UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 20-F

TABLE OF CONTENTS

Risk Factors

     We may from time to time make written or oral forward-looking statements. Written forward-looking statements may appear in this document and other documents filed with the Securities and Exchange Commission, in press releases, in reports to shareholders, on our website, and other documents. The Private Securities Reform Act of 1995 contains a safe harbor for forward-looking statements on which the Company relies in making such disclosures. In connection with this “safe harbor”, we are hereby identifying important factors that could cause actual results to differ materially from those contained in any forward-looking statements made by us or on our behalf. Any such statements are qualified by reference to the following cautionary statements:

Risks Related to Our Business

We are dependent on a few large customers, the loss of any of which could substantially harm our business and operating results.

     Historically, a substantial percentage of our sales have been to a small number of customers. During the years ended December 31, 2001, 2002, 2003 and 2003,2004, sales to our customers accounting for 10% or more of our net sales aggregated approximately 44.1%60.2%, 60.2%46.7% and 46.7%47.9%, respectively, of our net sales. The loss of Epson Precision (HK) Ltd., Sony Ericsson Mobile Communications ABSharp Corporation, Wuxi Sharp Electronic Components Co., Ltd., or Toshiba Matsushita Display Technology Co. Ltd.Motorola Inc., each of which accounted for more than 10% of our net sales during 2003,2004, or a substantial reduction in orders from any of them, would materially and adversely impact our business and operating results.

Our quarterly and annual operating results are subject to significant fluctuations from a wide variety of factors.

     Our quarterly and annual operating results are affected by a wide variety of factors that could materially and adversely affect our business and operating results during any period. This could result from any one or a combination of factors, such as:

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	•		the timing, cancellation or postponement of orders,orders;
	•		the type of product and related margins,margins;
	•		our customers’ announcement and introduction of new products or new generations of products,products;
	•		the life cycles of our customers’ products,products;
	•		our timing of expenditures in anticipation of future orders,orders;
	•		our effectiveness in managing manufacturing processes, including, interruptions or slowdowns in production and changes in cost and availability of components,components; and
	•		the mix of orders filled.

     The volume and timing of orders received during a quarter are difficult to forecast. From time to time, our customers encounter uncertain and changing demand for their products. Customers generally order based on their forecasts. If demand falls below such forecasts or if customers do not control inventories effectively, they may reduce, cancel or postpone shipments of orders.

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     As a consequence of any of the above factors, our results of operations in any period should not be considered indicative of results to be expected in any future period, and fluctuations in operating results may also result in fluctuations in the market price of our common shares. Our results of operations in future periods may fall below the expectations of public market analysts and investors. This failure to meet expectations could cause the trading price of our common shares to decline substantially.

Cancellations or delays in orders could materially and adversely affect our gross margins and operating income.

     Sales to our original equipment manufacturer, or OEM, customers are primarily based on purchase orders we receive from time to time rather than firm, long-term purchase commitments. Although it is our general practice to purchase raw materials only upon receiving a purchase order, for certain customers we will occasionally purchase raw materials based on such customers’ rolling forecasts. Further, during times of potential component shortages, we have purchased, and may continue to purchase, raw materials and component parts in the expectation of receiving purchase orders for products that use these components. In the event actual purchase orders are delayed, are not received or are cancelled, we would experience increased inventory levels or possible write-down of raw material inventory that could materially and adversely affect our business and operating results. In 2001, we wrote down inventory for $3.8 million for slow-moving raw materials relating to cancelled, reduced or delayed orders. Subsequently, we were able to use some of these raw materials in production or we received compensation for the unused raw materials from certain of our customers, and the gain of $2.0 million was recorded in cost of sales during 2002.

If we are unable to produce our new products in a high-quality and cost-effective manner, our gross margins and business and operating results could be materially and adversely affected.

     We have experienced increased costs associated with developing advanced manufacturing techniques to produce our complex products on a mass scale and at a low cost. This has negatively impacted our gross margins. For example, our initial production runs of liquid crystal display, or LCD, modules experienced low production yields and other inefficiencies. We have commenced production of Bluetooth^TM wireless headset accessory, radio frequency, or RF, modules, thin film transistor liquid crystal display, or TFT LCD, modules, color LCD modules and complementary metal oxide semiconductor, or CMOS, sensor modules and flexible printed circuit, or FPC, sub-assemblies in relation to which we have relatively limited manufacturing experience. We expect that a substantial portion of our growth will come from our manufacture of these products. While we expect and plan for such increased costs in our new product manufacturing cycle, we cannot precisely predict the time and expense required to overcome initial problems and to ensure reliability and high quality at an acceptable cost. The increased costs and other difficulties associated with manufacturing RF modules, TFT LCD modules, color LCD modules, CMOS sensor modules, FPC sub-assemblies and other new products could have a negative impact on our future gross margins. In addition, even if we develop capabilities to manufacture new products, there can be no guarantee that a market will exist for such products or that such products will adequately respond to market trends. If we invest resources to develop capabilities to manufacture new products, like the investment in our new factory, for which a market does not develop, our business and operating results would be seriously harmed. Even if the market for our services grows, it may not grow at an adequate pace.

