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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

TRIDENT MICROSYSTEMS, INC.
(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (408) 991-8800

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to section 12(g) of the Act:

Common Stock, $0.001 Par Value
(Title of class)

     Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   [   ]

     The aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing price of the Common Stock on August 31, 2002 ($3.78 per share), as reported on the NASDAQ National Market was approximately $32,268,609. Shares of Common Stock held by executive officers and directors and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliate. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

     The number of shares of the registrant’s $0.001 par value Common Stock outstanding on August 31, 2002, was 13,603,855.

     Part III incorporates by reference from the definitive proxy statement for the registrant’s 2002 annual meeting of stockholders to be filed with the Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form.

Table of Contents

TABLE OF CONTENTS

						Page
PART I							3
		Item 1.		Business			3
		Item 2.		Properties			11
		Item 3.		Legal Proceedings			11
		Item 4.		Submission of Matters to a Vote of Security Holders			12
PART II							14
		Item 5.		Market for the Registrant’s Common Stock and Related Stockholder Matters			14
		Item 6.		Selected and Supplementary Financial Data			15
		Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
		Item 7A.		Quantitative and Qualitative Disclosures About Risk			28
		Item 8.		Financial Statements and Supplementary Data			29
		Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			29
PART III							30
		Item 10.	Directors and Executive Officers of the Registrant				30
		Item 11.	Executive Compensation				30
		Item 12.	Security Ownership of Certain Beneficial Owners and Management				30
		Item 13.	Certain Relationships and Related Transactions				30
PART IV							31
		Item 14.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K				31
POWER OF ATTORNEY							54
SIGNATURES							54
CERTIFICATIONS							55
INDEX TO EXHIBITS FILED TOGETHER WITH THIS ANNUAL REPORT							56

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PART I

Item 1.  Business

     We design, develop and market very large scale integrated circuits (“IC”) for videographics, multi-media and digitally processed television products for the desktop and notebook personal computer (“PC”) and consumer television market. Our graphics and video controllers typically are sold with software drivers, a BIOS and related system integration support. Our strategy is to apply our design expertise, which helped us succeed in the market for Super Video Graphics Array (“SVGA”) graphics controllers and Graphical User Interface (“GUI”) accelerators, to other high volume graphics, multimedia and digitally processed television markets for the general mass public, acceleration of Digital Versatile Disc (“DVD”) based live-video playback, and three-dimensional (“3D”) display for game and entertainment application markets.

     The PC marketplace is characterized by extreme price competition and rapid technological change as leading PC systems manufacturers compete among themselves and other PC clone makers for market share. As a result, PC systems manufacturers require low-cost, feature-rich, advanced graphics and multimedia solutions. We believe that the systems manufacturers are constantly reducing system costs by purchasing IC graphics and multimedia solutions that integrate functions formerly performed by several separate components. Moreover, as DVD and video processing capabilities become more popular, an increasing percentage of computer users require a high-performance, low-cost graphics system that can display photo-realistic images or display full-motion video on a sub-$1000 PC system.

     Our strategy is to capture these market opportunities by using our design expertise to develop and manufacture videographics and multimedia products that offer a superior combination of price, performance and features. We are employing this strategy in the graphics and multimedia markets, and we are focusing on providing high performance and feature-rich products that we believe will appeal to leading PC systems manufacturers.

Markets and Products

     We have targeted the PC desktop, notebook, multimedia and digitally processed television markets. The desktop market is the largest segment of the PC industry for our graphics and multimedia products. The desktop market includes adapter card manufacturers, who build graphics controllers onto adapter cards that serve as graphics subsystems, and PC systems manufacturers and motherboard suppliers, who may either include adapter cards in their systems or design graphics controllers onto their motherboards.

     We entered the notebook market in 1995 and in recent years, this market has accounted for the majority of our revenue. Our notebook strategy is to leverage our product positioning and continue to deliver a broad product offering. Our notebook product line includes: the CyberBLADE™ XP2, the CyberBlade™ XP, CyberALADDiN-P4™, CyberALADDiN-T™, CyberBlade™ Ai1, CyberBlade™ i1, and the CyberBlade™ i7.

     We are in the process of developing our next generation 3D graphics technology. The new technology, which we call XP4, will be used in both the discrete and integrated products. Our graphics product development strategy is to focus on a totally balanced design with consideration of not only high performance, but also low cost and low power consumption. Although our digital media segment accounted for only 6% and 2% of revenues for fiscal years ended June 30, 2002 and 2001, respectively, we plan to continue developing the next generation DPTV™ product as well as other advanced products for digital TV and digital STB for the digital television market in China, Japan, Korea and Taiwan. Designed for system design flexibility, our goal is for users of our single chip DPTV™ Video Processors(s) to benefit from feature rich devices at competitive prices with existing solution(s). The DPTV-DX converts analog TV into an advanced progressive digital quality TV. While we have limited experience with digital video television, we anticipate this market to generate an increasing percentage of our revenues. However, there can be no guarantee that our digital television product will be accepted by the market or increase our revenues or profitability.

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Current Graphics Products

Desktop Computer Market:

     Blade XP™. The Blade XP family brings seven major technical advances in video/graphics capability to mainstream desktop PCs: DirectX 7.0 Cubic Mapping, 256-bit pixel processing, dual memory bus architecture, AGP-4X bus interface, state-of-the-art video de-interlacing, high-resolution flat panel and only 2.8 watt power consumption at a blazing 200MHz clock rate.

