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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

TRIDENT MICROSYSTEMS, INC.

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. Yes [X] No [  ]

          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. [X]

          Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act. Yes [  ] No [ X ]

          The aggregate market value of the Common Stock held by non-affiliates of the Registrant, based upon the closing price of the Common Stock on December 31, 2002 ($3.70 per share), as reported on the NASDAQ National Market was approximately $32,168,214. 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, 2003, was 14,427,850.

          Part III incorporates by reference from the definitive proxy statement for the registrant’s 2003 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.

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TABLE OF CONTENTS

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PART I

Item 1. Business

          Since 1987 we have designed, developed and marketed very large-scale integrated circuits (“IC”) for videographics and multi-media products for the desktop personal computer (“PC”) market. In 1995 we began design and development of videographic IC’s for the notebook PC market which became our largest selling product area through 2002. In 2000, we restructured our organization into two business units, the Graphics Division, which concentrated primarily on videographics for the desktop and notebook PC market, and the Digital Media Division (DM), which designed and developed integrated circuits for digitally processed television (DPTV) for the consumer television market.

          On June 12, 2003 we announced that the assets of our Graphics Division will be acquired by XGI Technology, Inc. (XGI), the graphics unit previously spun off from Silicon Integrated System Corp (SiS). XGI will be capitalized through a cash infusion from outside investors. This transaction closed on July 25, 2003 and we received a 30% equity interest in XGI. In a separate transaction, the assets of our Digital Media Division were merged with our subsidiary, Trident Technologies, Inc. (TTI) in Taiwan, on August 25, 2003 to strengthen and extend our digitally processed television business. As a result of these transactions, we will be able to focus our resources on our restructured DM business as well as focus on other challenges and opportunities in the rapidly growing digital media market. After the close of this transaction we held a 90% equity interest in TTI.

          We have been investing in and experiencing success in the digital television market for several years. During that time, the digital television industry has grown rapidly and we believe that this industry is on the verge of a further, significant growth phase. We undertook our restructuring to allow us to build upon our prior success in this market by focusing our resources primarily on digital media products. We are optimistic that this will position Trident for a return to profitability.

          As a result of the restructuring, we expect to increase the resources devoted to the digital television market, but still reduce our overall expense level. We expect to experience additional benefits from focusing on digital media products. These include a broader customer base and, consequently, less dependence on a limited group of customers, as well as a longer product life and longer design cycle for our products. We believe these and other factors will position Trident for success in the market and for a more effective business model than the one we operated in the graphics industry.

          References to “we,” “Trident,” or the “Company” in this report refer to Trident Microsystems, Inc. and its subsidiaries, including Trident Technologies, Inc. (TTI) which was 63% owned as of June 30, 2003.

Markets and Products

          As we go forward into fiscal year 2004, our principle design, development and marketing effort will focus primarily on our Digital Media products. Our Digital Media Division accounted for 48% and 6% of total revenues for fiscal years ended June 30, 2003 and 2002, 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 world wide digital television market including specifically China, Japan, Korea and Taiwan. Designed for system design flexibility, and high integration level, our goal is for users of our single chip DPTV™ Video Processors(s) to benefit from feature rich devices at competitive prices. The DPTV video processor converts analog TV into an advanced progressive digital quality television. While we have developed valuable experience with digital video television, following the acquisition of our Graphics Division assets, we anticipate this market to generate substantially all of our revenues. However, there can be no guarantee that our digital television products will be accepted by the market or increase our revenues or profitability.

Current Digital Media Products:

          We have been developing products for other digital media applications, such as set top boxes and progressive television sets since 1999. 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

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devices, such as Cathode Ray Television (“CRTTV”), Liquid Crystal Display Television (“LCDTV”), Plasma Display Panel (“PDP”), Projection TV, Liquid Crystal Display projection.

