After the steepest drop in sales and revenue in the history of the electronics industry, we expect that the major semiconductor manufacturers worldwide will experience a slow but steady increase in demand and a return to profitability over the next 12 months. We will not see an explosive upturn, and some sectors-such as telecommunications-will lag, but the recovery is starting now.

This recovery will be slow and selective. We believe it will be led by consumer electronics, followed by selected embedded and wireless applications, including those used in automotive electronics. Computers and mobile devices will enjoy modest growth with a yearend pickup due to the introduction of upgraded notebook PCs, software, cell phones and PDAs. In mid-2003, the networking sector will show solid improvement. And, finally, telecommunications will recover as carriers begin a new round of investment in broadband resources.

While this recession has been extraordinarily sharp, it is typical. As inventories deplete, recovery will come. For example, flash memory-which is finding its way into new generations of cellular phones, PDAs and many other consumer products-is showing signs of recovery. Demand is increasing and the supply/ demand ratio is moving into balance. Flash prices should continue to stabilize, and manufacturers are likely to expand capacity by the end of this year.

Elsewhere, security applications based on biometric-sensor technology are projected to grow to a $900 million market by the end of 2004. We also expect the networking market to expand by 20 percent annually starting later this year, as several analysts have predicted.

Aside from traditional business cycle activity, the other major factor that brings the industry out of a downturn is a tried-and-true one-innovation. New products and the advance of technology always create new opportunities and demand. In fundamentally strong economies like those of the United States, Europe and Japan, consumer demand for electronics is strong. Business spending is trailing, but will rebound by year's end as innovative new systems solutions come to the market and IT organizations begin upgrading.

Innovation is vital. The electronics industry is defined by the new products and technologies that it constantly produces, regardless of whether times are prosperous or lean.

Fujitsu's recent introductions of its revolutionary 90-nanometer process technology and new system-on-chip ASIC design capabilities position us at the forefront of technology as we emerge from this industry-wide retrenchment and move into the next period of growth.