UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 6-K

Report of Foreign Private Issuer Pursuant to Rule 13a-16 or 15d-16
of  the
Securities Exchange Act of 1934

March 4, 2008
Commission File Number: 333-142287

NXP B.V.

(Exact name of registrant as specified in charter)

The Netherlands
(Jurisdiction of  incorporation or organization)

60 High Tech Campus, 5656 AG, Eindhoven, The Netherlands
(Address of principal executive offices)

Name and address of person authorized to receive notices
and communications from the Securities and Exchange Commission

Dr. Jean A.W. Schreurs
60 High Tech Campus
5656 AG Eindhoven – The Netherlands

This report contains the annual report of NXP B.V. (the “Company”) for the fiscal year 2007, as furnished to the holders of the Company’s debt securities. This report also contains a copy of the press release entitled “NXP Semiconductors Announces Fourth Quarter and Full Year 2007 Results” dated March 4, 2008.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized at Eindhoven, on the 4th day of March 2008.

Forward-looking statements

This document includes forward-looking statements which include statements regarding our business strategy, financial condition, results of operations, and market data, as well as any other statements which are not historical facts. By their nature, forward-looking statements are subject to numerous factors, risks and uncertainties that could cause actual outcomes and results to be materially different from those projected. These factors, risks and uncertainties include the following: market demand and semiconductor industry conditions, our ability to successfully introduce new technologies and products, the demand for the goods into which our products are incorporated, our ability to generate sufficient cash or raise sufficient capital to meet both our debt service and research and development and capital investment requirements, our ability to accurately estimate demand and match our production capacity accordingly or obtain supplies from third-party producers, our access to production from third-party outsourcing partners, and any events that might affect their business or our relationship with them, our ability to secure adequate and timely supply of equipment and materials from suppliers, our ability to avoid operational problems and product defects and, if such issues were to arise, to rectify them quickly, our ability to form strategic partnerships and joint ventures and successfully cooperate with our alliance partners, our ability to win competitive bid selection processes to develop products for use in our customers’ equipment and products, our ability to successfully establish a brand identity, our ability to successfully hire and retain key management and senior product architects; and, our ability to maintain good relationships with our suppliers.

Contents

Except for any ongoing obligation to disclosure material information as required by the United States federal securities laws, we do not have any intention or obligation to update forward-looking statements after we distribute this document. In addition, this document contains information concerning the semiconductor industry, our market segments and business units generally, which is forward-looking in nature and is based on a variety of assumptions regarding the ways in which the semiconductor industry, our market segments and product areas will develop. We have based these assumptions on information currently available to us. If any one or more of these assumptions turn out to be incorrect, actual market results may differ from those predicted. While we do not know what impact any such differences may have on our business, if there are such differences, our future results of operations and financial condition, and the market price of the notes, could be materially adversely affected.

Use of non-US GAAP information

In presenting and discussing the NXP Semiconductors Group’s financial position, operating results and cash flows, management uses certain non-US GAAP financial measures. These non-US GAAP financial measures should not be viewed in isolation as alternatives to the equivalent US GAAP measure(s) and should be used in conjunction with the most directly comparable US GAAP measure(s). A discussion of non-US GAAP measures included in this document and a reconciliation of such measures to the most directly comparable US GAAP measure(s) are contained in this document in the chapter Reconciliation of non-US GAAP information.

Use of fair value measurements

In presenting the NXP Semiconductors Group’s financial position, fair values are used for the measurement of various items in accordance with the applicable accounting standards. These fair values are based on market prices, where available, and are obtained from sources that we consider to be reliable. Users are cautioned that these values are subject to change over time and are only valid as of the balance sheet date. When a readily determinable market value does not exist, we estimate fair values using valuation models which we believe are appropriate for their purpose. These require management to make significant assumptions with respect to future developments which are inherently uncertain and may therefore deviate from actual developments. In certain cases independent valuations are obtained to support management’s determination of fair values.

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Financial

all amounts in millions of euros unless otherwise stated

(1)          For a reconciliation to the most directly comparable US GAAP measures, see “Management discussion and analysis - Reconciliation of non-US GAAP information”.

(2)          Information on net debt and business’ equity of predecessor period is not meaningful.

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Letter from the CEO

NXP Semiconductors Annual Report 2007

Dear Stakeholder,

I am pleased to present the second Annual Report of NXP Semiconductors.

In our first full year of operation as an independent company, we have rigorously executed our business strategy. We continued shaping the future of our company by pruning our business portfolio and focusing our R&D activities on our key battle areas. In addition we made several strategic acquisitions, strengthening our market leadership positions. This has been realized amid weak market conditions and a strengthening of the Euro versus the US Dollar.

NXP energetically and rapidly executed on its improvement roadmap, as set by the Business Renewal Program. We progressed well with the implementation of our asset-light strategy and have consistently performed in line with the guidance on sales that we have provided during the year.

Looking back at 2007: Accelerated Business Renewal

Part of the 2007 Management Agenda was the continuation of our Business Renewal Strategy. The main elements for 2007 were:

·  To sustain the development of a high-performance organization staffed by inspired, talented people

·  To further lower our breakeven point

·  To continue to strive for greater operational excellence

·  To achieve more effective use of our assets.

·  To outperform market growth in our key focus areas.

·  To tighten our business portfolio management and create stronger, more insightful value propositions.

Let me address the achievements of the year 2007 per element:

Sustaining the development of a high-performance organization staffed by inspired, talented people

In the course of 2007, we strengthened our leadership with new appointments in the Executive Management Team: Christos Lagomichos, previously of STMicroelectronics, to lead the Home business unit and Marc Cetto, previously of Texas Instruments, to lead the Mobile & Personal business unit. We invested significantly in upgrading core competences and extending the talent base at various layers of the organization.

Further lowering our breakeven point

While market conditions have been difficult across the semiconductor industry, NXP has executed and accelerated its business strategy and made strong progress in reducing the cost base of its operations. We exceeded cost savings of EUR 100 million on a run rate basis by the end of 2007, we are on track with the various restructuring projects in Crolles, Boeblingen, Nijmegen, Cabuyao and Eindhoven, and the IT disentanglement from Philips has been materially completed. The sizeable savings from these actions will have continued impact in 2008.

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Continuing to strive for greater operational excellence

NXP’s drive for excellence is expressed in an on-going emphasis on effective manufacturing management leading to reduced costs, improved quality and higher levels of customer satisfaction. The manufacturing organization achieved an overall integral yield improvement of 2.2% compared to 2006. The weighted integral yield level reached an all-time high in December 2007.

Our on-going, successful Zero Defects Breakthrough Program continued to improve parts per million, complaint handling and the prevention of defective products from being shipped through improved design methodology, manufacturing quality and stringent testing procedures.