          DPTV™3D. DPTV™3D integrates an advanced 3-D digital comb video decoder for NTSC, PAL, and SECAM formats. Based on Trident’s patented proprietary Unified Memory Architecture (UMA), DPTV™-3D digital comb video decoder does not require extra frame buffers for performing 3D comb filtering. With film-mode recovery, DPTV™-3D can accurately detect the frame rates of incoming video sources, and then correctly restore the video source to the original film mode sequences in play back. The motion adaptive de-interlacing and edge-smoothing feature of the DPTV™-3D further refines the video display quality. The DPTV™ chip enables a SDTV signal to display in Picture-In-Picture mode, Picture-Out-Picture mode, and 16:9 or 4:3 aspect ratio modes. DPTV™-3D supports non-linear scaling in panorama mode to ensure the most natural picture aspect ratio for the viewers. DPTV™-3D’s integrated 3-D digital comb video decoder has a built-in VBI circuit for closed captioning and V-chip for parental control that is EIA 608 compliant. Furthermore, DPTV™-3D’s graphic-based On-Screen Display provides the most user-friendly and graphic-oriented TV menu control interface.

          DPTV™MV. DPTV^TMMV is a derivative of DPTV3DP. It has all the features of DPTV-3D, except that DPTV^TMMV’s integrative video decoder is 2D comb filter video decoder. The DPTV™MV is the main component in the premier TV chipset solution on the market. Designed for maximum system design flexibility, users of Trident’s single chip DPTV^TM Video Processor(s) will benefit from one of the most feature rich devices available while maintaining a price competitive advantage over the existing solution(s). The DPTV^TM-MV converts today’s analog TV into an advanced progressive TV quality. Decoded HDTV digital video streams can be formatted to different output display modes by DPTV. Trident’s DPTV^TM product family propels the corporate mission of Digital Media For The Masses by delivering tomorrow’s digital media technology to today’s consumer.

          DPTV™3DPRO. The DPTV™3DPRO is Trident’s third generation DPTV single-chip mixed-signal video processor product. It integrates a high performance, multi-region 3D digital comb video decoder, a motion and edge adaptive de-interlacer with film mode recovery, scan rate and frequency conversion circuitries, and a graphical-based OSD for full support of today’s premier digital TV applications. DPTV™3DPRO uses Trident’s patented Unified Memory Architecture (UMA), which allows both 3D comb filter video decoding and video enhancement processing to share the same frame buffer memory made up of high-speed and cost-effective PC graphic memory. Designed for maximum system design flexibility, DPTV™3DPRO integrates all video interfaces to support hybrid digital and analog TV chassis applications. DPTV™3DPRO is ideal for applications in Digital TVs, Plasma TVs, LCD TVs, and Set-top boxes, where high precision video processing and scan rate frequency conversion are required. The users of Trident’s single chip DPTV™ video processor(s) will benefit from many features available while maintaining a price competitive advantage over the existing solution(s).

          PANELTV™3DPRO. The PANELTV™3DPRO is Trident’s third generation DPTV single-chip mixed-signal video processor product. It integrates a high performance, multi-region 3D digital comb video decoder, a motion and edge adaptive de-interlacer with film mode recovery, scan rate and frequency conversion circuitries, and a graphical-based OSD for full support of today’s premier digital TV applications. PANELTV™3DPRO uses Trident’s patented Unified Memory Architecture (UMA), which allows both 3D comb filter video decoding and video enhancement processing to share the same frame buffer memory made up of high-speed and cost-effective PC graphic memory. Designed for maximum system design flexibility, PANELTV™3DPRO integrates all video interfaces to support hybrid digital and analog TV chassis applications. The PANELTV™3DPRO uses a 320-pin BGA package allowing multiple video data input and output configurations. PANELTV™3DPRO is ideal for applications in Digital TVs, Plasma TVs, LCD TVs, and Set-top boxes, where high precision video processing and scan rate frequency conversion are required. The users of Trident’s single chip DPTV™ video processor(s) will benefit from many features available while maintaining a price competitive advantage over the existing solution(s).

