. See “Item 10. Additional Information7. Major Shareholders and Related Party Transactions — Memorandum and Articles of AssociationMajor Shareholders — Share CapitalShareholders’ Agreement — Issuance of Shares, Preemptive Preference Shares and Capital Reduction (Articles 4 and 5)”Shares”.

The STH Shareholders’ Agreement, to which we are not a party, between respectively CEA, Bpifrance, FT1CI, our French Shareholder controlled by ArevaBpifrance and CEA, and the Ministry of the Economy and Finance, our Italian shareholder, which is in the process of signing a deed of adherence to the STH Shareholders’ Agreement,Shareholder, permits our respective French and Italian indirect shareholders to cause ST Holding to dispose of its stake in us at its sole discretion at any time from their current level, and to reducethereby reducing the current level of their respective indirect interests in our common shares. Such disposals could be made by way of sales of our shares or through issuance of financial instruments exchangeable for our shares, equity swaps or structured finance transactions.

The details of the STH Shareholders’ Agreement, as reported by ST Holding II,its parties, are further explained in “Item 7. Major Shareholders and Related Party Transactions — Major Shareholders”. Disposals of our shares by the parties to the STH Shareholders’ Agreement can be made by way of the issuance of financial instruments exchangeable for our shares, equity swaps, structured finance transactions or sales of our shares. An announcement with respect to one or more of such dispositions could be made at any time without our advance knowledge.

Our corporate affairs are governed by our Articles of Association and by the laws governing corporations incorporated in theThe Netherlands. The corporate affairs of each of our consolidated subsidiaries are governed by the Articles of Association and by the laws governing such corporations in the jurisdiction in which such consolidated subsidiary is incorporated. The rights of the investors and the responsibilities of members of our Managing and Supervisory Board and Managing BoardBoards under Dutch law are not as clearly established as under the rules of some U.S. jurisdictions. Therefore, U.S. investors may have more difficulty in protecting their interests in the face of actions by our management, members of our Supervisory Board or our controlling shareholders than U.S. investors would have if we were incorporated in the United States.

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 Managing and Supervisory Boards are residents of jurisdictions other than the United States and Canada. As a result, it may be difficult or impossible for shareholders to effect service within

We have been advised by Dutch counsel that the United States and theThe Netherlands do not currently have a treaty providing for reciprocal recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters. As a consequence, a final judgment for the payment of money rendered by any federal or state court in the United States based on civil liability, whether or not predicated solely upon the federal securities laws of the United States, will not be enforceable in theThe Netherlands. However, if the party in whose favor such final judgment is rendered brings a new suit in a competent court in theThe Netherlands, such party may submit to theThe Netherlands court the final judgment that has been rendered in the United States. If theThe Netherlands court finds that the jurisdiction of the federal or state court in the United States has been based on grounds that are internationally acceptable and that proper legal procedures have been observed, the court in theThe Netherlands would, under current practice, give binding effect to the final judgment that has been rendered in the United States unless such judgment contradicts theThe Netherlands’ public policy.

STMicroelectronics N.V. was formed and incorporated in 1987 and resulted from the combination of the semiconductor business of SGS Microelettronica (then owned by Società Finanziaria Telefonica (S.T.E.T.), an Italian corporation) and thenon-military business of Thomson Semiconducteurs (then owned by the formerThomson-CSF, now Thales, a French corporation). We completed our initial public offering in December 1994 with simultaneous listings on Euronextthe Bourse de Paris (now known as “Euronext Paris”) and the New York Stock Exchange (“NYSE”). In 1998, we listed our shares on the Borsa Italiana.Italiana S.p.A. (“Borsa Italiana”). Until 1998, we operated asSGS-Thomson Microelectronics N.V. Our length of life is indefinite. We are organized under the laws of theThe Netherlands. We have our corporate legal seat in Amsterdam, theThe Netherlands, and our head offices at WTC Schiphol Airport, Schiphol Boulevard 265, 1118 BH Schiphol, Airport, theThe Netherlands. Our telephone number there is +31-20-654-3210.+31-20-654-3210. Our headquarters and operational offices are managed through our wholly owned subsidiary, STMicroelectronics International N.V., and are located at 39 Chemin du Champ des Filles,1228 Plan-Les-Ouates, Geneva, Switzerland. Our main telephone number there is +41-22-929-2929.+41-22-929-2929. Our agent for service of process in the United States related to our registration under the U.S. Securities Exchange Act of 1934, as amended, is Corporation Service Company (CSC), 80 State Street, Albany, New York, 12207. Our operations are also conducted through our various subsidiaries, which are organized and operated according to the laws of their country of incorporation, and consolidated by STMicroelectronics N.V.