Additional Time-to-Market programs also helped speed up the introduction of competitive new products in line with the rhythm of our customers’ product creation schedules.

Achieving more effective use of our assets

Our continued asset-light strategy to manufacturing through partnerships not only reduces capital expenditure, but also enhances flexibility and Time-to-Market. It enables us to maintain more optimized loading in the fabs in spite of cyclical demands. We have delivered consistently on our asset-light strategy in 2007. In January 2007 we announced our exit from the Crolles2 Alliance, and the strengthening of our cooperation with TSMC to include advanced R&D in CMOS process technologies as well as a manufacturing partnership. The exit from the Crolles2 Alliance was completed by the end of 2007, at which time we also concluded the sale of our equipment at the Crolles facility. .We received payment of USD 129 million for the first tranche in December 2007 and a second payment is to follow in the middle of 2008. The closure of Boeblingen is on track to be completed in the 1^st half of 2008. In September 2007, NXP pioneered the asset-light strategy in assembly and test by means of bringing our assembly & test facility in Suzhou (China) in a joint venture with ASE of Taiwan. Overall in our operations, we saw an improved utilization from 70% in the 4^th quarter of last year to 84% in the 4^th quarter of 2007. In addition, as part of the MOOI (More Out Of Installed base) program, we realized an increase of capacity in 2007 of about 6.4% in wafer fabs and 8.5% in assembly and test.

Outperforming market growth in our key focus areas

NXP continues to be an innovation powerhouse. We maintained investment in R&D throughout 2007 at the level of EUR 970 million, and continued to focus on our growth areas in cellular phones, personal entertainment, home electronics, automotive, identification and multi-market semiconductors. We were rewarded with new design wins, for example in the area of DTV with leading TV OEM brands. Two European car-makers designed-in our latest Flexray product, we had a rear seat Entertainment design-win with a major US car maker and a 3G design-win with Samsung, demonstrating the growing confidence of our key customers.

We are proud of our innovative products: the world’s first TD-SCDMA HSDPA/EDGE multi-mode mobile phone architecture as showcased with Samsung and T3G; the highly integrated, single-chip multimedia solution for ULC+ ; the new Slingmedia Slingcatcher Set-Top Box that we power; PNX5100, the world’s best-in-class video postprocessor IC for HD TV picture improvement ; our multi-standard digital terrestrial radio solution for high-quality analog and digital radio for in-car anywhere in the world and the GreenChip Power Chipset for highly efficient desktops and power supplies with 85% efficiency.

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Tightening our business portfolio management and creating stronger, more insightful value propositions

Conscious of the need to raise effectiveness of our R&D investments as a means to accelerate sales growth, we have revamped our R&D programs for the next three years through our ‘Roadmapping for Leadership’ program. The objective is to focus our resources on clearly identified areas in terms of growth and profitability. In these areas we have started to accelerate the launch of ground-breaking products that optimally match the needs of our customers. As a consequence, NXP stepped up investments in 27 product areas, maintained current spending levels in 25, right-sized spending in 6, and reduced R&D investments in 12 product areas. With these moves we have shifted  more than EUR 100 million R&D investments to more promising areas.

To further strengthen our product portfolio, we have acquired the Cellular Communications business of Silicon Laboratories, Sharp’s BlueStreak ARM-based microcontroller business and Glonav. These acquisitions were active steps towards extending our leading edge in technologies and building market leadership positions in our key battle areas. These were very well received by our customers and we were already able to record the first additional design wins in the second half of 2007.

In line with our ambition to focus, we divested our Cordless & VoIP Terminal operations to DSP Group.

Financial performance in 2007

Full year 2007 sales totaled EUR 4,629 million, compared to EUR 4,960 million in 2006, representing a comparable increase of 1.4%. In 2007 we saw strong growth in the Mobile & Personal (13.8%) and Automotive & Identification (8.8%) business units, while MultiMarket Semiconductors (-0.7%) was performing more or less in line with the market. Home was strongly affected by the fast deterioration of analog CRT TV (-20.4%).

Full year Adjusted EBITA amounted to EUR 212 million compared to EUR 324 million in 2006, bringing our EBITA margin from 6.5% in 2006 to 4.6% in 2007. Full year Adjusted EBITDA for the year was EUR 749 million (16.2%).

Our performance in 2007 took place against a backdrop of the Euro strengthening against the US Dollar. Currency movements had a negative effect of 5.8% on our sales figures compared to last year. From an operational point of view we are long in US dollars as more of our sales, rather than costs, are dollar related. As a consequence our operational performance is strongly challenged by the weakening dollar. The closure of Boeblingen and the exit from the Crolles2 Alliance will help to partially mitigate this currency exposure, as will the focus on increased outsourcing through our asset-light strategy. We have chosen a capital structure where our debt is largely denominated in dollars to provide a partial hedge. The impact is visible in the income statement under Financial Income and Expenses. Starting 2008, we will switch our reporting currency to US dollars in order to be more aligned with the semiconductor market.

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Management Agenda 2008

Our strategy of a highly focused approach to create leadership positions in specific attractive key markets, together with the effects of an accelerated Business Renewal Program implementation is paying off. Despite the setback of a weak semiconductor market and the weak US dollar, we believe we are on track. We will carry our plan forward assertively as we accelerate growth and transform into an agile lean company.

To achieve our longer term aspirations, our management agenda for 2008 focuses on:

Strengthening the operations:

·                  Raise the high performance culture and talent base

·                  Exceed the EUR 250 million of cost savings on a run rate basis by the end of 2008

·                  Drive operational excellence in all processes

Pursuing profitable growth:

·                  Execute the Roadmapping for Leadership products and introduce value added products to gain share of wallet with key customers

·                  Improve gross margins of our products

·                  Grow sales and market share

Preparing for strategic and transformational moves:

·                  Prepare for M&A transactions: NXP intends as mentioned before to play an active role in the industry consolidation.

We are taking swift action to execute on our strategy. The signing of the Memorandum of Understanding to combine our can tuner modules operations with Thomson in a joint venture in February of 2008 is again an example of this approach. By combining these operations, NXP and Thomson create a business that has the scale and focus to be a long-term winner in the can tuner modules market.

Thank you

As an increasingly close-knit, committed team, we look forward to taking our company to new levels of performance, by taking on the challenges and enjoying the rewards that arise from the opportunities we create and realize for ourselves.

I’d like to offer sincere thanks to all employees of NXP for their engagement and dedication, and to all of our partners and other stakeholders for their support. Above all, I would like to express my thanks to our customers, with the wish for our continued excellent collaboration and shared successes in the future.