Notebook Computer Market:

     CyberBLADE™ XP2. The CyberBLADE XP2 is a 3D/2D digital media flat panel graphics controller with 128-bit bus interface to external SDR/DDR SDRAM memory. It integrates two high speed LVDS transmitter for LCD panel support. The AGP bus interface supports 1X, 2X and 4X modes, enabling the highest level of 3D/2D performance. THAMA (Trident Hardware-Assisted MPEG-2 Acceleration) incorporates dedicated hardware for both Motion Compensation and Inverse Discrete Cosine Transform (IDCT), and brings digital media capability such as MPEG-2/Hardware DVD playback technologies to the notebook market.

     CyberBlade™ XP. In April 2000, Trident introduced the CyberBlade XP family for next generation high-end and mainstream AGP 4X/2X 128-bit 3D / DVD capable mobile PCs. The new line consists of the CyberBlade XP discrete device, which supports up to 32MB of external video memory, and Multi-Chip-Module (“MCM”) products — the CyberBlade XPm16 with 16MB SDRAM packaged and the CyberBlade XPm8 with 8MB SDRAM packaged — further removing board space and power constraints for ultra-notebook designs. The MCM devices offer AGP 4X / DX7 / memory upgrade and pin compatibility from Trident’s 4MB SDRAM embedded 3D product — the CyberBlade e4.

     CyberALADDiN-P4™. The CyberALADDiN-P4 is the latest generation of shared memory architecture (SMA) graphics and core logic chipset jointly developed by Trident Microsystems, Inc and Acer Laboratories, Inc (Ali). This SMA solution is designed to interface with Intel’s Pentium® 4 and Pentium® 4-M processors through the 400 MHz system bus. CyberALADDiN-P4 combines two proven production worthy cores in the industry: the CyberBlade XP2 graphics core from Trident and the M1671 North Bridge core from Ali to deliver a low-risk, cost-effective, and versatile Pentium® 4 SMA solution for notebook PCs targeted to OEMs and ODMs:

     CyberALADDiN-T™. CyberALADDiN-T is Trident and Acer Laboratories, Inc ‘s (Ali) jointly developed new generation of low-power integrated graphics and core logic supporting the latest Intel Pentium® III-M (Tualatin) processor family. CyberALADDiN-T combines Trident’s 2D/3D graphics core (CyberBLADE XP® and Acer Laboratories’s North Bridge (M1651T) to deliver numerous advanced features to value-priced notebook PCs.

     CyberBlade™ Ai1. This 3D/DVD integrated chipset for mobile PCs features our CyberBlade 3D/DVD video graphics and Ali’s Aladdin Slot 1/Socket 370 Northbridge. With the industry’s best power management and extensive integration, this chipset supports all Pentium ™ II, Pentium III and Celeron™ CPUs, providing notebook PC manufacturers with unprecedented price/performance advantages. This mobile chipset includes the CyberBlade Aladdin i1 3D/DVD Graphics with Intel Slot 1-licensed Northbridge and Ali’s Mobile Southbridge. The chipset is targeted at the value and mainstream notebook market segments.

     CyberBlade™ i1. This highly integrated, low power single device combines a LCD controller and North Bridge core for 66 MHz-100MHz Slot-1 based Notebook PCs. It reduces the system bill of materials (BOM) price by as much as $15, occupies less board space, and reduces power consumption by up to 1.5W. Its accelerated graphics port (AGP) Notebook graphics controller core incorporates a high performance 2D and 3D graphics engine, video accelerator, advanced DVD playback, video capture and TV output capabilities.

     CyberBlade™ i7. This highly integrated, low power single device, combines flat panel display controller and North Bridge cores for 66MHz-100MHz 64-bit Socket-7 based Notebook PCs. It reduces the system BOM price by as much as $15, occupies less board space, and reduces power consumption by up to 1.5W. The CyberBlade™i7’s notebook graphics controller core incorporates high performance 2D and 3D graphics engine, video accelerator, advanced DVD playback, video capture and TV output capabilities.

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New Graphics Products

     We will begin selling the following products within fiscal 2003. Our future success depends upon the successful market acceptance of these and other new products. There can be no assurance, however, that we will be able to ship these products in volume or in a timely manner or that they will be successful in the marketplace.

     XP4™. Trident has developed a new family of graphics chips for desktop and notebook personal computers known as XP4. The XP4 desktop family is based on UMC’s 0.13um CMOS technology that uses only 30 million transistors, which is less than half the number of transistors of the nearest competitive equivalent, to deliver top-of-the-line DX8.1/9.0 features and performance.

Other key capabilities of the XP4 family include:

	•		BrightPixelTM rendering engine with hardware vertex and pixel shaders
	•		SmartTileTM memory architecture for optimal memory bandwidth utilization
	•		CoolPowerTM for low power management
	•		Multiview with cathode ray tube (CRT), digital video interface (DVI) and TVout
	•		Resolution up to QXGA (2048x1536) with 420MHz RAMDAC
	•		DXVA hardware support with both inverse discrete cosine transformation (IDCT) and Motion Compensation
	•		Advanced de-interlacing for highest-quality DVD movies
	•		AGP-4X bus interface

The XP4 desktop product family is available in three versions:

	•		XP4 T3 supporting 128MBytes of up to 700MHz DDR memory with 128-bit bus;
	•		XP4 T2 supporting 64Mbytes of 500MHz DDR memory with 128-bit bus;
	•		XP4 T1 supporting 64Mbytes of 500MHz DDR memory with 64-bit bus.