Our inability to utilize capacity at our new factory could materially and adversely affect our business and operating results.

     In order to expand our production capacity, we intend to use approximately $40 million to construct and equiphave built a new factory consisting of approximately 250,000265,000 square feet on land adjacent to our principal manufacturing facilities in Shenzhen, the People’s Republic of China, or China. Construction beganChina or the PRC. The construction was completed in September 2003,December 2004 and we expect itfull operations to be completed by the endcommence in April 2005. As of the fourth quarter in 2004. For the year ended December 31, 2003,2004, we had spent $1.2$15.0 million on this construction. Onceto cover the cost of construction and fixtures and equipment for the new factory. The financing for these improvements to our new factory is completed, we willmanufacturing facilities was obtained from our internal resources. We have committed substantial expenditures and resources constructing and equipping this factory but cannot guarantee that we will be able to fully utilize such additional capacity. Our factory utilization is dependent on our success in providing manufacturing services for new or other products that we intend to produce at that factory, including image capturing devices and their modules, such as Bluetooth^TM wireless headset accessory for cellular phones, CMOS sensor modules RF modules, TFT and color LCD modules and handset assemblies for cellular phones with built-in camera function, home entertainment products and FPC sub-assemblies at a price and volume sufficient to absorb our increased overhead expenses. Demand for contract manufacturing of these products may not be as high as we expect, and we may fail to realize the expected benefit from our investment in our new factory.

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We face increasing competition, which has had an adverse effect on our margins.

     Although certain barriers to entry exist in providing electronics manufacturing services, or EMS, including technical expertise, substantial capital requirements, difficulties relating to building customer relationships and a large customer base, the barriers to entry are comparatively low and we are aware that manufacturers in Hong Kong and China may be developing or have developed the required technical capability and customer base to compete with our existing business.

     Competition in the electronics manufacturing services, or EMS industry is intense and is characterized by price erosion, rapid technological change, and competition from major international companies. This intense competition has resulted in pricing pressures, lower sales and reduced margins. Continuing competitive pressures could materially and adversely affect our business and operating results. Over the last several years our margins have declined substantially, from 17.2% in 1999 to approximately 16.3%14.3% in 2003.2004. Continuing competitive pressures could materially and adversely affect our business and operating results.

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We may not be able to compete successfully with our competitors, many of which have substantially greater resources than we do.

     The electronics manufacturing services we provide are available from many independent sources as well as from our current and potential customers with in-house manufacturing capabilities. Our EMS competitors include Celestica, Inc., Flextronics International Ltd., Hon Hai Precision Industry Co., Ltd., Jabil Circuit, Inc., Sanmina-SCI Corporation and Solectron Corporation. Our principal competitors in the manufacture of our traditional product lines of calculators, personal organizers and linguistic products include Kinpo Electronics, Inc. and Inventec Co. Ltd. Our competitors in the manufacturing of image capturing devices and their modules include Lite-On Technology Corporation, The Primax Group and Logitech Inc.International S.A. Our principal competitors in the manufacture of mobile phone accessories include Elcoteq Network Corp. Our competitors in the manufacturing of RF modules include Wavecom and WKK International (Holdings) Ltd. Our competitors in the manufacturing of LCD panels include Truly International Holdings Ltd. and Varitronix International Ltd. We also have numerous competitors in the telecommunication, subassembliessub-assemblies and components product lines, including Philips, Samsung, Solectron and Varitronix.Varitronix International Ltd. Many of our competitors have greater financial, technical, marketing, manufacturing, regional shipping capabilities and logistics support and personnel resources than we do. As a result, we may be unable to compete successfully with these organizations in the future.

We must spend substantial amounts to maintain and develop advanced manufacturing processes and engage additional engineering personnel in order to attract new customers and business.

     We operate in rapidly changing industries. Technological advances, the introduction of new products and new manufacturing and design techniques could materially and adversely affect our business unless we are able to adapt to those changing conditions. As a result, we are continually required to commit substantial funds for, and significant resources to, engaging additional engineering and other technical personnel and to purchase advanced design, production and test equipment.