Frans van Houten

President and CEO NXP Semiconductors

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Information on the NXP Group

Structure

NXP B.V. (the ‘Company’ or ‘NXP’) is the parent company of the NXP Group (the ‘NXP Group’ or the ‘Group’). The NXP Group in its current form was established on September 29, 2006, when Koninklijke Philips Electronics N.V. (‘Philips’) sold 80.1% of its semiconductors businesses to a consortium of private equity investors in a multi-step transaction. In order to carry out this transaction, Philips transferred 100% of these businesses to NXP on September 28, 2006. All of our issued and outstanding shares were then acquired on September 29, 2006 by KASLION Acquisition B.V., which was formed as an acquisition vehicle by the private equity consortium and Philips.

Under the chairmanship of the CEO, the Board of Management is entrusted with the general management of the Company, including setting its strategy and policies.  The Board of Management, whose members are appointed and dismissed by the General Meeting of Shareholders upon proposal by the Supervisory Board, and which is embedded in NXP’s Executive Management Team (‘EMT’), is accountable to our Supervisory Board and to our general meeting of shareholders. The EMT is responsible for the deployment of the Company’s strategy and policies and the achievement of its objectives and results, ensuring business matters and practices are shared across our business. Major decisions of the Board of Management require the approval of the Supervisory Board, including decisions relating to the Company’s operational and financial objectives and the strategies it uses to achieve those objectives.

Effective January 1, 2008, the Company implemented a revised corporate governance structure. In order to simplify and increase the efficiency, the Board of Management and EMT are effectively co-joined into one management layer. The EMT is the executive management layer where the organization matrix comes together, where the Business Units, the core processes and the support functions act as one team together to lead our Company. In the new set up, some members of the EMT continue to carry - next to their normal EMT duties - the responsibility as formal Board members with fiduciary duties as per Dutch company law.

This Annual Report contains:

·        the consolidated financial statements of NXP B.V. based on US GAAP,

·        the consolidated financial statements of NXP B.V. based on IFRS as endorsed by the E.U., and

·        the statutory financial statements of NXP B.V., using IFRS accounting principles as endorsed by the E.U. in accordance with Part 9 of Book 2 of the Netherlands Civil Code.

Business overview

The NXP Group is one of the world’s largest semiconductor companies. With total sales of approximately EUR 4.6 billion in 2007, it ranks among the world’s top ten semiconductor providers and among the top three suppliers of application-specific semiconductors. With over 50 years of operating history, we are also one of the longest established companies in our industry. Our business targets the home electronics, mobile communications, personal entertainment, and automotive and identification application markets. Within these markets, we provide a diversified range of application-specific semiconductors, including system solutions, and semiconductor components. We also have a strong multi-market products business, which provides our customers with general purpose semiconductor components, including transistors and diodes, general purpose logic and power discretes as well as an array of application specific standard products.

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Strategy

Our vision is to be a leading semiconductor supplier in a world where consumers connect to information, entertainment and services through electronic devices containing our system solutions.  We aspire to be industry leaders in the markets for our Mobile & Personal, Home, Automotive & Identification and MultiMarket Semiconductors business units, and to continue to grow revenue, profitability and cash flow.  In order to meet these goals, we have adopted the strategies described below:

·        Build on our market leadership positions.

We believe that our market leadership positions, extensive patent portfolio and strong research and development organization provide us with a strong foundation from which to gain additional market share in our targeted markets. We intend to build on this foundation by continuing to invest in our product portfolio, with a focus on innovations in more profitable and faster growing segments. We look to exploit our strengths in connected consumer markets, particularly in home, personal entertainment and mobile communication and in automotive and identification applications. We aim to extend our competitive advantage by offering differentiated system solutions that leverage our broad range of competencies. We believe that industry consolidation will take place in the coming years and we intend to play an active role in this process using strict criteria for return on investment and financial discipline.

·        Deepen the relationships with our key customers.

We intend to increase our share of the semiconductors demand of our customers, with a particular focus on our top 50 customers. To realize this objective, we deploy our sales and marketing resources to target and support these top customers effectively. We have created dedicated account teams that work across regions in order to better accommodate our customers’ increasing geographical diversity. We seek to deepen our customer relationships by continuing to provide high value system solutions and by increasing the amount of design work that we conduct jointly with our customers.

·        Improve operational excellence.

Our Business Renewal Program is a comprehensive multi-year performance improvement program intended to drive revenue growth and increase profitability.  As part of this program, we look to reduce costs in manufacturing, selling, general and administrative activities, increase our effectiveness in research and development, and improve our organizational efficiency, manufacturing and supply chain performance, time-to-market of new products, product quality, customer service and attain market leadership positions in our product portfolio.

·        Extend our asset-light manufacturing strategy.

We continue to pursue our asset-light manufacturing strategy.  Over the next years, we expect to significantly increase the portion of our semiconductor wafer production that is outsourced.  For assembly and test processes, we expect to maintain a major part internally, as we believe that our in-house facilities are highly competitive in terms of quality and cost.  We believe that our asset-light strategy will further reduce the fixed component of our cost structure, increase our return on invested capital and improve our operational flexibility throughout the industry cycle, while also ensuring our continued access to world-class manufacturing capacity and leading-edge process technology.

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Business activities

The products sold by our four business units encompass two categories. The first category consists of highly differentiated application-specific semiconductors and system solutions. Our Mobile & Personal, Home and Automotive & Identification business units primarily sell products in this category. The profitability of these products depends to a significant degree on our ability to innovate and develop new technologies and customer solutions.

The second of our product categories consists of standard products, which are devices that can be incorporated in many different types of electronic equipment and which are typically sold to a wide variety of customers, both directly and through distributors. Our MultiMarket Semiconductors business unit carries a large range of standard products and application specific standard products, the profitability of which is driven by manufacturing cost, supply chain efficiency and continuous improvement of manufacturing processes.

Across our business units, we leverage both our knowledge of the consumer and our technical expertise in the areas of audio, video, radio frequency communications, power management and security technologies to create and deliver semiconductor solutions for the connected consumer.

Business Units

Mobile & Personal

Our Mobile & Personal business unit provides application-specific semiconductors, selected components and complete system solutions applied in mobile and portable devices, such as cellular handsets and portable media players.

We have a leading position in cellular system solutions, especially for EDGE, TD-SCDMA (Chinese 3G technology) and UMA (Unlicensed Mobile Access), a world-class RF CMOS, baseband, power management and system integration expertise. We recently announced a major technological innovation in the transition from 3G to 4G, bringing Software Defined Radio (SDR) technology into mobile handsets with the use of Embedded Vector Processing (EVP).

Our stand-alone and combination products are based on Bluetooth, FM radio, USB, UWB and Nexperia. Multimedia solutions for audio and video for cellular phones and cellular accessories are also part of our strategic focus on the devices and technologies that we expect to gain increasing importance as voice and multimedia capabilities converge in the mobile market.