We are a global independent semiconductor company that designs, develops, manufactures and markets a broad range of semiconductor products used in a wide variety of microelectronic applications, including automotive products, computer peripherals, telecommunications systems, consumer products, industrial automation and control systems. 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 unitary cost have decreased, semiconductors have expanded beyond their original primary applications (i.e. computer systems) to applications such as telecommunication 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.

Our major customers include Apple, Blackberry, Bosch, Cisco, Continental, Delta, Gemalto, Conti,Hewlett-Packard,

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 thelong-term. Factors that contribute tolong-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.

We offer a broad and diversified product portfolio and develop products for a wide range of market applications to reduce our dependence on any single product, application or end market. Within our diversified portfolio, we have focused on developing products that leverage our technological strengths in creating customized,system-level solutions withhigh-growth digital andmixed-signal content. Our product families are comprised of differentiatedapplication-specific products (we define as being our dedicated analog,mixed-signal and digitalapplication-specific standard products integrated circuits (“ASICs”) andapplication-specific standard products (“ASSP”) offerings andsemi-custom devices) that are organized under our two product segments, which are: (i) Sense & Power and Automotive Consumer, Computer and Communication InfrastructureProducts (“ACCI”SP&A”) comprised of Automotive (“APG”), Industrial & Power Discrete (“IPD”), Analog & MEMS (“AMS”) and Other SP&A; and (ii) Embedded Processing Solutions (“EPS”) comprised of Digital Convergence Group (“DCG”), Imaging, BiCMOS ASIC and Silicon Photonics (“IBP”), Microcontrollers, Memory & Security (“MMS”), Wireless (“Wireless”WPS”) segments, which are formerST-Ericsson legacy products, and our Industrial and Multisegment Sector (“IMS”), consisting mainly of power discrete devices, analog, microcontrollers and MEMS.

Our products are manufactured and designed using a broad range of manufacturing processes and proprietary design methods. We use all of the prevalentfunction-oriented process technologies, including CMOS, bipolar and nonvolatile memory technologies. In addition, by combining basic processes, we have developed advancedsystems-oriented technologies that enable us to produce differentiated andapplication-specific products, including bipolar CMOS technologies (“BiCMOS”) formixed-signal applications, and diffusedmetal-on silicon oxide semiconductor (“DMOS”) technology and bipolar, CMOS and DMOS (“BCD technologies”BCD”) technologies for intelligent power applications, MEMS and embedded memory technologies. This broad technology portfolio, a cornerstone of our strategy for many years, enables us to meet the increasing demand for SoCSystem-on-Chip (“SoC”) andSystem-in-Package (“SiP”) solutions. Complementing this depth and diversity of process and design technology is our broad IP portfolio that we also use to enter into broad patentcross-licensing agreements with other major semiconductor companies.

Our principal investment and resource allocation decisions in the semiconductor business area are for expenditures on technology R&D as well as capital investments infront-end andback-end manufacturing facilities, which are planned at the corporate level; therefore, our product segments share common R&D for process technology and manufacturing capacity for mostsome of their products.

For information on our segments and product lines, see “Item 5. Operating and Financial Review and Prospects — Results of Operations — Segment Information”.

For our 20102013 Results of Operations, see “Item 5. Operating and Financial Review and Prospects — Results of Operations — Segment Information”.

