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<SEC-DOCUMENT>0001156973-07-001128.txt : 20070928
<SEC-HEADER>0001156973-07-001128.hdr.sgml : 20070928
<ACCEPTANCE-DATETIME>20070716104155
<PRIVATE-TO-PUBLIC>
ACCESSION NUMBER:		0001156973-07-001128
CONFORMED SUBMISSION TYPE:	CORRESP
PUBLIC DOCUMENT COUNT:		1
FILED AS OF DATE:		20070716

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			KONINKLIJKE PHILIPS ELECTRONICS NV
		CENTRAL INDEX KEY:			0000313216
		STANDARD INDUSTRIAL CLASSIFICATION:	ELECTRONIC & OTHER ELECTRICAL EQUIPMENT (NO COMPUTER EQUIP) [3600]
		IRS NUMBER:				000000000
		STATE OF INCORPORATION:			P7
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		CORRESP

	BUSINESS ADDRESS:	
		STREET 1:		BREITNER CENTER
		STREET 2:		AMSTELPLEIN 2
		CITY:			AMSTERDAM
		STATE:			P7
		ZIP:			1096 BC
		BUSINESS PHONE:		31 20 59 77777

	MAIL ADDRESS:	
		STREET 1:		BREITNER CENTER
		STREET 2:		AMSTELPLEIN 2
		CITY:			AMSTERDAM
		STATE:			P7
		ZIP:			1096 BC

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	PHILIPS ELECTRONICS N V
		DATE OF NAME CHANGE:	19930727

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	PHILIPS NV
		DATE OF NAME CHANGE:	19910903
</SEC-HEADER>
<DOCUMENT>
<TYPE>CORRESP
<SEQUENCE>1
<FILENAME>filename1.htm
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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Royal Philips Electronics</B>
</DIV>


<DIV align="right" style="font-size: 10pt; margin-top: 12pt">July&nbsp;16, 2007
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Mr.&nbsp;Jay Webb<BR>
Reviewing Accountant<BR>
Division of Corporation Finance<BR>
Securities and Exchange Commission<BR>
100 F Street, N.E.<BR>
Washington, D.C. 20549