In March 2007 we acquired the Cellular Communications business of Silicon Laboratories Inc. to strengthen our position in RF and monolithic cellular system solutions, and in September 2007 we sold our Cordless & VoIP Terminal operations to the DSP Group, Inc. (DSPG). We obtained approximately 13% shareholding in DSPG, following the divestment.

The convergence of cellular handsets and portable entertainment devices is creating demand for solutions enabling the delivery of multimedia content over wireless networks.  As a result, multimedia handsets incorporate increasing functionality, including application processing, video processing, wireless connectivity, and other technologies.

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Our revenue and operating results are affected by seasonality, with sales historically strongest in the second half of the year. The seasonality of our sales reflects the demand fluctuations of products such as wireless and consumer electronics that have stronger sales later in the year as manufacturers prepare for the holiday selling season.

Our key customers in Mobile & Personal include Apple, Nokia, Samsung, Sony Ericsson and VTech.

Home

Our Home business unit provides system solutions for Analog TV (ATV), Digital TV (DTV), Set-top boxes (STB) and PC-TV application markets, as well as related semiconductor components for a broad range of consumer products.

The DTV semiconductor market in particular is expected to grow significantly as a result of further product integration and expanding digital TV market. Our total system solutions for the DTV application market positions us well to benefit from this growth. Part of the growth in the digital markets is driven by government mandates requiring the inclusion of a digital tuner in every new television, e.g. the 2005 FCC tuner mandate in the United States.

The ATV semiconductor market is expected to decline further, and we expect to maintain our leading market position.

Our industry is largely focused on the consumer products market. Typically we experience seasonally higher sales in the second half of the year, in line with the higher demand for consumer products experienced by our customers during that time.

Our key customers in Home include LG Electronics, Sony, Sharp, Philips and Dell.

Automotive & Identification

The Automotive & Identification business unit provides system solutions and semiconductor components for the automotive and identification application markets.

Our automotive business focuses on the markets for Car Entertainment and Safety & Comfort. These markets have grown consistently and at a higher rate over the recent years than the overall semiconductor market, despite relatively slow growth in the sales of automobiles. This is due to the increasing prevalence of semiconductor devices within vehicles, which in turn has been the result of the further integration of consumer electronics in cars, an increasing focus on consumer safety and comfort and the replacement of mechanical devices with semiconductors.

The emergence of more integrated, “smart” safety and security systems, which utilize combinations of sensors, in-vehicle networks, micro controllers and power management components, favor a broad automotive portfolio such as the product lines we currently maintain.

We believe that significant barriers to enter in the automobile market, such as long product lifecycles and zero-defect requirements of automotive manufacturers, give us a competitive advantage. Governmental regulations like car safety obligations (such as tire pressure monitoring in the US) and new governmental road tolling developments have positive effects on our business as this requires increasingly advanced products.

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In the above applications and segments we are working closely with the leading automotive first^-tier suppliers and selected OEMs to further strengthen our leading positions in applications for car radio, car access & immobilizers and in-vehicle networking.

Our identification business plays an important role in creating the markets for Radio Frequency Identification (RFID), eGovernment and Near-Field Communication (NFC) technologies. The primary factors driving growth are new governmental requirements for secure identity documents, the increasing prevalence of cashless transactions and more sophisticated supply chain management models.

In 2007 we introduced our second generation RFID tags, which were well received in the market, and in NFC we changed to the single wire protocol.

Our MIFARE automatic fare collection products are used in a growing number of cities around the world. In September 2007, we formed the Moversa joint venture together with Sony to combine the Felica and Mifare standards in one chip, allowing electronic access to payment and other functionality across the world.

We focus on sophisticated and high-margin areas of the identification market, allowing differentiation in contactless performance, security and packaging. In smart cards, we have elected not to participate in the largely commoditized segments of the SIM and banking card market, but have emphasized instead the high-security, higher value-added segments.

Our key customers in Automotive & Identification include Bosch, Bundesdruckerei, Continental (including former Siemens VDO), Gemalto, G&D, Oberthur Card Systems, Smartrac, Sony and Visteon.

MultiMarket Semiconductors

Our MultiMarket Semiconductors business unit supplies a broad range of standard products and a wide range of application-specific standard products. The standard product offering includes small signal diodes, medium power rectifiers and protection devices, BISS and RET transistors, complex discretes and ESD protection devices, Bipolar power transistors, diodes, triacs and MOSFETs and General Purpose logic devices.

Differentiation in the market for standard products is achieved through portfolio, product performance, availability, customer service and costs.

MultiMarket Semiconductors also has a wide range of application-specific standard products including 8 and 32 bit microcontrollers, ARM and 8051 based, radio frequency devices for power, satellite tuners and Cable television, analog-to-digital and digital-to-analog data converters for mid and high end applications, power management devices for lighting and power control and interface products, clocks, watches and graphic devices.

The business unit has its own manufacturing and assembly & test sites. Integrated circuit components marketed and sold by MultiMarket Semiconductors are produced within the IC Manufacturing Operations business.

MultiMarket Semiconductors includes Jilin NXP Semiconductor Ltd. (JNS), a joint venture based in China which we operate jointly with Jilin Sino-Microelectronics Co. Ltd. We currently hold a 60% ownership interest in JNS. JNS was founded in 2003 and manufactures bipolar discrete power products.

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Our revenue and operating results are affected by seasonality, with sales historically strongest in the last quarter of the year.

A large part of sales of standard products flow through distribution channels, accounting for about 58% of the total MultiMarket sales. The main distributors are Arrow, Avnet, Future, SAC and WPI.  Original Equipment Manufacturers account for 35% of sales, the main customers are Bosch, Continental, Nokia, Philips and Siemens.

IC Manufacturing Operations (IMO)

The IMO segment serves as the central source for our integrated circuit manufacturing, test and packaging for the business units. The integration of our IC manufacturing operations across our business units permits us to reduce the volatility in production demand that would result from independent operations.

Manufacturing and Materials

The manufacturing of a semiconductor involves several phases of production, which can be broadly divided into ‘front-end’ and ‘back-end’ processes. Front-end processes take place at highly complex wafer manufacturing facilities (‘wafer fabs’), and involve the imprinting of substrate silicon wafers with the precise circuitry required for semiconductors to function. The front-end production cycle requires high levels of precision and involves as many as 300 process steps. Back-end processes involve the assembly, test and packaging of semiconductors in a form suitable for distribution. In contrast to the highly complex front-end process, back-end processing is generally less complicated, and as a result we tend to determine the location of our back-end facilities based more on cost factors than on technical considerations.

Our front-end manufacturing facilities use a broad range of production processes and proprietary design methods, including complementary metal on silicon oxide semiconductor (CMOS), bipolar, bipolar CMOS (BiCMOS) and double-diffused metal on silicon oxide semiconductor (DMOS) technologies. Our wafer fabs produce semiconductors with line widths ranging from 140 nanometers to 3 microns for integrated circuits and 0.5 microns to greater than 4 microns for discretes. This broad technology portfolio enables us to meet increasing demands from customers for system solutions, which require a variety of technologies.

