Multimedia technology and its applications have grown rapidly over the past decade. A significant driver of this growth in multimedia has been the growth of video and sound technologies through different platforms, in particular PCs and mobile phones. From individuals to large industries including movie, television, publishing and computer industries, direct dependence on video and sound technologies to create and deliver their message and products has become more imminent. Multimedia is not just an alternative way to communicate information, it has intrinsic value.

Vimicro's development and success are driven by the rapid growth in demand for richer multimedia contents and applications through different platforms, in particular, PCs and mobile phones.

In the PC market, the demand for live conferencing, video e-mail and instant video messaging will continue to drive the demand for PC cameras. The Company strongly believes that with the increased availability of broadband connection and the growing reliance on instant video applications, PC cameras are soon to become part of the standard features (either through bundling or embedded features) to most of the PCs and notebooks. This trend will further drive the growth of the PC camera market.

In the mobile market, the growing demand for multimedia applications such as Multimedia Messaging Services ("MMS"), mobile ringtone download, mobile flash, mobile music, MP3, MPEG4, mobile video and mobile games have resulted in exponential growth in demand for multimedia phones in recent years. The Company believes that multimedia phone shipments will reach more than 400 million units over the next few years.

Fueled by this rapid growth in the domestic economy, China's demand for consumer electronics products, such as home entertainment, HDTV, DVD, game console and media players has significantly increased, creating more and more emerging and fast growing markets for semiconductor devices. By leveraging our industry-leading multimedia design methodology, high-performance signal processing architecture and multimedia technology expertise, we are also targeting to broaden our product reach into other fields of customer electronics market.

Users' demand for high quality multimedia contents and applications such as ringtone and video contents delivery will continue to fuel the demand for Vimicro's products. Moreover, China is expected to become one of world's leading sources of demand and manufacturing centers for multimedia mobile devices. Vimicro's strategic operation in China allows it to become one of the biggest beneficiaries of China's semiconductor boom and sets a solid foundation for the Company's global expansion.