We entered fiscal year 2000 with the wind of a robust analog business in our sails and with solid evidence that we are now well on our way to becoming the major supplier of electronics for the emerging Information Appliance market. All the pieces are in place and we feel extremely well positioned for a bright future.

Fiscal 1999 was marked by rough seas, and as we exited the year we also announced our intention to exit the market for personal computer processors. The sheer volume of this market was attractive and seemed to offer a good way to generate revenue while we prepared for the arrival of the Information Appliance market. But even though we successfully carved out a 5 percent share of the PC processor market, the ongoing investment to fight the battle was prohibitively expensive. We have chosen instead to concentrate on the primary strategy we have been developing for three years to put information appliance systems on a chip and to reinforce our focus on our core analog business, which accounted for almost 70 percent of our sales at year end.

It should come as no surprise that the analog business is so strong. It is analog that processes the "real world" signals such as sight, sound, heat and touch. As we move forward, information appliances will be differentiated, one from the other, by the pleasure of the user's experience. And better displays, better audio, and longer battery life are all delivered by the analog electronics inside these systems. National Semiconductor gave birth to the analog industry and we are extremely proud of our heritage and leadership position in this very important market.

Our analog group has put a great deal of energy into increasing the rate of new product launches, introducing 81 new analog products in the fourth quarter of fiscal 1999. In the same quarter, analog revenue generated by products launched within the last two years grew 25 percent over the third quarter. This year will see many more new analog product introductions.

The market for cordless and cellular telephones, which utilizes our RF and power management circuits, was extremely robust in 1999 and has carried that strength into the current year. Our "Top 10" customer list includes every one of the five leading suppliers of handsets for these markets. And we are a leading supplier of semiconductors that support all of the industry standards, including GSM, CDMA and the DECT cordless standard. We've leveraged our strength in this area to be a leading supplier in the Bluetooth™ personal communications market. Virtually all cellular phones will soon be equipped with this new technology that uses wireless networking to link phones with nearby computers and information appliances and create a "personal information bubble" that surrounds the user wherever he goes. As the new Third Generation of cellular phones emerges, we will have from $250 to $2,000 worth of our interface circuitry in the typical cellular base station.

While maintaining our analog leadership, we have also been predicting and preparing for the emergence of an information appliance market for several years. Our vision is that as we move from the "age of the computer" to the "age of information," people will want access to unlimited information – anywhere, anytime. The Information Appliance market is now becoming a reality. In May, we booked the first material orders from Philips for a set-top box that AOL will offer for AOL TV Web browsing, and we also announced our agreement to collaborate with Acer to develop additional set-top box applications.

In mid-July we announced the successful completion of the world's first Information Appliance on a single chip with the introduction of National Semiconductor's Geode™ family of products focusing on the Information Appliance market.

This first Geode product successfully integrates PC functionality plus video decompression into a single chip that is designed to deliver optimal Internet performance for the interactive set-top box market. It is based on the MediaGX™ x86-compatible processor, the part of Cyrix which we retained as the basic core of our Information Appliance focus.

National Semiconductor's Geode family of solutions offers manufacturers higher performance, lower power consumption, a smaller form factor and faster time to market, as well as reduced overall manufacturing costs.

Going forward, we will continue to combine our MediaGX core with our analog capabilities to integrate a variety of customized single-chip solutions with tailored feature sets for our targeted segments of the Information Appliance market: set-top boxes, thin client systems and personal access devices such as the WebPAD™ design we introduced in late 1998.

Lower prices have made PCs more affordable than ever before, but the PC hasn't become more usable by everyone. The majority of people want a way to access the Internet and the World Wide Web without the complexities and limitations of the PC. So the next step is for our industry to overcome the complexity barrier by making information access as simple as using the telephone.

These new communication devices are now becoming more and more defined by the way they access information, not by how they process information. The microprocessor and the "megahertz clockspeed" are no longer the differentiating factors. It's now how user friendly and user accessible the device is, whether it's a WebPAD, a cellular phone or a handheld personal computer. And remember – the pleasure of the user's experience comes from analog!

We believe our preparation for this day and our tremendous momentum in the analog business makes us clearly unique.

Thank you for your support of National Semiconductor.