Our back-end manufacturing facilities test and package many different types of products using a wide variety of processes. To optimize flexibility we use shared technology platforms for our back-end assembly operations.

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The following table shows selected key information with respect to our major front-end and back-end facilities.

(1)          The manufacturing facility in Boeblingen will be closed by the end of the first quarter of 2008.

(2)          We are entitled to 61.2% of SSMC’s annual capacity.

(3)          Part of production of Cabuyao was transferred to Calamba.

(4)          We are entitled to 60% of JNS’s annual capacity.

Effective December 31, 2007, we discontinued our participation in Crolles.

Our most important raw materials are the raw, or substrate, silicon wafers we use to make our semiconductors. We purchase these wafers, which must meet exact specifications from the same limited number of suppliers that the rest of the industry uses. At our fully-owned fabrication plants, we use raw wafers ranging from 4 inches to 8 inches in size, while our joint-venture plants use wafers ranging from 5 inches to 8 inches. Emerging fabrication technologies employ larger wafer sizes and accordingly we expect that our production requirements in future will shift towards larger substrate wafers.

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Recently, an increase in demand for solar panels, which are manufactured using the same polycrystalline silicon used in substrate wafers, has led to a decline in the worldwide supply of wafers, although we do not expect to experience any shortages. While incremental price increases may result from this development, we do not believe the impact will be material.

We typically source our other raw materials in a similar fashion as our wafers, although our portfolio of suppliers is more diverse. We purchase most of our raw materials on the basis of fixed-price contracts but generally do not commit ourselves to long-term purchase obligations, which permits us to renegotiate prices periodically.

The majority of our production is currently fulfilled at our in-house facilities. However, as part of our asset-light strategy, we intend to significantly increase the portion of our front-end wafer production that is outsourced or conducted through joint venture operations. IMO also manages the outsourcing to third party foundries and assembly and test subcontractors.

Our IMO segment includes Systems on Silicon Manufacturing Co. Pte. Ltd. (SSMC), in which we currently hold a 61.2% ownership and TSMC the remainder. SSMC is one of the larger eight-inch CMOS wafer fabs in the industry using process technologies to make wafers with line widths down to 140 nanometers. The SSMC CMOS capability allows us to jointly develop and share technological advances with TSMC.

In our back-end we entered into a joint venture with ASE in Suzhou (ASEN), in which we currently hold 40%.

Other Business Activities

Certain business activities are reported outside of our primary business units, and are accounted for in the “Corporate and Other” reporting segment. These include:

IP Licensing

We license and cross-license our intellectual property to semiconductor companies and other technology firms.  Apart from the revenues these licensing activities generate, we also view active intellectual property licensing as an important means to promote our businesses and technologies.  Our cross-licensing activities are typically conducted with other large semiconductor companies, who have resources and research and development activities similar to ours.

Software Solutions

Our Software Solutions business develops audio and video multimedia solutions that enable mobile device manufacturers to produce differentiated hand-held products that enhance the end-user experience. Its software has been incorporated into over 100 million mobile devices produced by the world’s leading mobile device manufacturers.  Software Solutions is particularly focused on partnerships with the top OEM handset manufacturers, as well as on specific integrated circuit-based products.

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Global Sales and Marketing

We market and sell our products worldwide to a variety of OEMs, original design manufacturers, contract manufacturers and distributors. We focus on generating demand for our products by adding value to our customers and leveraging our long-standing customer relationships and providing high quality customer support.

Our sales and marketing teams in each sales region (Europe, the Americas, Greater China and Asia Pacific) are responsible for managing the global key accounts, headquartered in that particular region, as well as for managing regional sales to other accounts.

Marketing, channel management, alliance and partnership management, and support operations are globally managed from our headquarters in Eindhoven, the Netherlands. Our sales and marketing strategy focuses on adding value to our customers, building lasting relationships with them and becoming their preferred supplier.

Research & Development

Our research and development activities are critical to our success.  We conduct product-specific development and differentiating system and process technology research. Our product-specific research and development is aligned with our four business units, and constitutes the majority of our research and development expenditures. Our centralized system and process technology research aims to develop improved manufacturing technologies to be utilized by our business units. Process-related research is conducted with TSMC in our joint Research Center in Leuven, Belgium.

Environmental Regulation

In each jurisdiction in which we operate, we are subject to many environmental, health and safety laws and regulations, which govern, among other things, emissions of pollutants into the air, wastewater discharges, the use and handling of hazardous substances, waste disposal, the investigation and remediation of soil and ground water contamination and the health and safety of our employees. We are also required to obtain environmental permits from governmental authorities for certain of our operations.

As other companies engaged in similar activities or that own or operate real property, we face inherent risks of environmental liability at our current and historical manufacturing facilities. Certain environmental laws impose liability on current or previous owners or operators of real property for the cost of removal or remediation of hazardous substances. Certain of these laws also assess liability on persons who arrange for hazardous substances to be sent to disposal or treatment facilities when such facilities are found to be contaminated. Soil and groundwater contamination has been identified at some of our current and former properties resulting from historical, ongoing or third party activities. As a result, we are currently in the process of investigating and remediating contamination at some of our current and former facilities.

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Significant acquisitions and divestments

2007

In March 2007, we completed the acquisition of the Cellular Communications business of Silicon Laboratories Inc., a leader in Radio Frequency technology for mobile phones. As from the acquisition date it is consolidated within Mobile & Personal.

In September 2007, we completed the divestment of the Cordless & VoIP Terminal operations from our Mobile & Personal business unit to DSP Group Inc.

2006

In November 2006, the Company’s option to purchase additional outstanding stock of the Singapore-based Systems on Silicon Manufacturing Company (SSMC) was fully exercised. An incremental 10.7% SSMC shares were acquired from the Economic Development Board (EDB), increasing the Company’s equity interest to 61.2%.

2005

In 2005, additional shares in SSMC were acquired as a result of which the shareholding in SSMC increased from 48% to 50.5%.

In 2006 and 2005 there were no material divestments.

Alliances and investments

Apart from Jilin NXP Semiconductor Ltd. (JNS) and Systems on Silicon Manufacturing Co. Pte. Ltd. (SSMC), which are consolidated and described in previous sections, we participate in the following alliances:

Advanced Semiconductor Manufacturing Company

We established the Advanced Semiconductor Manufacturing Company (ASMC) in Shanghai in 1995 together with a number of Chinese joint venture partners.  ASMC currently operates three wafer fabs, producing five-, six- and eight-inch wafers of primarily analog integrated circuits with line widths in the 0.35 to 3 micron range using CMOS and bipolar process technologies. We currently own approximately 27% of the outstanding shares of ASMC, which are listed on the Hong Kong Stock Exchange.

