It's great to see a real recovery in the market after three hard years. We have a strong order book and good factory utilization but-and I hate to be a gloom merchant-macroeconomic indicators still aren't great. I've heard predictions that growth will continue through to 2006, but I'm not so sure. Things are looking good, but how long will it last? No one knows. We're in an inherently unpredictable industry and the only way to deal with unpredictability is with flexibility.

One of the many changes Philips Semiconductors is making to become more flexible is to adopt a capital-efficient, flexible business model. Core to this model is our long-term aim to do 50 percent of our manufacturing through our joint-venture and third-party foundry partners. This will allow us to leverage the capabilities of first-class foundries while consuming less capital. With this capital-efficient model we gain better control of our internal fab loading through the cycles of our unpredictable industry. Such an approach will evolve our company from a rigid giant, with high fixed costs, to one with a more supple structure, able to adapt to changes in demand, on demand.

And this is just one of the activities we are adopting to reinforce our company against the ups and downs of the industry.

Flexibility is also central to the way we deliver semiconductor solutions to our customers. For example, there is a trend for our consumer and cellular-handset customers to use original design manufacturers (ODMs). So, products must be designed in a way that gives ODMs fast time-to-market and the flexibility to produce both high- and low-end products using the same architectures. The use of flexible architectures, such as Nexperia, enables customers to build strong yet adaptable technology solutions.

In a similar way, a customer-centric model that focuses on customer flexibility is also in the spotlight. Flexible architectures and ranges of connectivity models will take our customers' customers forward to a future where they can interact with technology as truly connected consumers.

We're no longer just in search of killer applications; we're in search of flexible, adaptable solutions that can be used as a basis for future technologies. The killer application is no longer just one application, it's about enabling consumers to do everything: have Internet connectivity, wireless portability and multimedia capabilities. Time-to-market is also key, so scalable architectures, ready for bolt-on up-to-the-minute technologies, are the way forward. The products now required by the market must have built-in flexibility that offers the scope for flexible implementation.

Part of that flexible implementation can be done via software, which plays a key role in enabling our customers to differentiate their products. This is a fundamental change, from standalone products that fit proprietary schemes to a world where people can choose products from different companies and know that they will interoperate seamlessly.

Scott McGregor, President and Chief Executive Officer, Philips Semiconductors, Eindhoven, Netherlands