     The XP4 T3 tops the performance chart with a 300MHz graphics engine and enables PC OEMs plus card makers to deliver advanced DX8.1/9.0 graphics card with 128MBytes memory. The 128-bit Double-Data-Rate (DDR) memory system reaches a bandwidth of up to 11.2 Gbytes/sec and the 3D graphics engine achieves a peak performance of 1.2 billion pixels/sec.

     The XP4 T3 offers a maximum power dissipation of less than four watts. This corresponds to only a fraction of competing alternatives, improving chip reliability in typical consumer-oriented operating environments where overheating could be the cause of system failure.

     The XP4 T2 provides mainstream DX8.1/9.0 performance with a 250MHz graphics engine. XP4 T2 memory bandwidth peaks at 8.0 Gbytes/sec and 3D graphics performance hits 1 billion pixels/sec, rivaling other high-end, competitive products.

     The XP4 T1 is an economical entry-level DX8.1/9.0 graphics card with a 250MHz graphics engine but in a 64-bit memory bus for lowest cost. The XP4 T1 memory bandwidth reaches 4.0 Gbytes/sec.

     The XP4 notebook version uses only 30 million transistors, and utilizes UMC’s 130nm technology. The XP4 has the capability to deliver the following functionality and performance:

	•		Faster transistors that enable higher clock rate, corresponding to higher performance. XP4 engine clock reaches 250MHz and DDR memory clock reaches 666MHz, both of which are the industry’s highest clock rate for notebooks with DX8.1 capability.
	•		Smaller device geometry that produces smaller chip sizes and results in lower production cost.
	•		Lower operating voltage which causes much less power dissipation. A voltage reduction from 1.8 volts (in 180nm process) to 1.2 volts (in 130nm process) can reduce the power dissipation to less than 50% assuming the operating frequency and the die area are the same.

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Current Digital Media Products:

     We believe our IC design and, in particular, our 3D Graphics and video expertise have applications in significant markets outside the PC industry. We have been developing products for other digital media applications, such as set top boxes and Digitally Processed TV (“DPTV”) for several years. The DPTV market in particular has begun to emerge as a high volume market for these products. Our DPTV products are designed to optimize and enhance video quality for various display devices, such as Cathode Ray Television (“CRTTV”), Liquid Crystal Display Television (“LCDTV”), Plasma Display Panel (“PDP”), Projection TV, Liquid Crystal Display projection.

     TVXpress. High quality TV encoder designed and optimized for Cyber9525DVD, CyberBlade e4-128, CyberBlade i7, Blade3D (desktop) and our other graphics controllers. It features support for NSTC and PAL as well as Macrovision protection for DVD playback.

     DPTV™-DX. The DPTV-DX is the main component in the premier TV chipset solution on the market. Designed for maximum system design flexibility, users of our single chip DPTV™ Video Processor(s) will benefit from one of the most feature rich devices available while maintaining a price competitive advantage over the existing solutions(s). The DPTV-DX converts today’s analog TV into an advanced progressive quality TV.

New Digital Media Product:

     DPTV™-3D. Trident’s advanced Digital Video Processing technology has been developed after years of R&D in the field of video and 2D/3D graphics. The DPTV™-3D is a highly integrated scan-conversion chipset solution that is designed for progressive TV/DVD player applications.

     Individuals using the DPTV™-3D Video Processor will have the benefit of using a multi-featured device while gaining a price competitive advantage over existing solutions. The chip is designed with external CPU(s) and Display & Deflection Processor (DDP) for maximum design flexibility. The DPTV™-3D incorporates features such as a programmable 3D comb filter and a NTSC/PAL/SECAM TV decoder, 14-D picture enhancement algorithm, panorama aspect ratio, PIP/POP display and programmable zooming capability, progressive scan, and adaptive motion detect capability by using an advanced .25 µm process technology. Also, the DPTV™-3D is designed for mass production and will support a 2, 4, or 8 MB SDRAM frame buffer configuration.

     Trident and TrueVideo are registered trademarks Blade XP™, CyberBLADE™ XP2, CyberBlade™ XP, CyberALADDiN-P4™, CyberALADDiN-T™, CyberBlade™ Ai1, CyberBlade™ i1, CyberBlade™ i7, XP4™, TVXpress, DPTV™-DX, DPTV™-3D, are trademarks of the Company. Other trademarks used herein are the property of their respective owners.

Sales, Marketing and Distribution

     We sell our products primarily through direct sales efforts. We have sales offices in Taipei, Taiwan; Hong Kong, China; Houston, Texas and Sunnyvale, California. Our offices are staffed with sales, applications engineering, technical support, customer service and administrative personnel to support its direct customers. We also market our products through independent sales representatives and distributors.

     Historically, our desktop customers have been primarily Asian adapter card manufacturers who sell their products to PC manufacturers, and distributors. However, in the past few years leading PC systems manufacturers have significantly increased their share of the PC market, displacing in part some of the Asian adapter card manufacturers. While many PC manufacturers based in Asia may sell PCs to leading systems manufacturers for resale, the choice of components for these PCs generally is made by the leading systems manufacturers. Consequently, we have made a major effort to design products to fill the needs of leading PC systems manufacturers as well as the needs of adapter card manufacturers.