</DIV>

<DIV align="left" style="margin-top: 12pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left">Re:</TD>
    <TD>&nbsp;</TD>
    <TD><U>Koninklijke Philips Electronics N.V. &#151; Form&nbsp;20-F for the Fiscal Year Ended
December&nbsp;31, 2006 (File No.&nbsp;001-05146-01)</U></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Dear Mr.&nbsp;Webb:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This relates to your letter dated July&nbsp;2, 2007 setting forth comments regarding the Form 20-F
for the fiscal year ended December&nbsp;31, 2006 (the &#147;2006 Form 20-F&#148;) of Koninklijke Philips
Electronics N.V. (&#147;Philips&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To facilitate your consideration of Philips&#146; response, we have included below the comments and
have provided Philips&#146; response immediately following.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Philips acknowledges that (i)&nbsp;Philips is responsible for the adequacy and accuracy of the
disclosure in the filing, (ii)&nbsp;Staff comments or changes to disclosure in response to Staff
comments in the reports reviewed by the Staff do not foreclose the Commission from taking any
action with respect to the filing, and (iii)&nbsp;Philips may not assert Staff comments as a defense in
any proceeding initiated by the Commission or any person under the federal securities laws of the
United States.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In our responses, we have proposed making certain disclosures in our future filings. We are doing
that to respond to the comments and not because we believe our prior filings are materially
deficient or inaccurate. Accordingly, any changes in subsequent filings should not be viewed as an
admission that prior disclosures were in any way deficient.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Form&nbsp;20-F filed February&nbsp;20, 2007</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U><I>Exhibit&nbsp;15(b)</I></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U><I>Management Discussion and Analysis, page 30</I></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U><I>Non-US GAAP measures, page 30</I></U>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><I>1.</I></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>We note your presentation of the adjusted non-GAAP measure EBITA which you indicate for you
represents &#147;income from continuing operations excluding results attributable to minority
interest holders, results relating to equity-accounted investees, income taxes, financial
income and expenses and amortization&#148;. We note that </I><I>Item 10(e)</I><I> of Regulation&nbsp;S-K prohibits
the exclusion of charges or liabilities that required, or will require, cash settlement or
would have required cash settlement absent an ability to settle in another manner, from
non-GAAP liquidity measures, other than the measures earnings before interest and taxes (EBIT)
and earnings before interest, taxes, depreciation and amortization (EBITDA). Please tell us
how your current presentation of the non-GAAP measure EBITA complies with </I><I>Item 10(e)</I><I> of
Regulation&nbsp;S-K, SEC Rule&nbsp;34-47226 &#151; Conditions for Use of Non-GAAP Financial measures. Also,
since EBITA normally is defined as &#147;earnings before interest, tax and amortization&#148;, tell us
why your use of the term &#147;EBITA&#148; is appropriate. Refer to the guidance at Question 14 of the
Staff&#146;s FAQ Regarding the use of Non-GAAP Financial Measures.</I></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Response:</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;EBITA, as we calculated it in the 2006 Form 20-F, is equal to income from operations (a US
GAAP measure that appears on the face of the Philips income statement) excluding amortization and
other reductions of intangible assets generated in acquisitions by Philips. We calculated it by
reference to income from operations (rather than from net income or income from continuing
operations) because by doing so we could show the underlying performance at the Group level without
the effect of results related to equity-accounted investees and income from financial investments.
We believe that the presentation excluding amortization and other reductions of intangible assets
resulting from acquisitions was appropriate because:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>It makes the discussion of the performance of our underlying businesses more
transparent by factoring out amortization, impairment and write-off (relating to
in-process R&#038;D) of intangible assets generated through acquisitions;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Philips believes that this measure is useful as a performance measure because it
enables management to establish performance targets (and then evaluate performance
against targets) that will not be distorted by the</TD>
</TR>

</TABLE>
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>unpredictable effects of future, unidentified acquisitions; this is particularly
relevant in setting targets where acquisition activity is likely to increase, but
the nature and exact timing and financial statement impact of such future
unidentified acquisitions impossible to predict; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>This measure only excludes non-cash settled liabilities and consequently we believe
use of it is consistent with the principles underlying the rule permitting the use of
EBIT and EBITDA. The only item of amortization relevant to Philips not excluded in
this measure is amortization of software (because it is not acquisition-related).</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Although we believe this measure to be consistent with the principles underlying the use of EBITDA,
the method of calculating EBITA is different from the method described in Question 14 of the
Staff&#146;s FAQ. While we believe that such a difference is appropriate in the case of Philips because
of its extensive equity-accounted investees and other investments, in response to the Staff&#146;s
comment, we will not in our subsequent Annual Reports on Form 20-F use the terms &#147;EBIT&#148; and
&#147;EBITA&#148;. Philips proposes to use the terms &#147;income from operations&#148; (which is a GAAP measure) and
&#147;adjusted income from operations&#148; defined as income from operations before amortization, impairment
and write-off (relating to in-process R&#038;D) of intangible assets generated in acquisitions (and
therefore excluding software). In future Annual Reports on Form 20-F, Philips will discuss &#147;income
from operations&#148; and &#147;adjusted income from operations&#148; with equal prominence and will provide a
reconciliation of the non-GAAP measure to income from operations and also note for the benefit of
the European investment community that such presentation is different from the terms used in
Philips results announcements. Philips will include disclosure to the effect it believes the
presentation of &#147;adjusted income from operations&#148; is appropriate in light of the following:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Philips has announced that one of its strategic drivers is to increase
profitability through re-allocation of its resources towards opportunities offering more
consistent and higher returns. Philips intends to redeploy capital through value-creating
acquisitions. The capital redeployment through purchases of businesses has increased from
EUR 0.4&nbsp;billion in 2005 and EUR 1.1&nbsp;billion in 2005 to EUR 2.5&nbsp;billion in 2006, and this
trend is expected to continue. Since 2006, management has used the &#147;adjusted income from
operations&#148; measurement internally to monitor performance of the businesses on a
comparable basis by excluding income from operations before amortization, impairment and
write-off (relating to in-process R&#038;D) of intangible assets generated in acquisitions (and
therefore excluding software). As of 2007, Philips has also set external performance
targets based on this measurement as it will not be distorted by the unpredictable effects
of future, unidentified acquisitions. This is particularly relevant as the acquisition
activity is intended to increase, but the nature and the exact timing and financial
statement impact of such future unidentified acquisitions is impossible to predict.</TD>
</TR>