ASEN

Together with Advanced Semiconductor Engineering Inc. (ASE) we established an assembly and test joint venture (ASEN) in September 2007. ASEN is jointly owned by ASE (60%) and NXP (40%). ASEN is positioned to serve the global semiconductor assembly and test market and initially focuses on mobile communications; it is expected to expand into other segments in the future.

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DSPG

Following the divestment of our Cordless & VoIP Terminal operations in September 2007, we obtained approximately 13% of DSP Group Inc.’s (DSPG) outstanding common stock and had an NXP nominee appointed to DSPG’s board of directors.  DSPG is a fabless semiconductor company, offering advanced chip-set solutions for a variety of applications. Shares of DSPG are listed on the NASDAQ in the USA.

Moversa

Moversa, established as a joint venture with Sony Corporation in November 2007, drives global adoption of contactless smart card applications in mobile phones using Near Field Communication (NFC). It incorporates both MIFARE and FeliCa™ operating systems and applications, two of the most widely installed contactless smart card technologies in the world. Both parties hold a 50% interest in the joint venture, which is headquartered in Vienna, Austria.

T3G

In January 2003, Datang Mobile, Philips Semiconductors and Samsung Electronics formed a joint venture, T3G Technology Co. Ltd., to design and license system solutions for mobile devices. In January 2005, Motorola joined as a partner. NXP, as Philips’ successor, currently has a 42.7% interest in T3G. The cooperation combines NXP’s cutting edge semiconductor design and process capability, Datang’s TD-SCDMA expertise and Samsung’s and Motorola’s leadership in mobile handset creation. TD-SCDMA is a China based 3G standard, strongly supported by the Chinese government. We expect this support will ensure the successful adoption of TD-SCDMA as one of the 3G standards in China, the world’s largest market for mobile phones.

Crolles2 Alliance

As of December 31, 2007, we terminated our cooperation in the Crolles research and manufacturing alliance, with ST Microelectronics and Freescale. In December 2007 we sold our equipment at the Crolles facility, which mainly comprised tools for research & development and pilot manufacturing. Transfer of ownership of the equipment and the related payments occur in two equal tranches at the end of 2007 and mid 2008.

Software partnerships

In addition to manufacturing and process technology research, we leverage strategic partnerships to develop software for our products. As our market focus turns increasingly towards system solutions, software is playing a critical role in determining our competitiveness. By partnering with independent software developers, we gain the benefit of industry-leading expertise and quality levels with respect to the software which operates on our products. In return, our partners, who currently include approximately 100 software companies, gain a platform with which to align their software.

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Management discussion and analysis

Basis of presentation

The discussion and analysis of the financial results and condition of NXP Semiconductors Group is based on the audited US GAAP financial statements of the Company for the year ended December 31, 2005, the period from January 1, 2006 through September 28, 2006 (Predecessor), the period from September 29, 2006 through December 31, 2006and the year ended December 31, 2007 (Successor).  This discussion should be read in conjunction with those audited financial statements, which have been included in this Annual Report.

On September 29, 2006, Koninklijke Philips Electronics N.V. (“Philips”) sold 80.1% of its Semiconductors business to a consortium of private equity investors (the “Consortium”) in a multi-step transaction. In order to carry out this transaction, Philips transferred 100% of these businesses to NXP on September 28, 2006 (the “Separation”). All of our issued and outstanding shares were then acquired on September 29, 2006 by KASLION Acquisition B.V. (“KASLION”), which was formed as an acquisition vehicle by the Consortium and Philips. We refer to our acquisition by KASLION as the “Acquisition”.

As a result of the Separation and Acquisition, the accompanying combined and consolidated balance sheets and statements of operations, cash flows and business’ and shareholder’s equity are presented on two different bases: Predecessor and Successor, which relate to periods preceding the Acquisition and periods from and after the Acquisition, respectively. The basis of accounting for the Predecessor is different than that for the Successor, since the consolidated financial statements of the Successor are affected by the purchase accounting applied to the Acquisition, which requires that all assets and liabilities be recorded at fair value. Furthermore, the combined financial statements for the Predecessor have been derived from the consolidated financial statements and accounting records of Philips, principally the historical results of operations and basis of assets and liabilities of Philips’ Semiconductors businesses. The results for those periods include an allocation of the costs of certain corporate functions or expenses, historically provided or incurred by Philips, which allocations are made on a specifically identifiable basis, or other basis considered reasonable. The consolidated financial statements of the Successor represent actual costs incurred after the Acquisition as a stand-alone company. The costs allocated to the Predecessor are not always comparable to the actual costs incurred by the Successor.

Notwithstanding the difference in the basis of accounting between the Successor and Predecessor described above, we have prepared our discussion of the results of operations for the year ended December 31, 2006 based on the arithmetical combination of these results for each of the periods January 1, 2006 through September 28, 2006 (Predecessor) and September 29, 2006 through December 31, 2006 (Successor), since we believe this provides the most meaningful comparison with the previous and subsequent years’ results. Because our accounting basis changed upon the Acquisition, however, the presentation of the combined results of our Predecessor and Successor periods during 2006 does not comply with US GAAP and has not been audited. Where relevant, we have described the impact on our results of the purchase accounting used in connection with the Acquisition and subsequent  acquisitions and divestments (see “Effect of Purchase Accounting”, below) and have also provided 2006 and 2007 financial results as adjusted to eliminate the impact of these accounting effects (“Purchase Price Adjustments”, or “PPA”).

We have also described the impact of cost allocations to the Predecessor and the actual stand-alone costs of the Successor, where relevant to the analysis.

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Use of certain non-US GAAP financial measures

The following non-US GAAP financial measures are presented in the discussion because they are used by management in evaluating the performance of the Company and its reporting segments or because management believes the measure provides investors with useful information about the Company’s financial results.

Comparable Growth

This reflects the relative change in sales between periods adjusted for the effects of foreign currency exchange rate changes, material acquisitions and divestments (consolidation changes) and reclassified product lines. Management believes that an understanding of sales performance is enhanced after these effects are excluded.  Where presented, ‘nominal growth’ represents the relative changes in sales between periods, including these effects. Sales are translated from foreign currencies into the Company’s reporting currency, the euro, at the exchange rate on transaction dates during the respective years.

Earnings before Interest, Tax and Amortization (EBITA)

EBITA represents net income excluding income taxes, financial income and expenses and amortization of intangible assets. EBITA is used by management to evaluate the group performance of the Company, since it believes that using EBITA facilitates the comparison between periods of the underlying performance of our business.

Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA)

EBITDA represents net income excluding income taxes, financial income and expenses and amortization and depreciation. EBITDA is used by management to evaluate the group performance of the Company, since it believes that using EBITDA facilitates the comparison between periods of the underlying performance of our business.