     Our notebook customers have been primarily worldwide brandname notebook PC manufacturers and Taiwanese OEM/ODM (original equipment manufacturers/original design manufacturers) notebook PC manufacturers. Whether manufactured by the PC company or an OEM/ODM, the notebook product is distributed primarily through brandname sales channels. With long design-in cycles, we have solid technical support required by these customers to ensure successful product launching and delivery.

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     Our future success depends in large part on the success of our sales to leading PC systems manufacturers and the sales of digital television manufacturers. We continue to focus our sales and marketing efforts with the goal of increasing sales to the leading PC systems manufacturers, digital television manufacturers and OEM channels. Competitive factors of particular importance in such markets include performance and the integration of functions on a single IC chip.

     Our digitally processed television manufacturers include leading manufacturers of TVs in China and Korea. We service these customers primarily through our sales forces in the United States, Taiwan and China. As digital television is rapidly developing in the United States, Europe, Japan, Korea, China and elsewhere, we expect that leadership in this industry will also rapidly change, and our objective is to become a supplier to a broad range of manufacturers in this marketplace, and to manufacturers for other markets as DPTV is deployed in those markets.

     During fiscal 2002, we generated 99% of our revenues from Asia. Major PC systems manufacturers often take delivery of their products in Asia for production purposes, and such sales by us are reflected in the Company’s revenues in Asia. Sales to one customer, Inno Micro, which is a supplier of Toshiba, accounted for approximately 58% of net sales for fiscal 2002. A small number of customers frequently account for a majority of our sales in any quarter. However, sales to any particular customer fluctuate significantly from quarter to quarter. Future operating performance will be dependent in part on the ability to replace significant customers or win new design-ins with current customers from one quarter to the next. Fluctuations in sales to key customers may adversely affect our operating results in the future. For additional information on foreign and domestic operations, see Note 11 to the Consolidated Financial Statements.

Manufacturing

     We have adopted a “fabless” manufacturing strategy whereby we contract-out our wafer fabricating needs to qualified contractors that we believe provide cost, technology or capacity advantages for specific products. As a result, we have generally been able to avoid the significant capital investment required for wafer fabrication facilities and to focus our resources on product design, quality assurance, marketing and customer support. We have, however, made a substantial investment to help ensure capacity, as described below. Our wholly-owned subsidiary, Trident Microsystems (Far East) Ltd. (“Trident Far East”), manages our manufacturing operations.

     In order to obtain an adequate supply of wafers, especially wafers manufactured using advanced process technologies, we entered into a joint venture agreement in August 1995 with United Microelectronics Corporation (“UMC”), a Taiwanese publicly traded company and one of our current foundries, under which we invested approximately U.S.$49.3 million for an equity interest in a joint venture with UMC and other venture partners known as United Integrated Circuits Corporation (UICC). We are guaranteed a maximum wafer capacity of approximately 3,000 wafers per month from the wafer fabrication facility of the venture. On January 3, 2000, UMC acquired UICC. As a result of this merger, and a 20% stock dividend payable to shareholders of record May 16, 2000, the total shares of our investment in UMC equals approximately 55.8 million shares as of June 30, 2001 which represents about 0.5% of the outstanding stock of UMC. In order to preserve our wafer capacity guarantee with UMC, there are certain limitations on our ability to sell the shares. If our total shareholdings fall below one-half of their initial percentage of shares, our production capacity will be reduced by at least 50%, and depending on the interpretation of the foundry capacity agreement between the parties, our production capacity could be reduced by substantially more than 50%. In addition, one-third of the shares is subject to a two-year lock-up period in accordance with an investment agreement entered into with UMC. After a two-year period, one-fifth of the shares will be available for sale from the lock-up portion every six months. As of June 30, 2002, approximately 12.9 million shares are subject to this lock-up restriction. While we are an operating company not in the business of investing, reinvesting, owning, holding or trading in securities, we do intend to monitor the advisability of disposing of our UMC stock and intend to sell all or part of the stock when it is in the best interests of our shareholders to do so, however, at present we do not have an intent to sell any of the stock in the immediate future.

     In fiscal 2002, our primary foundry was UMC. We will continue to explore arrangements for additional capacity commitments, although there is no assurance that any additional agreements will be executed, or that additional capacity is required.

     We purchase product in wafer form from the foundries and we manage the contracting with third parties for the chip packaging and testing. In order to manage the production back-end operations, we have been adding

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personnel and equipment to this area. Our goal is to increase the quality assurance of the products while reducing manufacturing cost. To ensure the integrity of the suppliers’ quality assurance procedures, we have developed and maintained test tools, detailed test procedures and test specifications for each product, and we require the foundry and third party contractors to use those procedures and specifications before shipping finished products. We have experienced few customer returns based on the quality of our products. However, our future return experience may vary because our more advanced, more complex products are more difficult to manufacture and test. In addition, some of our customers, including major PC systems manufacturers, may subject those products to more rigid testing standards than in the past.

     Our reliance on third party foundries and assembly and testing houses involves several risks including the absence of adequate capacity, the unavailability of or interruptions in access to certain process technologies, and reduced control over delivery schedules, manufacturing yields, quality assurance and costs. We conduct business with certain foundries by delivering written purchase orders specifying the particular product ordered, quantity, price, delivery date and shipping terms and, therefore, except as set forth in the above-mentioned contracts or agreements, such foundries are not obligated to supply products to us for any specific period, in any specific quantity or at any specified price, except as may be provided in a particular purchase order.