ST is a global leader in multimedia convergence, powerthe semiconductor market serving customers across the spectrum of Sense & Power and sensor applications, dedicating significant resourcesAutomotive Products and Embedded Processing Solutions. From energy management and savings to product innovationtrust and increasingly becomingdata security, from healthcare and wellness to smart consumer devices, in the home, car and office, at work and at play, ST is found everywhere microelectronics make a solution provider in orderpositive and innovative contribution to drive higher value and increase our market share inpeople’s life. By getting more from technology to get more from life, ST stands for life augmented.

Our strategy, which we announced on December 10, 2012, takes into account the evolution of the markets we serve. As a worldwide semiconductor leader, we are well positioned to implement our strategy after having accomplished two major strategic transformations, namely a refocus of our product portfolio and our move towards being an asset lighter company. In addition, our strategy to enhance market share by developing innovative products and targeting new key customers is gaining momentum. Our strong capital structure enables us to operate as a long-term, viable supplier of semiconductor products and to possibly participate as a consolidator into the industry consolidation in high margin segments like advanced analog, MEMS, microcontrollers and automotive.

We continue to utilize outside contractors for certain foundryadvance towards our target financial model including an operating margin of about 10%, expected bymid-2015, based on a combination of revenue growth, gross margin improvement and back-end services.

Product Segments

In the Semiconductors business area, we have decided to reduce our capital intensity in order to optimize opportunities between internal and external front-end production, reduce our dependence on market cycles that impact the loading of our fabs, and decrease the impact of depreciation on our financial performance. We have been able to reduce thecapex-to-sales ratio from a historic average of 26% of sales during the period of 1995 through 2004, to approximately 8.6% of sales in the last three years aggregated.

In 2013, we ran our business along product lines and managed our revenues and internal operating income performance based on the following product segments:

In 2013, we revised our results from prior periods in accordance with this segment structure. The preparation of segment information based on the current segment structure requires us to make estimates and assumptions in determining the operating income (loss) of the segments for the prior reporting periods. We alsobelieve that the revised 2012 and 2011 presentation is consistent with that of 2013 and we use these comparatives when managing our company. In the Subsystems business area, we design, develop, manufacture and market subsystems and modules for a wide variety of products in the telecommunications, automotive and industrial markets in our Subsystems division.including mobile phone accessories, battery chargers, ISDN power supplies andin-vehicle equipment for electronic toll payment. Based on its immateriality, we do not report information separately for Subsystems. For a description of the main categories of products soldand/or services performed for each of the last three fiscal years, see Note 2925 to our Consolidated Financial Statements.

Our automotive products include digital and mixed signal devices that enable features like airbag controls,anti-skid braking systems, vehicle stability control, ignition and injection circuits, multiplex wiring, RF and power management for body and chassis electronics, engine management, advanced safety, instrumentation, car radio and infotainment. We hold a leading position in the global IC market for automotive semiconductor products. In addition to our own products and technologies, we also work with Freescale Semiconductor on 90nm and 55nm embedded Flash Technology and other common products based on cost-effective 32-bit microcontrollers for use in many automotive applications.

We offer a broad range of products:

(i) Automotive Electronics Division.Powertrain. We design and manufacture smart power products to enhance performance safety and comfort while reducing the automobile’s environmental impact of the automobile. For body and chassis electronics requirements, our products range from microcontrollers used in lighting, door and window/wiper applications to mixed signal control in junction boxes, power solutions, dashboards and climate control needs.impact. For powertrain, and safety, our products are used for engine emissions and fuel economy improvements and powertrain electrification with mixed signal power management power driver and analog signal processing. In this area, we are clearly a market leader due to continuous process innovation, such as the recently introduced110-nm. We also manufacture32-bit microcontrollers for engine control and automatic gearbox applications. In this area we benefit from our competitive advantage in technology R&D with our recent 40-nm process currently in a qualification phase and our300-mm plant in Crolles.

(ii) Chassis-Safety. OurChassis-Safety products are used for passive and active safety systemssystems. Ourchassis-safety products are used for applications relating to braking, vehicle steering and powertrain electrification with microcontrollers, mixed signal power management and, in some cases, RF sensing.