          PANELPRO™-MM. The PanelPro™-MM is an advanced high-quality controller chip that designed with an external CPU for maximum system design flexibility, users of Trident’s single chip PanelPro™-MM Video Processor will benefit from one of the most feature rich devices available while maintaining a price competitive advantage over the existing solution(s). The PanelPro™-MM integrates - Clamping, pre-amp, ADC, sync separator, scaling engine, and external SDRAM/SGRAM interface - to deliver a high quality, high integration controller for the mainstream LCD monitors with dual (VGA analog and digital) interfaces plus video inputs up to D4. The chip handles dual 24-bit digital RGB port, SYNC input, and separated 8-bit /16-bit digital port for video decoder connection. The SYNC input interfaces directly with any VGA/SVGA/XGA/UXGA graphics board or any other compatible source. The PanelPro™-MM accepts video signals from both 8/16-bit YUV CCIR601 or 8-bit CCIR656 formats from a video decoder and receives digital signals from an external DVI transmitter. It delivers 48-bit digital

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data and all essential control signals for driving an 8-bit or 6-bit TFT LCD panel. Frame rate conversion is also supported with external SDRAM / SGRAM.

          TVX2. Trident’s TVX2 is a versatile NTSC/PAL TV encoder chip equipped with an advanced, programmable multi-tap TV de-flicker and UV chroma filter that provides sharp text, superb graphics, and vivid video quality while substantially reducing dot crawl and color bleeding for computer images displaying on TV. TVX2 enables Entertainment PC applications such as 3D gaming, web TV, video conferencing, etc. to be displayed on television.

Products in Development:

          Trident’s product market strategy is to continually provide the most integrated video processor solution to the market. Trident is the world’s first and in many cases, the only company to integrate high precision ADC, advanced 3D comb filter video decoder, de-interlacer, and scaler into a single chip. We intend to lead the industry in innovations and we are planning introductions of the next generation of DPTV chips in the current fiscal year.

          Trident and TrueVideo are registered trademarks DPTV™3D, DPTV™MV, DPTV™3DPRO, PANELTV™3DPRO, PANELPRO-MM™, and are trademarks of the Company as of June 30, 2003. Other trademarks used in this report are the property of their respective owners.

Graphics Products:

          As a result of the sale of the assets of our Graphics Division, we will no longer produce graphics chips for the PC market. Graphics chips accounted for the majority of our revenue in fiscal 2003 and all prior periods.

Sales, Marketing and Distribution

          We sell our products primarily through direct sales efforts. Our digitally processed television products are marketed primarily from our sales offices in Taipei, Taiwan; Shanghai, China; and Sunnyvale, California. Our graphics products were marketed from our 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.

          Our future success depends in large part on the success of our sales to leading digital television manufacturers. The focus of our sales and marketing efforts will be to increase sales to the leading digital television manufacturers and OEM channels. Competitive factors of particular importance in such markets including TV platform support, performance and the integration of functions on a single integrated circuit chip.

          Our digitally processed television manufacturers include leading manufacturers of TVs in China, Taiwan, Japan 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 2003 our desktop customers were 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 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 were primarily worldwide brandname notebook PC manufacturers and Taiwanese OEM/ODM (original equipment manufacturers/original design manufacturers) notebook PC manufacturers. Whether

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manufactured by the PC company or an OEM/ODM, the notebook product was distributed primarily through brandname sales channels. With the merging of the assets of our Graphics Division into XGI, technical support required by these customers will be supplied by XGI.

          During fiscal year 2003, we generated 98% 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. A small number of customers frequently account for a majority of our sales in any quarter. However, sales to any particular customer may fluctuate significantly from quarter to quarter. 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 Technology, Inc. will provide manufacturing operations for our Digital Media Business Unit after the closing of our restructuring in August 2003.

          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 73.8 million shares as of June 30, 2003 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 are 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, 2003, approximately 6.4 million shares with a carrying value of $4.4 million 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 2003, 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 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

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reduced control over delivery schedules, manufacturing yields, quality assurance and costs. We often conduct business with 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 $21.6 million, $22.2 million and $20.0 million on Company sponsored research and development activities during fiscal 2003, 2002 and 2001, respectively. We have conducted substantially all of our product development in-house and as of June 30, 2003 our staff of research and development personnel equaled 259, which included 109 employees under the graphics division.

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, level of integration of various functions, quality and customer support. In the digital television market our principal competitors are Toshiba, Philips Electronics, Micronas AG, Pixelworks, Inc. and Genesis Microchip, Inc. Other smaller competitors supplying LCDTV chip sets may arise in the future. Certain of our current competitors and many potential competitors have significantly greater technical, manufacturing, financial and marketing resources than we have.