     While we have obtained and continue to seek additional capacity, the qualification process and the production ramp-up for additional foundries has in the past taken and could in the future take longer than anticipated. There can be no assurance that such additional capacity from current foundries and new foundry sources will be available and will satisfy our requirements on a timely basis or at acceptable quality or per unit prices. Constraints or delays in the supply of our products, whether because of capacity constraints, unexpected disruptions at the foundries or assembly or testing houses, delays in additional production at existing foundries or in obtaining additional production from existing or new foundries, shortages of raw materials, or other reasons, could result in the loss of customers and other material adverse effects on our operating results, including effects that may result should we be forced to purchase products from higher cost foundries or pay expediting charges to obtain additional supply. In addition, to the extent we elect to use multiple sources for certain products, customers may be required to qualify multiple sources, which could adversely affect the customers’ desire to design-in our products.

Research and Development

     We have spent approximately $22.2 million, $20.0 million and $27.6 million on Company sponsored research and development activities during fiscal 2002, 2001 and 2000, respectively. We have conducted substantially all of our product development in-house and have a staff of 291 research and development personnel as of June 30, 2002. We are focusing our development efforts primarily on the development of more advanced graphics controllers, including 3D graphics controllers, multimedia products and digitally processed television. In addition, we intend to continue to devote significant resources to the development of a broad range of high-performance, proprietary software drivers. In anticipation of future market demand, we are investing in a variety of new technologies through licensing and purchase arrangements. These technologies may be incorporated in our future products, providing additional functionality and integration.

Competition

     The markets in which we compete are highly competitive and we expect that competition will increase. The principal factors of competition in our markets include, but are not limited to price, performance, the timing of new product introductions by us and our competitors, product features, the emergence of new graphics and other PC standards, level of integration of various functions, quality and customer support. Our principal current competitors in graphics include ATI Technologies, Inc., NVIDIA Corporation, S3 Graphics, Silicon Integrated Systems and Silicon Motion. In the digital television market our principal competitors are Toshiba, Philips Electronics and Micronas AG. Certain of our current competitors and many potential competitors have significantly greater technical, manufacturing, financial and marketing resources than we have.

     Leading PC systems manufacturers have increased market share in desktop and notebook PC systems in recent years. We believe that performance, features and quality are particularly important in the North American, Japanese and European systems manufacturer markets, and that integration of various functions on a single IC is becoming increasingly important in these markets. While we have recently gained entry to the system manufacturers who are headquartered in these geographic markets, there can be no assurance that we will continue to be able to compete successfully as to price or any other factor or that we will continue to be successful in our efforts to expand

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sales in these markets. Our failure to meet the technological and pricing challenges of our competition would have an adverse effect on our results of operations.

     We also plan to continue developing the next generation DPTV™ product as well as other advanced products for digital TV and digital STB for the digital television market in China, Japan, Korea and Taiwan. We believe the market for digital television will be competitive, and will require substantial research and development, sales and other expenditures to stay competitive in this market. In the digital television market our principal competitors are Toshiba, Philips Electronics, and Micronas AG. However, we believe that DPTV™ products will have a longer product life cycle than other current products. Therefore we expect to devote significant resources to the DPTV™ market even though competitors are substantially more experienced than we are in this market. These efforts may not be successful, however.

International Operations

     Our wholly-owned subsidiary, Trident Far East, maintains offices in Hong Kong, and China. Trident Far East is responsible for the manufacturing of our products and is principally responsible for international sales activities and for operation of the Hong Kong and Taiwan offices. The Hong Kong office provides sales and technical support for customers in Hong Kong and logistical support for customers in Hong Kong and Taiwan. The Taiwan office provides sales and technical support for customers in their respective regions. The Taiwan office directly hires its own employees. We have established research and development facilities in Hsinchu, Taiwan and Shanghai, China. Management has combined the Taiwan office and the Taiwan research and development facility into one company Trident Technologies Inc. On January 18, 2000, our Board of Directors approved a spin-off of our Trident Technologies Inc. subsidiary and our Trident Multimedia Technologies (Shanghai) Co. Ltd. subsidiary. The structure and timing of these spin-offs, and the nature of the operations at the time of spin-off will depend on a number of organizational, operational and marketing factors. We have not made all of the decisions necessary to complete these spin-offs, and the spin-offs may not occur in 2003. While we intend to structure the transactions in a manner to enhance our overall operations, the spin-offs will dilute the interests of our shareholders in the operations of the spun off entities and, particularly if the spin-offs do not increase their revenue and profitability, could adversely affect our financial results.

     During fiscal 2002, 2001 and 2000, sales to OEM, ODM and adapter card customers in Asia accounted for approximately 99% of our net sales of graphic chips in all three years, and all of our DPTV sales in fiscal 2002 occurred in Asia. We anticipate that sales to customers in Asia will continue to account for a substantial percentage of sales. In addition, the foundries that manufacture our products are located in Asia. Due to this concentration of international sales and manufacturing capacity in Asia, we are subject to the risks of conducting business internationally, including unexpected changes in regulatory requirements, fluctuations in the U.S. dollar which could increase the sales price in local currencies of our products in foreign markets, tariffs and other barriers and restrictions, and the burdens of complying with a wide variety of foreign laws. In addition, we are subject to general geopolitical risks, such as political and economic instability and changes in diplomatic and trade relationships, in connection with our sales, support and third-party fabrication efforts in Hong Kong, Taiwan and elsewhere. Also, political instability or significant changes in economic policy could disrupt our operations in foreign countries or result in the curtailment or termination of such operations. While we have not experienced any other material adverse effects on our operations as a result of other regulatory or geopolitical factors, there can be no assurance that such factors will not adversely impact our operations in the future or require us to modify our current business practices.