Adjusted EBITA

Adjusted EBITA refers to EBITA adjusted for incidental items such as restructuring, litigation, IT disentanglement costs, exit of product lines, other non operations-related items and the remaining effects of purchase price accounting (PPA). Management uses Adjusted EBITA to evaluate the group performance of the Company and to make comparisons over different fiscal periods, since it eliminates the effect of certain items management deems less relevant to the continuing operations of the Company.

Adjusted EBITDA

Adjusted EBITDA refers to EBITDA adjusted for incidental items such as restructuring, litigation, IT disentanglement costs, exit of product lines, other non operations-related items and the remaining effects of purchase price accounting (PPA). Management uses Adjusted EBITDA to evaluate the group performance of the Company and to make comparisons over different fiscal periods, since it eliminates the effect of certain items management deems less relevant to the continuing operations of the Company.

Adjusted IFO

Adjusted IFO refers to IFO adjusted for incidental items such as restructuring, litigation, IT disentanglement costs, exit of product lines, other non operations-related items and the effects of purchase price accounting (PPA). Adjusted IFO is used by management to evaluate the performance of the Company’s operating businesses.

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Cash flows before financing activities

Cash flows before financing activities, which are defined as the sum of net cash from operating activities and net cash from investing activities, are presented separately to facilitate investors’ understanding of the Company’s funding requirements.

Net debt : group equity ratio

The total net debt position as a percentage of the sum of total group equity (shareholder’s equity and minority interests) and net debt is presented as a measure, since Management considers this a measure of the Company’s solvency.

For a reconciliation of non-US GAAP financial measures to the nearest US GAAP financial measure, refer to “Reconciliation of non-US GAAP information”.

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Effect of purchase accounting

KASLION

Our Acquisition by KASLION has been accounted for using the purchase method.  Accordingly, the EUR 8,294 million purchase price has been “pushed down” to NXP and allocated to the fair value of assets acquired and liabilities assumed.

The net assets acquired and liabilities assumed of NXP, as of the Acquisition date, amounted to EUR 2,578 million, resulting in an excess of the purchase price over the net assets acquired of EUR 5,716 million. The excess of the purchase price over the net assets acquired was allocated as follows:

Identified technology-related intangible assets:

·      Existing technology with an aggregate estimated fair value of EUR 1,606 million and useful lives varying between 3 and 12 years;

·      In-process research & development with an aggregate estimated fair value of EUR 515 million, which was written off in full in the period immediately following the Acquisition and charged to R&D expenses;

·      Core technology with an aggregate estimated fair value of EUR 791 million and with useful lives varying between 8 and 12 years.

Identified customer-related intangible assets:

·      Customer relationships with an aggregate estimated fair value of EUR 592 million and with useful lives varying between 14 and 16 years;

·      Order backlog with an aggregate estimated fair value of EUR 47 million, which management believes to be firm and was realized over one year, ending September 2007.

Trademarks:

Trademarks with an aggregate estimated fair value of EUR 85 million, with useful lives of 5 years.

Property, plant and equipment and inventories:

·      Property, plant and equipment of EUR 429 million comprised of: Land (EUR 55 million), Buildings (EUR 204 million) and Machinery and Equipment (EUR 170 million);

·      Inventories of EUR 130 million.

Other, partly offsetting the above allocations, comprised of:

·      Deferred tax liabilities in respect of purchase price adjustments (EUR 799 million);

·      Pension liabilities (EUR 104 million);

·      Investments equity-accounted investees (EUR 10 million).

The EUR 2,434 million excess of the purchase price over the estimated fair value of the net assets acquired was allocated to goodwill.  In accordance with SFAS 142 (“Goodwill and other Intangible Assets”), goodwill is not amortized but will be tested for impairment at least annually.

The cumulative effect of this Purchase Accounting on our financial results is referred to as the ‘PPA effect’.

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Other acquisitions

In addition, Purchase Accounting is also applied to other acquisitions such as Silicon Laboratories Inc. and ASEN. ‘PPA effect’ includes the net effect of the purchase accounting applied to these transactions.

The above mentioned adjustments in fair values had an impact on income from operations of EUR 576 million (September 29, 2006 through December 31, 2006: EUR 790 million) due to increased amortization and depreciation charges. This was partly offset in net income by the tax effect on the purchase price adjustments amounting to EUR 180 million (September 29, 2006 through December 31, 2006: EUR 227 million).

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Management Summary

·      Full year sales at EUR 4,629 million, compared to EUR 4,960 million in 2006

·      Full year Adjusted EBITDA at EUR 749 million, compared to EUR 921 million in 2006

·      Full year Adjusted EBITA at EUR 212 million, compared to EUR 324 million in 2006

·      Cost savings from Business Renewal Program in 2007 exceed EUR 100 million on a run rate basis

Performance of the Group 2007 compared to 2006

The following table represents income elements for the year ended 2007 together with the combined period of January 1, 2006 through December 31, 2006.

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Total sales

Sales growth composition 2007 versus 2006

Total sales were EUR 4,629 million in 2007, compared to EUR 4,960 million for the combined period in 2006. NXP sales were affected by an unfavorable EUR/USD exchange rate and lower sales in Home, partly compensated by stronger sales in Automotive & Identification. Nominal sales decreased by 6.7% and on a comparable basis sales increased by 1.4%.

Gross margin

Gross margin declined from EUR 1,712 million in 2006 to EUR 1,490 million in 2007. Excluding PPA effects, gross margin declined from EUR 1,867 million in 2006 to EUR 1,592 million in 2007.  The decrease was caused by unfavorable incidental items of EUR 167 million, mainly related to restructuring costs. The restructuring costs relate to the exiting from the Crolles2 Alliance and the closure of Boeblingen. In 2006 EUR 65 million of incidental items was incurred.

Excluding incidental items for 2006 gross margin was 39% and for 2007 the gross margin was 38%. Price erosion and unfavorable product mix have been offset by higher utilization and better performance of our manufacturing facilities.

The PPA effects of EUR 102 million were related to depreciation of tangible fixed assets and write-off of inventories (EUR 155 million for 2006).

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Selling expenses

Selling expenses were EUR 312 million in 2007, compared to EUR 363 million in 2006. As a percentage of total sales, selling expenses, for 2007 were 6.7% compared to 7.3 % in 2006. The decrease of the selling expenses in 2007 was mainly caused by the consolidation of sales offices which resulted also in a more transparent cost structure. The 2007 selling expenses included restructuring charges of EUR 13 million (2006: EUR 11 million).

General and Administrative expenses

General and Administrative expenses (G&A), were EUR 870 million in 2007, compared to EUR 500 million in 2006. Excluding PPA effects, G&A amounted to EUR 407 million (8.8% of total sales) in 2007, compared to EUR 380 million (7.7% of total sales) in 2006.