          We plan to continue developing the next generation DPTV™ product as well as other advanced products for digitally processed television and digital set top boxes for the digitally processed 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. 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. However, these efforts may not be successful.

International Operations

          Our wholly-owned subsidiary, Trident Far East, maintains offices in Hong Kong, 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 August 25, 2003, the assets of our Digital Media Division, which were previously operated under the U.S. head office, were merged with our subsidiary, Trident Technologies, Inc. (TTI) in Taiwan, to strengthen and extend our digitally processed television business.

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          During fiscal years 2003 and 2002, all of our DPTV sales occurred in Asia. During fiscal year 2003, 2002 and 2001, sales to OEM, ODM and adapter card customers in Asia accounted for approximately 97% of our net sales of graphic chips. We anticipate that sales to customers in Asia will continue to account for a substantial percentage of revenues. 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 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 obtained various digital video processing technology patents with other patents pending. 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. While we will maintain certain rights and obligations with respect to our graphics technology, substantially all such rights for the PC graphics field were transferred as part of the XGI transaction.

          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, we have been in litigation with NeoMagic Corporation 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.

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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

          For fiscal years ended June 30, 2003, 2002 and 2001, the digital media segment accounted for $25.6 million, $6.2 million and $2.8 million in revenues, respectively. As a percentage of revenues for fiscal years ended June 30, 2003, 2002 and 2001, the digital media segment accounted for 48%, 6% and 2%, respectively. The digital media segment had an operating income of $1.9 million for the fiscal year ended June 30, 2003, and an operating loss of $3.9 million for the fiscal year ended June 30, 2002.

Employees

          As of June 30, 2003, we had 257 full time employees in our Digital Media division, including 150 in research and development, 31 in product testing, quality assurance and operations functions, 41 in marketing and sales and 35 in finance, human resources, and administration. As of June 30, 2003, our Digital Media division had 45 employees in the United States, 149 in Shanghai, China, 46 in Taiwan and 17 in Hong Kong. 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.

Available Information

          We file electronically with the Securities and Exchange Commission (SEC) our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. The public may read or copy any materials we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov.

          You may obtain a free copy of our annual reports on Form 10-K and quarterly reports on Form 10-Q and any amendments to these reports on the day of filing with the SEC or on our website on the World Wide Web at http://www.tridentmicro.com. We do not make available on our website current reports on Form 8-K because we state on our website the location where such filings can be found on the SEC website and on http://www.FreeEdgar.com. You may obtain a free copy of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports by contacting the Investor Relations Department at our corporate offices by calling 408 991-8090 or by sending an e-mail message to investor@tridentmicro.com .

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. Our other leases include a 6,000 square-foot office in Hong Kong, China, for the Hong Kong branch office of our 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-

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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. Also, in fiscal year 2003, we leased a 500 square-foot sales office in Houston, Texas for marketing our graphics products.

Item 3. Legal Proceedings

          On December 14, 1998, NeoMagic Corporation (“NeoMagic”) filed a patent infringement action against us in the United States District Court for the District of Delaware, Case No. 98-CV-699. On January 25, 1999, we answered the complaint and filed a counterclaim alleging violation of Section 2 of the Sherman Act. The antitrust counterclaim was stayed by the Court pending the outcome of NeoMagic’s patent infringement claim. The parties filed motions for summary judgment concerning infringement on December 23, 1999 and January 11, 2000. The Court issued its order regarding patent claim construction on May 8, 2000. Following additional briefing on the issue of infringement, on February 1, 2001, the Court issued its second order regarding patent claim construction and granted our motion for summary judgment of non-infringement. On February 28, 2001, NeoMagic filed its notice of appeal of the Court’s February 1, 2001 order to the United States Court of Appeal for the Federal Circuit. On April 5, 2001, we filed a motion to lift the stay on its antitrust counterclaim. On September 7, 2001, the District Court granted our motion to lift the stay on our antitrust counterclaim and discovery on the counterclaim is proceeding.

          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 because there is no final appealable order and our antitrust counterclaim remained pending. On August 1, 2001, the Federal Circuit granted our motion and dismissed NeoMagic’s appeal.