Intellectual Property

     We attempt to protect our trade secrets and other proprietary information primarily through agreements with customers and suppliers, proprietary information agreements with employees and consultants and other security measures. Although we intend to protect our rights vigorously, there can be no assurance that these measures will be successful. We have filed two U.S. patent applications in fiscal year 2002 relating to our technology. There can be no assurance that these applications will be approved, that any issued patents will protect our intellectual property or that they will not be challenged by third parties. Furthermore, there can be no assurance that others will not independently develop similar or competing technology or design around any patents that may be issued.

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     The semiconductor industry is characterized by frequent litigations regarding patent and other intellectual property rights. From time to time, we have received notices claiming that we have infringed third-party patents or other intellectual property rights. To date, licenses generally have been available to us where third-party technology was necessary or useful for the development or production of our products. However, NeoMagic Corporation has filed suit alleging that our embedded DRAM (dynamic random access memory) graphics accelerators infringe their patents. We have responded and filed a counterclaim, which is described in more detail under “Item 3. Legal Proceedings.” There can be no assurance that this litigation will be resolved in favor of us or that third parties will not assert additional claims against us with respect to existing or future products or that licenses will be available on reasonable terms, or at all, with respect to any third-party technology. The NeoMagic litigation or similar litigation to determine the validity of any third-party claims could result in significant expense to us and divert the efforts of our technical and management personnel, whether or not such litigation is determined in our favor. In the event of an adverse result in any such litigation, we could be required to expend significant resources to develop non-infringing technology or to obtain licenses to the technology that is the subject of the litigation. There can be no assurance that we will be successful in such development or that any such licenses would be available. Patent disputes in the semiconductor industry have often been settled through cross licensing arrangements. Because we currently do not have a portfolio of patents, we may not be able to settle any alleged patent infringement claim through a cross-licensing arrangement. In the event any third party made a valid claim against us or our customers and a license was not made available to us on commercially reasonable terms, we would be adversely affected. In addition, the laws of certain countries in which our products have been or may be developed, manufactured or sold, including the People’s Republic of China, Taiwan and Korea, may not protect our products and intellectual property rights to the same extent as the laws of the United States of America.

     We may in the future initiate claims or litigations against third parties for infringement of our proprietary rights to determine the scope and validity of our proprietary rights. Any such claims, with or without merit, could be time-consuming, result in costly litigation and diversion of technical and management personnel or require us to develop non-infringing technology or enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on acceptable terms, if at all. In the event of a successful claim of infringement and our failure or inability to develop non-infringing technology or license the proprietary rights on a timely basis, our business, operating results and financial condition could be materially adversely affected.

Backlog

     Because our business is characterized by short lead-time orders and quick delivery schedules, we seek to ship products within a few weeks of receipt of orders. As a result, we operate without significant backlog, and rely on bookings each quarter to comprise a predominant portion of our sales for that quarter. Additionally, purchase orders may be cancelable without significant penalty or subject to price renegotiations, changes in unit quantities or delivery schedules to reflect changes in customers’ requirements or manufacturing availability. Consequently, we do not believe that backlog is a reliable indicator of future sales.

Segments

     We operate in the videographics and digital media segments as described above. The majority of our revenues and operating loss was attributed to our videographics segment. For fiscal years ended June 30, 2002 and 2001, the digital media segment accounted for $6,222,000 and $2,788,000 in revenues, respectively. As a percentage of revenues for fiscal years ended June 30, 2002 and 2001, the digital media segment accounted for 6% and 2%, respectively. The digital media segment accounted for $3,924,000 in operating loss for the fiscal year ended June 30, 2002. At June 30, 2002 and 2001, the assets attributed to the digital media segment were negligible.

Employees

     As of June 30, 2002, we had 407 full time employees, including 291 in research and development, 36 in product testing, quality assurance and operations functions, 38 in marketing and sales and 42 in finance, human resources, and administration. As of June 30, 2002, we had 124 employees in the United States, 209 in Shanghai,

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China, 57 in Taiwan and 17 in Hong Kong. Competition for qualified personnel in the semiconductor, software and the PC industry in general is intense in Silicon Valley where we are located. Our future success will depend in great part on our ability to continue to attract, retain and motivate highly qualified technical, marketing, engineering and management personnel. Our employees are not represented by any collective bargaining agreements, and we have never experienced a work stoppage. We believe that our employee relations are good.

Item 2. Properties

     We lease a building of approximately 34,000 square feet on 1090 East Arques Avenue in Sunnyvale, California, pursuant to a lease which expires in June 2006. This building is used as our headquarters and includes development, marketing and sales, and administrative offices. We lease office space for a sales office in Houston, Texas. This sales office totals approximately 500 square feet. Our other leases include a 6,000 square foot office in Kwun Tong, China, for the Hong Kong branch office of the Trident Far East subsidiary, a 9,000 square foot sales office in Taipei, Taiwan, a 14,000 square foot research and development facility in Hsinchu, Taiwan, a 4,000 square foot sales office in Shenzhen, China; a 36,000 square foot research and development facility in Shanghai, China, and a 1,000 square foot sales office in Beijing, China.

