San Jose, Calif., January 26, 2004–Royal Philips Electronics (NYSE: PHG, AEX: PHI) and IBM today announced a major initiative to jointly develop customer systems for radio frequency identification (RFID) and smart card applications. Working together, Philips and IBM will combine their industry expertise to address the growing need for advanced high-security smart cards and RFID technology in day-to-day business processes, operations and consumer lifestyles.

The key end-application areas that the companies plan to address are RFID solutions for supply chain management, retail and asset management, as well as smart card solutions for finance, e-government, transportation and event ticketing. Within the scope of the joint cooperation, IBM Global Services will also build an RFID system for Philips Semiconductors division manufacturing and distribution facilities in Taiwan and Hong Kong.

“Our relationship with IBM will mean stronger time-to-market, improved customer confidence levels and the opportunity to leverage each others’ brands and expertise,” said Scott McGregor, president and chief executive officer, Philips Semiconductors. “It is Philips’ mission to continue bringing greater benefits to both companies and today’s ‘Connected Consumers’–enabling them better access to information, entertainment and services. To this end, the RFID system in East Asia being built by IBM is a good illustration of Philips adopting the very technology it is driving into the marketplace.”

“Philips is the worldwide leader in high security smart card controller ICs and RFID chip solutions. IBM is committed to this marketplace and we are confident that the deployment of our joint solutions will reduce operational costs, increasing profitability and providing a competitive advantage for our customers,” said Terry Hopkins, vice president, wireless e-business, IBM Global Services. “We are committed in helping companies boost levels of advanced product tracking and inventory control, as well as developing an end-to-end assessment of the specific costs and benefits in adopting RFID and smart card technology within their business processes.”

The first joint project between the two companies is the development and implementation of an RFID solution within Philips’ Semiconductors division to improve the business processes within the manufacturing and distribution supply chain, inventory management and control as well as to enhance customer satisfaction. In a first step, wafer cases and carton packages will be tagged at Philips Semiconductors Kao Hsiung manufacturing site in Taiwan and the division’s distribution centre in Hong Kong. The project started in November and will be fully live during the course of 2004.

The supply chain management, retail and logistics markets are constantly looking for ways to enhance the profitability of their operations, reduce costs through higher degrees of automation and improve response times in inventory management. These customers today recognize that the RFID marketplace is made up of small players, and therefore are seeking out committed blue chip organizations that have a reputation for delivering reliable and tested solutions.

As Philips extends its RFID business from early adopters to the mass market, its business is rapidly moving towards large-scale projects that require global reach, an expertise in project management and system solutions. By teaming up with IBM, Philips will move beyond delivering its expertise and RFID chip offering, and move towards integrated end-to-end solutions for major retailers, consumer goods manufacturers and couriers.

Both companies bring unique perspectives and technology strengths to the alliance for the benefit of both smart card and RFID market places. Philips provides industry leading high-security contact and contactless chip technology for smart cards, using the most advanced manufacturing processes. As the global leader in chip solutions for the RFID industry, Philips is focused on delivering cost-effective products meeting global standard specifications, such as electronic product code (EPC).

Through IBM Global Services’ offerings, which comprise consulting, project management, and implementation services as well as specialized software, companies will now have a phased and easy to integrate approach to smart card and RFID implementation. By leveraging IBM’s market leadership with Philips technology strengths, both companies will gain greater scope, interaction and feedback from current and potential end customers.

About Royal Philips Electronics

Royal Philips Electronics of the Netherlands is one of the world’s biggest electronics companies and Europe’s largest, with sales of $30.1 billion (EUR 31.8 billion) in 2002. It is a global leader in color television sets, lighting, electric shavers, medical diagnostic imaging and patient monitoring, and one-chip TV products. Its 166,500 employees in more than 60 countries are active in the areas of lighting, consumer electronics, domestic appliances, semiconductors, and medical systems. Philips is quoted on the NYSE (symbol: PHG), Frankfurt, Amsterdam and other stock exchanges. News from Philips is located at: http://www.semiconductors.philips.com.

About IBM

IBM’s RFID consulting and implementation practices are part of IBM Global Services, the world’s largest information technology services provider. With professionals serving customers in 160 countries IBM Global Services annual revenue was more than $42 billion in 2003, or nearly 48 percent of IBM’s total annual revenue. IBM Global Services offers a broad range of capabilities–consulting, IT services, hardware, software, research and financing–to help companies of all sizes realize the full value of information technology. For more information, visit: http://www.ibm.com/services.