This increase was mainly related to incidental items of EUR 71 million including amongst others IT disentanglement costs from Philips (EUR 55 million) and EUR 19 million for equity-based compensation. In 2006, standalone cost and restructuring charges of EUR 26 million were incurred. The Business Renewal Program partly offset higher additional G&A expenses in 2007.  Excluding the IT disentanglement and equity based compensation, the G&A as percentage of sales was 7.2% compared to 7.1% in 2006 on a comparable basis. PPA effects in 2007 amounted to EUR 463 million and were related to amortization of intangible assets (2006: EUR 120 million).

Research and Development expenses

Research and Development expenditures per sector

Excludes the write-off of acquired In-Process R&D of EUR 11 million in 2007 (2006: EUR 515 million).

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Research and development expenses were EUR 981 million in 2007, down from EUR 1,510 million in 2006. Excluding PPA effects, research and development expenses amounted to EUR 970 million (21.0% of total sales) for 2007, compared to EUR 995 million for 2006 (20.1% of total sales). The divestment of some of our product lines (including DVD-R, Power Amplifiers/Front End Modules, Large Display Driver and our Cordless & VoIP Terminal operations) freed up research and development resources which we have refocused on key battle areas in Mobile & Personal, especially 3G cellular systems, and Automotive & Identification. In 2007 restructuring charges of EUR 14 million are included for the rightsizing of the Home R&D organization and EUR 29 million for the exiting of the Crolles2 Alliance. In 2006 incidental items amounted to EUR 23 million.  PPA effects amounted to EUR 11 million in 2007 relating to the Cellular Communication Business of Silicon Laboratories Inc. (2006: EUR 515 million relating to the write-off of acquired In-process R&D).

Other income

Other business income was EUR 98 million for 2007, mainly related to the gain (EUR 87 million) from the sale of Cordless & VoIP Terminal operations. The remainder of other business income is attributable to gains from disposal of various tangible fixed assets. For 2006 other business income was EUR 21 million, reflecting the sale of property, release of litigation provisions and a settlement of a legal dispute with a supplier.

Restructuring and impairment charges

The following table presents restructuring and impairment charges by segment as included in income from operations:

Restructuring and impairment charges

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Income (loss) from operations (IFO)

Loss from operations was EUR 575 million in 2007, compared to a loss of EUR 640 million in 2006. Excluding the PPA effect of EUR 576 million, 2007 income from operations was a profit of EUR 1 million compared to EUR 150 million in 2006 (excluding the PPA effect of EUR 790 million).

Financial income and expenses

Financial income and expenses

Financial income and expenses amounted to a loss of EUR 133 million for 2007, consisting of net interest expenses of EUR 331 million, financing fees of EUR 8 million, and the net positive effect of exchange rate movement on our USD-denominated notes and cash position, which amounted to EUR 220 million. Also included are impairment losses of EUR 14 million reflecting the lower DSPG share price.

Financial income and expense in 2006 amounted to EUR 95 million, consisting of net interest expenses of EUR 98 million, financing costs of EUR 45 million, and the net positive effect of exchange rates on our USD-denominated notes of EUR 48 million.

Income tax benefit (expenses)

The income tax benefit in 2007 was EUR 274 million, compared to EUR 177 million in 2006. Excluding PPA effects the 2007 income tax benefit amounted to EUR 94 million in 2007 compared to expense of EUR 50 million in 2006. The tax benefit in 2007 corresponded to an effective tax rate of 38.7% on the pre-tax loss. The effective tax rate was mainly affected by non-taxable income of 5.9% and previous year changes of 4.9%, which were only partly offset by non tax deductible expenses (4.4%).

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Results relating to equity-accounted investees

Results relating to equity-accounted investees in 2007 showed a loss of EUR 27 million compared to a gain of EUR 1 million in 2006 and relate to our participations in Advanced Semiconductor Manufacturing Company and T3G.

The loss recorded for Advanced Semiconductor Manufacturing Company included an impairment charge of EUR 19 million, reflecting the lower share price value of ASMC at the end of December 2007.

Minority interests

The share of minority interests of a loss of EUR 34 million relate to our joint ventures SSMC (EUR 33 million) and Jilin (EUR 1 million). The minority interest in 2006 was a loss of EUR 52 million in SSMC and EUR 2 million in Jilin In November 2006 we increased our shareholding in SSMC from 50.5% to 61.2%.

Net income

Net income amounted to a loss of EUR 495 million in 2007 compared to a loss of EUR 611 million for the combined period 2006. Excluding PPA effects, the net income in 2007 was a loss of EUR 99 million (2006: a loss of EUR 48 million).

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EBITA/EBITDA

The following table presents certain income numbers related to NXP Group’s financial position for the full year 2007 together with the combined period of January 1, 2006 through December 31, 2006,

Adjusted EBITA

Adjusted EBITA for the full year 2007 was EUR 212 million, compared to EUR 324 million in the same period last year. This decrease was mainly related to the lower sales and negative currency effects of approximately EUR 90 million, partly offset by lower R&D, Selling and G& Aexpenses.

The adjustments made from 2007 EBITA of a loss of EUR 140 million (2006: a loss of EUR 34 million), to arrive at Adjusted EBITA of EUR 212 million (2006: EUR 324 million) consist of:

·                  PPA effects, mainly relating to depreciation property, plant and equipment of EUR 102 million (2006: EUR 155 million)

·                  minority interest and results of equity-accounted investees of EUR 61 million (2006: EUR 53 million)

·                  restructuring costs of EUR 159 million (2006: EUR 21 million)

·                  exit of product lines of EUR 13 million (2006: EUR 44 million)

·                  other items of EUR 17 million (2006: EUR 85 million), mainly consisting of litigation costs of EUR 4 million and IT disentanglement costs of EUR 55 million and the gain on the divestment of Cordless & VoIP Terminal operations EUR 87 million

Adjusted EBITDA

Adjusted EBITDA in 2007 was EUR 749 million, compared to EUR 921 million in the same period of last year.

The difference between EBITA and Adjusted EBITDA in 2007 is explained by depreciation costs of EUR 637 million, EUR 2 million PPA effects, minority interest and results of equity accounted investees of EUR 61 million, and identical incidental items for restructuring costs, exit of product lines and other items as included in 2007 EBITA adjustments.

In 2006 the difference between EBITA of a loss of EUR 34 million and Adjusted EBITDA of EUR 921 million comprised of depreciation costs of EUR 623 million, EUR 130 million PPA effects, minority interest and results of equity-accounted investees of EUR 53 million and incidental items amounting to EUR 149 million.

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Performance by segment 2007 compared to 2006

The following tables present total sales and income from operations by segment for the full year 2007 and 2006.

Total sales

Income (loss) from operations