Item 3. Legal Proceedings

     On December 14, 1998, NeoMagic Corporation (“NeoMagic”) filed a patent infringement lawsuit in the U.S. District Court, District of Delaware, asserting infringement of two patents against us. On February 1, 2001, the Court granted summary judgment in favor of us that we did not infringe either patent. Other motions for summary judgment relating to damages issues remain unresolved. We expect the Court to enter judgment in our favor. NeoMagic has appealed the summary judgment on its infringement claims but we believe the appeal is premature. We expect to move to dismiss the appeal unless the Court permits NeoMagic to pursue the appeal before our antitrust counterclaim is resolved in the trial court. We asserted an antitrust counterclaim against NeoMagic, seeking compensatory damages, trebled damages, costs and attorney fees, which was stayed pending resolution of NeoMagic’s infringement claims at the District Court level. After the District Court granted summary judgment, we moved to lift the stay on our antitrust counterclaim. The briefing on this motion is completed and the parties are awaiting oral argument. On May 7, 2001, NeoMagic filed its opening appeal brief. On May 17, 2001, we filed a motion to dismiss NeoMagic’s appeal for lack of jurisdiction arguing that there is no final appealable order and that our antitrust counterclaim remains pending. On June 15, 2001, we filed our opposition appeal brief and renewed our request that the appeal be dismissed for lack of jurisdiction. On July 2, 2001, NeoMagic filed its reply brief. On July 31, 2001, the Federal Circuit dismissed NeoMagic’s appeal without prejudice as premature. NeoMagic subsequently moved the District Court to certify our summary judgment for immediate appeal pursuant to Federal Rules of Civil Procedure Rule 54(b). That motion was granted, as was our motion to lift the stay on our antitrust counterclaim so we could take limited discovery. On April 16, 2002, the Federal Circuit affirmed summary judgment on NeoMagic’s ‘955 patent in favor of us. The Federal Circuit affirmed portions of the district court’s claim construction on NeoMagic’s ‘806 patent, reversed others, and remanded the case to the district court for further proceedings on the ‘806 patent. However, the district court judge retired within days of the remand order, and the case has been reassigned to a yet-to-be-confirmed new judge. In the meantime, Magistrate Judge Thynge has agreed to hear new cross-motions for summary judgment, probably in November. We continue to take discovery in the district court on our antitrust counterclaim.

     On May 26, 2000, NeoMagic filed a second patent infringement lawsuit in the U.S. District Court, District of Delaware, asserting that we infringed a patent issued in March 2000 that is related to the two patents at issue in the first case. NeoMagic is seeking a permanent injunction, damages, including enhanced damages, pre-judgment and post-judgment interest, costs and attorney fees. This case was stayed pending resolution of the first case, and was dismissed without prejudice in August, 2002 by stipulation of the Parties.

     In January 2001, FIC Corporation’s motion to add us as a third-party defendant in a patent infringement case brought against FIC by Intel Corporation in the U.S. District Court, Northern District of California was denied. FIC had attempted to add us as a third-party defendant because we allegedly supplied to FIC the devices which Intel claims infringe its patents. FIC then demanded that we assume FIC’s defense in the Intel action, which demand we rejected. FIC settled its case with Intel and renewed its demand in March 2001, that we reimburse it for its costs of defense. We rejected this demand, and FIC has threatened to file suit against us seeking recovery of its costs of

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defense. Given the nature of litigation and inherent uncertainties associated with litigation, management cannot predict with certainty whether FIC will bring suit or the ultimate outcome of any such litigation.

     On April 26, 2001, we filed a lawsuit against VIA Technologies, Inc. We alleged that VIA and S3 Graphics, together with former Company engineering senior managers, conspired to misappropriate our trade secrets about products in development. We further alleged that the corporate and individual defendants used our confidential information to systematically recruit key engineers away from us as part of a scheme to gain a competitive advantage by undermining our product development and design win capabilities. We also alleged that VIA and S3 Graphics may be planning to use our trade secrets to unfairly compete against us. We requested both legal and equitable relief. The parties have settled their disputes. As part of that settlement, the action was dismissed.

     On May 4, 2001, VIA Technologies, Inc. sued us in the U.S. District Court, Northern District of California for breach of contract and related claims arising out of our agreements with respect to the manufacture and sale of Cbi-1 and Cbi-7 chipsets. The complaint seeks payment in an unspecified amount (but later asserted to be approximately $6.3 million) for 686,675 Cbi-7 chipsets we allegedly ordered but did not pay for. On May 29, 2001, we answered and counterclaimed, asserting claims for breach of the same agreements, interference with our relationships with our customers, and related claims. On July 9, 2001, we moved for a preliminary injunction to require VIA to satisfy its agreements with us. At the August 13, 2001 scheduled hearing on our motion for preliminary injunction, the Court continued the hearing to September 13 and ordered the parties to mediate their dispute in the interim. The mediation was not successful, but we nevertheless withdrew our motion for preliminary injunction. Extensive discovery was undertaken, following which the case was settled on May 24, 2002.

     Statements regarding the possible outcome of litigation and our actions are forward looking statements and actual outcomes could vary based upon future developments on the litigation.

Item 4. Submission of Matters to a Vote of Securities Holders.

None.