</TABLE>
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>As part of its re-allocation of resources towards opportunities offering
more consistent and higher returns, Philips is engaged in the ongoing disposition of
significant non-core minority stakes. These dispositions will affect results relating to
equity-accounted investees and the amount of financial income, as well as result in
potentially significant capital gains or losses. These amounts are not included in &#147;income
from operations&#148; and therefore the presentation of &#147;adjusted income from operations&#148; will
enhance comparability of results between years.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U><I>Group Financial Statements, page 110</I></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U><I>Notes to the Group Financial Statements, page 130</I></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U><I>Note 1, Discontinued Operations, page 130</I></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U><I>Semiconductors, page 130</I></U>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><I>2.</I></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>We see that on September&nbsp;29, 2006, you sold a majority stake in your Semiconductor division,
NXP Semiconductors, to a private equity consortium and presented NXP as discontinued
operations. However, we note that you have retained a 19.9% interest in NXP&#146;s preferred
shares and 17.5% of its common shares. In light of these amounts of equity ownership, please
tell us in detail how your accounting for NXP as a discontinued operation complies with SFAS
144. Specifically, please explain and support how you determined that you will not have any
significant continuing involvement in the operations of NXP and how you comply with paragraph
42 of SFAS 144.</I></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Response:</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Up to the date of sale on September&nbsp;29, 2006, the Semiconductors division of Philips consisted of
operations and cash flows that were clearly distinct, both operationally and for financial
reporting purposes, from the rest of Philips. The Semiconductors division was a reportable segment
under segment reporting criteria and thus considered a component of Philips as defined by SFAS 144
<I>&#147;Accounting for the Impairment or Disposal of Long-Lived Assets&#148;</I>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In connection with the sale of the majority of the Semiconductors division, we considered the
provisions of paragraph 42 of SFAS 144. We determined that Philips had eliminated the operations
and cash flows of the Semiconductors division from the ongoing operations of Philips and that we do
not and will not have any significant continuing involvement in the operations of that division.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In evaluating whether (a)&nbsp;the operations and cash flows of the Semiconductors division had been (or
would be) eliminated from the ongoing operations of Philips as a result of the disposal transaction
and (b)&nbsp;Philips would not have any significant continuing
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">involvement in the operations of the Semiconductors division after the disposal transaction, we
referred to the guidance in EITF 03-13, <I>Applying the Conditions in Paragraph&nbsp;42 of FASB Statement
No.&nbsp;144 in Determining Whether to Report Discontinued Operations</I>.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Elimination of operations and cash flows</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">While it is expected that we will continue to make purchases from NXP, we do not believe that the
nature or significance and representation of these <I>direct </I>cash outflows constitute continuing
involvement in the operations or cash flows of NXP. We considered the following facts and
circumstances in this determination:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The historical product sales between NXP and Philips amount to
approximately 3% of historical sales of the Semiconductors
division and approximately 0.5% of historical expenditures of the
rest of Philips, and are not anticipated to increase materially.
These sales are typically for semiconductor products used as
components in other Philips consumer electronics products. These
amounts are not considered significant to NXP or Philips.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Future costs related to the semiconductor business are borne by
NXP and no future costs are to be incurred by Philips with the
exception of the indemnification of certain legal claims that
existed at the time of the sale of the business. We also noted
that according to paragraph 12 of EITF 03-13, direct cash flows
related to settlement of the purchase agreement, indemnifications,
pre-acquisition contingencies and employee benefit obligations do
not constitute continuing cash flows.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>All management and employees related to the semiconductor business
were transferred to NXP. Philips and NXP do not &#145;share&#146;
management or employees.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Significant continuing involvement</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We also have performed an analysis to determine whether our remaining interest in NXP of 19.9% of
preferred shares and 17.5% of common shares constitutes &#147;significant continuing involvement&#148; in the
operations of the former Semiconductors division. This analysis has been made on the factors
mentioned in paragraph 17 of APB Opinion No.&nbsp;18 &#147;<I>The Equity Method of Accounting for Investments in
Common Stock</I>&#148; and in FIN 35 &#147;<I>Criteria for Applying the Equity Method of Accounting for Investments
in Common Stock&#148; (an interpretation of APB Opinion No.&nbsp;18)&#148; </I>as well as issue 2 of EITF 03-13. While
paragraph 17 of APB 18 and FIN 35 specifically relate to the evaluation regarding whether an
investor has the ability to exercise significant influence over operating and financial policies of
an investee, it also provides, by analogy, a sound basis for determining whether significant
continuing involvement under the guidance of paragraph 42 of SFAS 144 exists.
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If an ownership interest of 20% generally creates a presumption that an investor has influence over
operations of an investee, this presumption may be overcome by evidence to the contrary. This
presumption, however, should also not eliminate the need for exercising judgment in the
determination. The determination should involve quantitative and qualitative assessments from the
perspective of the disposed component, NXP. Since our remaining ownership consists of 19.9% of
preferred shares and 17.5% of common shares, and therefore is close to the 20% presumed threshold,
we have evaluated all of the following facts and circumstances to support the lack of significant
continuing involvement in the operations of NXP.
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>The nature and significance of our investment in NXP, the extent of our ownership in
relation to the concentration of other shareholdings and financing of NXP</U></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>NXP is a privately-held, predominantly private equity-backed company. Philips owns 17.5% of the
outstanding common shares and 19.9% of the outstanding preferred shares in NXP.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The majority ownership of NXP is concentrated among a small group of shareholders consisting of
Kohlberg Kravis Roberts &#038; Co., Bain Capital, Silverlake Capital Partners, Apax and AlpInvest
Partners. These shareholders together have the majority of the outstanding preferred shares and
outstanding common shares.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>As part of the sale, the inter-company financing between Philips and NXP was repaid to Philips.
Subsequent to the sale, no financing exists between Philips and NXP, nor has Philips provided
any debt guarantees or put/call options that would require it to infuse capital into NXP. NXP
has a history of positive cash flows from operations prior to the transaction which partially
substantiates the ability of NXP to fund the future debt service.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Representation on the NXP&#146;s Board of Directors</U></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>NXP&#146;s governance structure includes a separate Supervisory Board and Management Board. The
Management Board is entrusted with the executive management of NXP and is responsible for the
implementation of its strategy. Under Dutch law, the Supervisory Board&#146;s role is to provide
oversight of the Management Board. The Management Board consists of the senior management of the
former Semiconductors division (the CEO, CFO and two other senior executives) and is appointed
by the shareholders of NXP. The Supervisory Board consists of eight members. Six of the members
have been appointed by the private equity consortium and one member has been appointed by
Philips. The chairman is independent from both the private equity consortium and Philips and is
designated jointly by the private equity consortium and Philips based on the selection by
Philips from a list of at least five candidates prepared by the private equity consortium. The
Philips Supervisory Board member will not be a member of any Supervisory Board committees, but
will be allowed to join as an</TD>
</TR>

