The industry is beginning to recover from its steepest downturn ever, despite recent declines in the U.S. stock market. Most countries are emerging from financial doldrums caused both by the softening global economy and the lingering impact of 9/11. But something is radically different compared with past cycles and macroeconomic events.

After analyzing how semiconductor companies must now fund and run their businesses, it's clear that the old rules no longer apply. So, we are changing the rules at Motorola Semiconductor.

Everywhere you look, the need to do so is evident. Consider the capital crunch. It's being driven by fabs with $3.5 billion price tags and quarter-billion-dollar investments for each node along the way to smaller, submicron geometries. Time-to-money requirements continue to shrink, as do product life cycles. Customers demand complete, system-on-chip silicon solutions packaged with rich, sophisticated software.

The industry's cyclical nature will continue to increase financial risks for all players. This heightens the need for partnerships and joint ventures to create and access R&D and manufacturing resources more cost-effectively, and to achieve profitable growth.

We're well along in implementing key elements of our new business model, shaped to address the radically changing industry environment. Since January, for example, we have signed up six merchant-market customers, in addition to Motorola PCS, to use our silicon-to-software 2.5G or 3G Innovative Convergence wireless-handset platforms. Customers can get to market faster and more cost-effectively with their own branded, tailored handsets.

We've also moved beyond consolidation of the existing manufacturing base to the next phase. Motorola has formed an R&D alliance with STMicroelectronics and Philips to jointly develop deep-submicron CMOS, giving us early access to 300-mm technology, pilot production and the opportunity to trim our development costs by two-thirds. Another milestone was tying up more external CMOS manufacturing capacity from TSMC, while further reducing fixed costs and lowering financial risk.

Finally, our 2002 goal is to achieve an aggressive 50 percent increase in royalty revenue over 2001. One way we hope to get there: We changed the rules of the traditional, proprietary DSP business models by joining with Infineon Technologies and Agere Systems to form StarCore LLC. We hope that the new company will be able to supply world-class DSP core technologies through open licensing to semiconductor manufacturers and communication equipment providers worldwide.