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Executive Officers of the Registrant

     As of June 30, 2002, the executive officers of the Company, who are elected by and serve at the discretion of the Board of Directors, were as follows:

Name		Age				Position		Employed Since
Frank C. Lin			57			President, Chief Executive Officer and Chairman of the Board			1987
Jung-Herng Chang, Ph.D.			46			Senior Vice President, Engineering			1992
Peter Jen			56			Senior Vice President, Asia Operations and Chief Accounting Officer			1988

     Mr. Lin founded Trident in July 1987 and has served in his present position since that time. His career spans 25 years in the computer and communications industries. Prior to Trident, he was Vice President of Engineering and co-founder of Genoa Systems, Inc., a graphics and storage product company. Before Genoa, Mr. Lin worked for GTE, ROLM, and was a senior manager at Olivetti Advanced Technical Center in Cupertino, CA. He holds a M.S.E.E. from the University of Iowa and an B.S.E.E. from National Chiao Tung University, Taiwan.

     Dr. Chang joined the Company in July 1992. He was appointed to his present position in January 1998. He was appointed Vice President, Engineering in July 1994, and served as Chief Technical Officer from July 1992 through June 1994. From October 1988 through July 1992, he was a hardware design manager at Sun Microsystems, Inc. From September 1985 through September 1988, he was a research member at IBM’s Thomas J. Watson Research Center. Dr. Chang holds a Ph.D. in Computer Science and a M.S. in Electrical Engineering and Computer Science from the University of California, Berkeley, and a B.S. in Electrical Engineering from the National Taiwan University.

     Mr. Jen joined the Company in August 1988. He was appointed to the position of Chief Accounting Officer in September 1998 and Senior Vice President, Asia Operations in January 1998. He was appointed to the position of Vice President, Asia Operations in April 1995, and served as General Manager of Asia Operations from April 1994 to April 1995. He served as Vice President, Operations from September 1992 to March 1994, and served as Vice President, Finance from October 1990 through August 1992. From September 1985 to July 1988, he was Controller at Genoa Systems, Inc., a graphics chipset design company. Prior to that time, Mr. Jen served in finance and operations positions for various corporations, including Bristol-Myers (Taiwan), Pacific Glass Corporation, a subsidiary of Corning Glass Works, and Philips Telecommunicatie Industrie, B.V. Mr. Jen holds an M.B.A. in Marketing from Central Missouri State University and a B.S. in Accounting from National Taiwan University.

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PART II

Item 5. Market for the Registrant’s Common Stock and Related Stockholder Matters

     The Company’s stock has been traded on the NASDAQ National Market since the Company’s initial public offering on December 16, 1992 under the NASDAQ symbol TRID. The following table sets forth, for the periods indicated, the quarterly high and low sales prices for the Company’s common stock as reported by NASDAQ:

     As of June 30, 2002, there were approximately 115 registered holders of record of the Company’s common stock.

     The Company has never paid cash dividends on its common stock. The Company currently intends to retain earnings, if any, for use in its business and does not anticipate paying any cash dividends in the foreseeable future.

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Item 6. Selected and Supplementary Financial Data

TRIDENT MICROSYSTEMS, INC.
SELECTED CONSOLIDATED FINANCIAL DATA

		Year ended June 30,
(in thousands, except per share data)		2002				2001				2000				1999				1998
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues		$	105,766			$	128,226			$	122,682			$	89,255			$	113,002
Income (loss) from operations			(13,006	)			2,394				(4,206	)			(14,251	)			(9,520	)
Net income (loss)			(35,651	)			(43,640	)			68,107				(12,195	)			(5,106	)
Basic income (loss) per share			(2.66	)			(3.33	)			5.07				(0.94	)			(0.39	)
Diluted income (loss) per share			(2.66	)			(3.33	)			4.43				(0.94	)			(0.39	)
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents, and short-term investments		$	84,018			$	79,385			$	149,706			$	32,469			$	36,886
Working capital			73,802				79,191				115,211				37,498				47,881
Total assets			118,524				147,419				222,376				110,910				118,427
Long-term debt, less current portion			—				—				46				82				350
Total stockholders’ equity			90,656				105,366				155,961				93,381				104,891

SUPPLEMENTARY QUARTERLY CONSOLIDATED FINANCIAL DATA

		FISCAL 2002 QUARTER ENDED
(in thousands, except per share data)		JUNE 30				MARCH 31				DECEMBER 31				SEPTEMBER 30
Revenues		$	21,009			$	28,839			$	30,178			$	25,740
Gross profit			4,963				6,239				5,655				5,939
Loss from operations			(3,737	)			(2,622	)			(3,680	)			(2,967	)
Net loss			(2,032	)			(2,076	)			(3,334	)			(28,209	)
Net loss per share — basic and diluted			(0.15	)			(0.15	)			(0.25	)			(2.12	)

		FISCAL 2001 QUARTER ENDED
(in thousands, except per share data)		JUNE 30				MARCH 31				DECEMBER 31				SEPTEMBER 30
Revenues		$	32,393			$	24,724			$	35,052			$	36,057
Gross profit			9,369				5,010				15,111				9,390
Income (loss) from operations			463				(3,212	)			4,982				161
Net income (loss)			2,367				(50,646	)			4,105				534
Basic income (loss) per share			0.18				(3.87	)			0.32				0.04
Diluted income (loss) per share			0.17				(3.87	)			0.29				0.04

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Special Note Regarding Forward-Looking Statements

     When used in this report the words “expects,” “anticipates,” “estimates” and similar expressions are intended to identify forward-looking statements. Such statements, which include statements concerning:

•		the timing of availability and functionality of products under development,
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