          On August 3, 2001, NeoMagic requested that the United States District Court of Delaware enter an order under the Federal Rules of Civil Procedure Rule 54(b) certifying the February 1, 2001 summary judgment order as a final judgment. On August 27, 2001, the Court certified the February 1, 2001 order as a final judgment, and on August 29, 2001, NeoMagic again filed its Notice of Appeal with the United States Court of Appeals for the Federal Circuit. NeoMagic filed its brief with the Federal Circuit on October 15, 2001 and we filed our reply brief on November 23, 2001. Argument was heard before the Federal Circuit on March 6, 2002.

          On April 17, 2002, the Federal Circuit issued an Order affirming-in-part and vacating-in-part the District Court’s summary judgment of non-infringement. The Federal Circuit upheld the District Court’s summary judgment determination as to non-infringement of U.S. Patent No. 5,650,955 in favor of us, but vacated-in-part the District Court’s summary judgment determination as to non-infringement of U.S. Patent No. 5,703,806, remanding the case back to the District Court for additional briefing on the issue.

          The case was assigned to Magistrate Judge Thynge. The parties filed opening briefs in connection with claim construction and cross motions for summary judgment. Oral argument on these motions occurred on November 5, 2002. The Court issued its Order on May 9, 2003, granting our motion for summary judgment of non-infringement and denying NeoMagic’s motion for summary judgment of infringement. On May 21, 2003, we filed a motion for clarification requesting that the Court clarify its Memorandum Opinion by restating the final paragraph on page 31 of the Opinion. On May 23, 2003, NeoMagic filed a motion for reconsideration of the Court’s May 9, 2003 Order. On July 30, 2003, the Court issued an Order denying NeoMagic’s motion for reconsideration of the Court’s May 9, 2003 summary judgment decision and granting our motion for clarification of the Court’s May 23, 2003 summary judgment decision. NeoMagic has asked us to stipulate to an order pursuant to Federal Rule of Civil Procedure Rule 54(b) certifying the July 30, 2003 Order as a final judgment and allowing immediate appeal of this decision to the Federal Circuit. We anticipate that NeoMagic will make a motion under Rule 54(b) if we decline to stipulate, and that such motion most likely would be granted, allowing immediate appeal of the July 30 Order granting us summary judgment of non-infringement.

          On April 10, 2003, Trident Microsystems (Far East) Ltd. filed suit against iGlobe Partners Fund, L.P. (“iGlobe Fund”), and certain related persons and entities, in the Superior Court of the State of California, County of Santa Clara. Trident Microsystems (Far East) Ltd. is a wholly-owned subsidiary of Trident Microsystems, Inc. In the lawsuit, Trident and other limited partners of the iGlobe Fund seek to rescind their multi-million dollar investment in the iGlobe Fund, or alternatively, to be excused from satisfying past and future capital calls of the iGlobe Fund. A tentative settlement of the suit has been reached by the parties.

          The results of any litigation matters are inherently uncertain. In the event of an adverse decision in the described legal actions or disputes, or any other related litigation with third parties that could arise in the future with

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respect to patents or other intellectual property rights relevant to our products, we could be required to pay damages and other expenses, to cease the manufacture, use and sale of infringing products, to expend significant resources to develop non-infringing technology or to obtain licenses to the infringing technology. We cannot make any assurance that these matters will not materially and adversely affect the Company’s business, financial condition, operating results, or cash flows.

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, 2003, the executive officers of the Company, who are elected by and serve at the discretion of the Board of Directors, were as follows:

          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, 2003, there were approximately 113 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

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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 effects of our recent restructuring on our business and future financial results,
•		our prospects for success in the digital television market and its effect on our future financial results,
•		demand for and trends in revenue for our products,
•		the timing of availability and functionality of products under development,
•		future prospects for the digital television market,
•		trends in average selling prices,
•		the percentage of export sales,
•		outcome of pending litigation,
•		future investments and/or acquisitions,
•		devotion of resources and control of expenses related to new products, markets and internal business strategies,

are subject to risks and uncertainties, including those set forth below under “Factors That May Affect Our Results” and elsewhere in this report, that could cause actual results to differ materially from those projected. These forward-looking statements speak only as of the date hereof. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.

The following discussion should be read in conjunction with our Financial Statements and Notes thereto.

