Some industry pundits with whom I speak think we are just around the corner from some form of large-scale consolidation. The expectation is that by pooling resources, the fittest will survive and there is an air of anticipation — not unlike during any industry downturn — about a potential wave of mergers and acquisitions. But one analyst I recently met noted that the current semiconductor business in general is strong, although there is little growth. That is the more accurate reality — Unit volumes have returned to almost the peak in 2000, but overcapacity has lead to continued low ASPs. Companies that are suffering the storm now are not making the significant investments that are sometimes needed to kick-start growth. Many are focused on maintaining positive cash flows simply to make it to the calm waters beyond the storm.

If anything, we are seeing the rise of a new form of "virtual consolidation" that is changing the dynamics of the industry. At Philips, we have benefited from our technology partnership through our longstanding activity with ST and Motorola at Crolles, the Grenoble-based research and development facility in France. Through this endeavor, we have achieved the advantages of consolidation, creating a virtual $20 billion company — in terms of new thinking in research and development and in terms of advanced technology. The resulting technology is fully deployable, creating a course charted for smaller geometries that require lower power for new and innovative products and technologies.

However, Crolles has a wider benefit. It is a clear example of three competitors pooling their manufacturing and process development skills, gaining the benefits of resource consolidation while retaining their corporate identities and competitive edges. Crolles represents shared investment and shared risk providing a solid foundation of technology excellence to underpin future growth opportunities.

With that future growth in mind, Philips has taken sharp focus to target the "connected consumer." In terms of technologies, we take our heritage in consumer markets with such leading technologies in television, DVD+RW, displays and storage to help customers build the "connected home."

As a company that has it roots in the consumer marketplace, we are able to combine our consumer knowledge with our semiconductors expertise to create unique solutions that help people to improve their experience with technology. In the connected home, it is not the technology that matters; it is the user experience. When a digital television seamlessly connects to a DVD+RW that incorporates a hard disk drive, plus an automated program selection guide, it becomes a home media server. At this point, we have transformed separate home entertainment products into a Connected Home. The implications of wireless connectivity, Web tablets, and mobile communications capabilities, the integration potential adds value rather than complexity. From a consumer's perspective, if we make it easier, they will come.

There have been better times in the semiconductor industry, and there will be better times to come. Under the current stormy conditions, we have had to streamline to focus limited resources for maximum impact. We continue to find the gems in the IC world, such as the high growth prospects for identification chips, connectivity chips and multimedia chips. For opportunities like these, we see the sun rising on the horizon as the storm clouds clear, and we expect to be at the forefront for the next great rise in the silicon surf.