</TABLE>
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>observer. If Philips&#146; percentage of the outstanding shares falls below 10%, the Philips
Supervisory Board member is required to resign and the joint designation of the chairman would
discontinue.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Even though the Supervisory Board membership and the joint designation of the Supervisory Board
chairman selection gives Philips certain representation and rights, we believe this does not
result in significant influence over operating and financial policies, as the role of the
Supervisory Board is primarily to provide oversight and is not related to execution of strategy
and operations.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Protective rights</U></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The shareholders agreement gives Philips the following protective rights with respect to its
investment in NXP. NXP may not take any of the following actions without the approval of
Philips:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Amend the organizational documents with respect to any matter, if such
amendments would adversely affect Philips&#146; rights;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Engage in a transaction with members of the private equity consortium;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Engage in a legal merger, demerger or liquidation, redemption of securities or
shareholder loans other than on a basis that it treats Philips and the private
equity consortium on an equal basis, or issue any third party debt other than for
the purpose of funding normal operations; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Sell equity securities and / or assets representing all or substantially all of
NXP&#146;s assets in exchange for equity securities of a person or company that is not
active in the semiconductor industry.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>We believe that these rights do not give Philips significant influence over operating and
financial policies of NXP but merely protect Philips&#146; investment. We evaluated these rights
under the guidance of EITF 96-16, &#147;<I>Investor&#146;s Accounting for an Investee When the Investor Has a
Majority of the Voting Interest but the Minority Shareholder or Shareholders Have Certain
Approval or Veto Rights</I>&#148; and determined that the weight of factors leading to the use of these
rights indicated they were more protective rights rather than substantive participating rights
leading to our conclusion that they do not provide us with significant influence over operating
and financial policies of NXP.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Material inter-company transactions and technological interdependency</U></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>As disclosed in our 2006 Annual Report in Footnote 1 to the Financial Statements, Philips and
NXP will have continuing relationships through research and development activities and through
license agreements. The existing global service</TD>
</TR>