Overview of Business

          The PC marketplace is characterized by intense price competition and rapid technological changes as leading PC systems manufacturers compete among themselves and other PC clone makers for market share. It is in this difficult environment that we determined that it was in the best interest of our stockholders to merge our Graphics Division with another high tech company to improve the Graphics Division’s competitive situation and provide it with additional resources. On June 12, 2003 we announced that the assets of our Graphics Division will be acquired by XGI Technology, Inc. (XGI), the graphics unit previously spun off from Silicon Integrated System Corp (SiS). XGI will be capitalized through cash infusion from outside investors. This transaction closed on July 25, 2003 and we received a 30% equity interest in XGI. In a separate transaction, the assets of our Digital Media Division were merged with our subsidiary, Trident Technologies, Inc. (TTI) in Taiwan, on August 25, 2003 to strengthen and extend the company’s digitally processed television business. As a result of these transactions, we will be able to focus our resources on our restructured DM business as well as focus on other challenges and opportunities in the rapidly growing digital media market. After the close of this transaction we held a 90% equity interest in TTI.

          We have been investing in and experiencing success in the digital television market for several years. During that time, the digital television industry has grown rapidly and we believe that this industry is on the verge of a further, significant growth phase. We undertook our restructuring to allow us to build upon our prior success in this market by focusing our resources primarily on digital media products. We are optimistic that this will position Trident for a return to profitability.

          As a result of the restructuring, we expect to increase the resources devoted to the digital television market, but still reduce our overall expense level. We expect to experience additional benefits from focusing on digital media products. These include a broader customer base and, consequently, less dependence on a limited group of customers, as well as a longer product life and longer design cycle for our products. We believe these and other factors will position Trident for success in the market and for a more effective business model than the one we operated in the graphics industry.

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Recent Developments

          In September 2003, we entered into an agreement with an independent venture capital fund to sell approximately one-third of our equity investment in XGI for cash of approximately $7.4 million. Upon consummation of the transaction, we will hold approximately 20% equity interests in XGI.

          In September 2003, we entered into an agreement with UMC and its designees to sell approximately 7% equity interests in our subsidiary, TTI, for cash of approximately $2.7 million. Upon consummation of the transaction, we will hold approximately 83% equity interests in TTI.

Critical Accounting Policies, Judgments and Estimates

          Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to customer programs and incentives, product returns, bad debts, inventories, equity investments, income taxes, financing operations, warranty obligations, excess component order cancellation costs, restructuring, long-term service contracts, pensions and other post-retirement benefits, and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

          We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements.

          We recognize product sales as revenue, generally upon shipment, when persuasive evidence of an arrangement exists, title and risk of loss pass to the customer, the price is fixed or determinable, and collection of the receivable is reasonably assured. A reserve for sales returns is established based on historical trends in product returns. Sales to resellers are generally recognized upon shipment to end user customers.

          We record estimated reductions to revenue for customer programs and incentive offerings including special pricing agreements, promotions, historical returns, inventory levels at distributors and other volume-based incentives. If market conditions were to decline, we may take actions to increase customer incentive offerings possibly resulting in an incremental reduction of revenue at the time the incentive is offered.

          We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

          We provide for the estimated cost of product warranties at the time revenue is recognized. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers, our warranty obligation is affected by product failure rates and material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from our estimates, revisions to the estimated warranty liability would be required.

          We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

          We currently evaluate our long-lived assets in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets,” whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable.

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Factors considered important that could result in an impairment review include significant underperformance relative to historical or projected future operating results, significant changes in the manner of use of acquired assets or the strategy for the our business, significant negative industry or economic trends, and/or a significant decline in the our stock price for a sustained period of time.

          We hold minority interests in companies having operations or technology in areas within our strategic focus, three of which are publicly traded and have highly volatile share prices. We record an investment impairment charge when we believe an investment has experienced a decline in value that is other-than-temporary. Future adverse changes in market conditions or poor operating results of underlying investments could result in losses or an inability to recover the carrying value of the investments that may not be reflected in an investment’s current carrying value, thereby possibly requiring an impairment charge in the future.

Results of Operations

          The following table sets forth the percentages that consolidated statement of operations items are to revenues for the years ended June 30, 2003, 2002 and 2001: