Royal Philips Electronics Third Quarter October 17th, 2000

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2 Royal Philips Electronics Third Quarter 2000 October 17th, 2000

3 Agenda Third Quarter Results 2000 Highlights Growth Performance Objective

4 Highlights Origin merger with ATOS, completion expected in the fourth quarter 3% reduction of outstanding shares completed in July for an amount of Euro 1.7b Achieved RONA of 27.4% for the nine month period Sales growth - Nominal 21%, Comparable 11% for the quarter Strong Semiconductor performance Continuing restructuring charges to improve our performance in the future

5 One-off gains: Highlights Third Quarter 2000 Euro 491m TSMC included in unconsolidated companies Euro 309m (taxable) included in Components being the gain on the sale of Discrete and Ferrite Ceramics businesses Euro 681m on the sale of part of our JDS Uniphase shareholding

6 Charges: Highlights Third Quarter 2000 Euro 54m restructuring of Display Components Euro 44m charge for the termination of existing business and the start of production of color mobile screens in Kobe Euro 45m Jubilee provision Euro 8m restructuring in DAP to close a factory leading to increased outsourcing.

7 Agenda Third Quarter Results 2000 Highlights Growth Performance Objective

8 Growth: 3Q00 Nominal Segment Revenue Growth DAP +15% +55% +17% Semiconductors Components Consumer Electronics +19% Lighting +10% Medical Systems +25%

9 Topline Growth SALES 3rd Quarter 9 months Nominal growth (Euro) Consolidation changes Currency changes Comparable growth Price erosion Volume growth

10 Growth: 3Q00 Sales and nominal growth per Region EUR % EUR % EUR % EUR %

11 Agenda Third Quarter Results 2000 Highlights Growth Performance Objective

12 Performance: Net Debt/Group Equity in billion EUR Net debt Group equity Ratio 42:58 21:79 :100 6:94 8:92

13 % Note : Performance: Inventory Levels % of MAT Sales Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q Figures for 4Q96, 1Q97, 2Q97 and 3Q97 corrected for Grundig, 1Q98, 2Q98, 3Q98 and 4Q98 corrected for PolyGram 3Q99, 4Q99 corrected for VLSI. 1Q00 reduced by 0.7 due to change in method of inventory valuation

14 Cash Flow 3Q00 9M00 3Q99 9M99 Cash flow from Operating activities Cash flow from investing activities ) 877 3) ) ) ) Includes purchase of MedQuist Euro 1.3b, MICRUS, and sale of AC&M Euro 0.7b and sale of Uniphase Shares for 0.7b 2) Includes Euro 1.5b LG.Philips 3) Includes sale of ASML shares of Euro 2710m and 1) 4) Includes purchase of VLSI, VCS and 10% of Origin totalling Euro 1101m and 2)

15 Results relating to unconsolidated companies 25 in million EUR * * * Q98 4Q98 1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 * Excludes one-off gains 4Q99 - Euro 92m relating to conversion of TSMC Eurobonds into equity 2Q00 - Euro 2595m gain on sale of ASML shares, Euro 189 re TSMC and Euro 121m on the sale of Beltone shares to GN Great Nordic 3Q00 - Euro 491 relating to TSMC

16 Goodwill Charges Included in the Results Q99 4Q99 1Q00 2Q00 3Q00

17 Lighting US market easing with Europe, Eastern Europe and Asia remaining firm IFO includes Euro 9m charge being the division s proportion of the Jubilee provision Underlying improvement programs continue to move ahead with ongoing restructuring Market growth remains limited with increased competition Strong cash

18 Consumer Electronics MAINSTREAM The IFO is on an improving trend benefiting from recent organizational changes which led to better bottom line accountability Significant improvement in the monitors business particularly related to the branded products and improved product mix Progress in Audio, particularly in CD-R Continuing R&D investments in DVD + RW The usual upswing in the fourth quarter is expected

19 Consumer Electronics DIGITAL NETWORKS Continuing investments for the US market High R&D costs for future growth in: Set-top boxes MPEG 4 Conditional access systems Set-top box 3Q00 vs 3Q99 volume growth 40% with continuing strong growth European satellite set-top box business profitable

20 Consumer Electronics 19% nominal growth SPECIALTY PRODUCTS Continuing development costs in Speech

21 Philips Consumer Communications 3Q00 GSM unit sales increased by 45% compared to 3Q99 Lower margins due to component shortages for the newer higher margin products 3 new products launched in Q3/Q4 (Xenium WAP, Ozeo WAP & Azalis WAP) Higher volumes expected in 4Q00 GSM market share increased to approx. 8% in key European countries

22 Domestic Appliances & Personal Care Nominal growth of 15% Restructuring charge in the quarter of Euro 8m to close a factory and increase outsourcing Excluding restructuring charges the IFO margin in the quarter was 14.2% due to: Male shaving US, China and Eastern European markets Product pruning continues High RONA Strong cash flow

23 Domestic Appliances & Personal Care On October 6 the purchase of Optiva Corporation (leader in US Dental Appliance market) was completed which has an annual sales level of USD175m. Our fourth quarters results will include: Consolidation of the results from this date An indication only of a goodwill charge of approx. Euro 5m We have started to integrate our Dental Care business with Optiva which should lead to lower costs and the introduction of Optiva products on a wider scale outside the US

24 Components The Discrete & Ferrite Ceramic businesses were sold and deconsolidated during the third quarter. These businesses had higher margins than the average of the whole division DISPLAY COMPONENTS Restructuring charge of Euro 54m covering three locations, one each in Europe, USA and Asia Temporary negative impact on yields following restructuring announcements Seasonally lower quarter with the usual Q4 upturn expected Strong growth in China and Brazil

25 Components FLAT DISPLAY SYSTEMS Euro 44m restructuring charge at the former HAPD Commencing investment of USD 100m in Kobe to produce color displays for telecommunications devices Continuing strong growth in Mobile Displays OPTICAL STORAGE Strong growth of sales and IFO based mainly on data CD rewritable

26 Semiconductors Nominal growth 3Q00 vs 3Q99 was 55% which is 32% on a comparable basis We expect to be capacity constrained into 2001 Price erosion 3Q00 vs 3Q99 was approx. 3% Operating margin sequentially increased from 19.9% to 20.5% CAPEX remains at Euro 1.7b this year excluding the Singapore joint venture

27 Medical Systems MedQuist consolidated with effect from July 1, 2000 Strong performance in the US with a slightly higher market share Sales partially impacted by a shortage of components Annual goodwill charges of Euro 90m for ATL and MedQuist Cumulatively the IFO has increased from Euro 70m to Euro 99m inspite of increasing R&D expenditure by Euro 24m on an annual basis to improve especially our position in MR and CT

28 Origin Origin merger with ATOS, completion expected in the fourth quarter The Origin results reported by Philips include goodwill charges and pension items that Origin would not have had as an independent company. On this basis the IFO would have been: Third quarter Euro -1m instead of Euro -6m Nine months Euro 5m instead of Euro -9m The nine months results also include restructuring charges of Euro 18m

29 Agenda Third Quarter Results 2000 Highlights Growth Performance Objective

30 Objective To increase our growth whilst maintaining: Positive cash flow Double digit earnings growth per share RONA of 24%

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