</TABLE>
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
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<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>agreements pursuant to which Philips provides NXP with &#151; amongst others &#151; payroll, network and
purchase facilities covering a period of approximately one year. Additionally through the
purchase of component products, namely semiconductor products for the consumer electronics
sector (as mentioned above), Philips and NXP will have a continuing relationship for the
foreseeable future. Philips has assessed the expected future transactions and determined that
the cash flows from these transactions are not significant and do not represent direct cash
flows nor are the related pricing terms more favorable to Philips than to other customers of NXP
due to a linkage to the purchase and sales agreement. From a technical perspective there is no
dependency either way, additionally all knowledge, management and intellectual property related
to the semiconductor operations has been transferred to NXP. There are sufficient other
suppliers that Philips could use for its semiconductor purchases.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><U>Interchange of managerial personnel</U></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>As mentioned above all management for NXP transferred to NXP and no management or other employee
sharing or exchange programs exist.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Based on the weight of factors outlined above, we have concluded that Philips&#146; ownership interest,
the limited representation of Philips on NXP&#146;s Supervisory Board and limited protective rights do
not constitute significant continuing involvement nor influence over the operations of NXP as of
the date of sale and through the issuance of the Form 20-F for the Fiscal Year Ended December&nbsp;31,
2006. We will continue to monitor our investment in and activities with NXP for purposes of
classification of our investment under US GAAP and IFRS reporting.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">*****
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Please direct any questions or comments regarding this letter to me at (011) (31)&nbsp;20 59 77 281. Our
fax number is (011) (31)&nbsp;20 59 77 230. We are available to discuss any of the foregoing with you
at your convenience, and thank you again for your consideration of our response to the comment.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Very truly yours,
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 16pt"><U>/s/ G.
J.
Ruizendaal&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 2pt">G. J. Ruizendaal<BR>
Group Controller

</DIV>
<DIV align="center">
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    <TD width="95%">&nbsp;</TD>
</TR>
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<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">cc:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Angela Crane</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Kevin Kuhar</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(Securities and Exchange Commission)</TD>
</TR>
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</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="95%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Eric P. Coutinho</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Hessel Hilarides</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Marnix van Ginneken</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(Koninklijke Philips Electronics N.V.)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">John O&#146;Connor</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(Sullivan &#038; Cromwell LLP)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Michiel Soeting</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(KPMG Accountants NV)</TD>
</TR>
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</DIV>



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