     Our future operating results will depend to a significant extent on our ability to continue to provide new manufacturing solutions that compare favorably on the basis of time to introduction, cost, and performance with the manufacturing capabilities of OEMs and competitive third-party suppliers. Our success in attracting new customers and developing new business depends on various factors, including:

	•		utilization of advances in technology;
	•		development of new or improved manufacturing processes for our customer’s products;
	•		delivery of efficient and cost-effective services; and
	•		timely completion of the manufacture of new products.

We generally have no written agreements with suppliers to obtain components and our margins and operating results could suffer from increases in component prices.

     We are typicallysometimes responsible for purchasing components used in manufacturing products for our customers. We generally do not have written agreements with our suppliers of components. This typically results in our bearing the risk of component price increases because we may be unable to procure the required materials at a price level necessary to generate anticipated margins from the orders of our customers. Accordingly, increases in component prices could materially and adversely affect our gross margins and operating results.

Our business and operating results would be materially and adversely affected if our suppliers of needed components fail to meet our needs.

     At various times, we have and continue to experience shortages of some of the electronic components that we use, and suppliers of some components lack sufficient capacity to meet the demand for these components. In some cases, supply shortages and delays in deliveries of particular components have resulted in curtailed production, or delays in production, of assemblies using that component, which contributed to an increase in our inventory levels and reduction in our gross margins. We expect that shortages and delays in deliveries of some components will continue. If we are unable to obtain sufficient components on a timely basis, we may experience manufacturing delays, which could harm our relationships with current or prospective customers and reduce our sales. We also depend on a small number of suppliers for certain of the

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components that we use in our business. For example, we purchase most of our integrated circuits from Toshiba Corporation and Sharp Corporation and certain of their affiliates. If we were unable to continue to purchase components from these limited source suppliers, our business and operating results would be materially and adversely affected.

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Factors affecting the electronics industry in general and our customers in particular could harm our operations.

     Most of our sales are to customers in the electronics industry, which is subject to rapid technological change, product obsolescence and short product life cycles and has suffered from an industry-wide slowdown since 2000. The factors affecting the electronics industry in general, or any of our major customers or competitors in particular, could have a material adverse effect on our business and operating results. Our success will depend to a significant extent on the success achieved by our customers in developing and marketing their products, including their products that use RF modules, color straight-twisted nematic, or STN, LCD modules, TFT LCD modules, and CMOS sensor modules and FPC sub-assemblies, some of which may be new and untested. If our customers’ products become obsolete, fail to gain widespread commercial acceptance or become the subject of intellectual property disputes, this could harm our business and operating results.results could be materially and adversely affected.

Future acquisitions or strategic investments may not be successful and may harm our operating results.

     An important element of our strategy is to review prospects for acquisition or strategic investments that would complement our existing companies and products, augment our market coverage and distribution ability or enhance our technological capabilities.

     Future acquisitions or strategic investments could have a material adverse effect on our business and operating results because of:

	•		possible charges to operating results for purchased technology, restructuring or impairment charges related to goodwill or amortization expenses associated with intangible assets,assets;
	•		potential increase in our expenses and working capital requirements and the incurrence of debt and contingent liabilities,liabilities;
	•		difficulties in successfully integrating any acquired operations, technologies, customers products and businesses with our operations,operations;
	•		diversion of our capital and management’s attention to other business concerns,concerns;
	•		risks of entering markets or geographic areas in which we have limited prior experience,experience; or
	•		potential loss of key employees of acquired organizations or inability to hire key employees necessary for expansion.

     For example, in 1998,September 2004, we made a provision for, and subsequently wrote off,an impairment to write down our entire $10.0 million investment in Albatronics (Far East) Company Limited, or Albatronics.Alpha Star Investments Ltd. to its fair value of approximately $3.0 million, based on advice from an external valuer.

Our customers are dependent on shipping companies for delivery of our products and interruptions to shipping could materially and adversely affect our business and operating results.

     Typically, we sell our products F.O.B. Hong Kong and our customers are responsible for the transportation of products from Hong Kong to their final destinations.     Our customers rely on a variety of carriers for product transportation through various world ports. A work stoppage, strike or shutdown of one or more major ports or airports could result in shipping delays materially and adversely affecting our customers, which in turn could have a material adverse effect on our business and operating results. Similarly, an increase in freight surcharges due to rising fuel costs or general price increases could materially and adversely affect our business and operating results.

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Because our operations are international, we are subject to significant worldwide political, economic, legal and other uncertainties.

     We are incorporated in the British Virgin Islands and have subsidiaries incorporated in the Cayman Islands, Hong Kong, Macao, Japan and China. We have administrative offices in Hong Kong and our People’s Republic of China, or PRC, headquarters are located in Macao, China.Macao. We manufacture all of our products in China. As of December 31, 2003,2004, approximately 76.5%86.7% of the net book value of our total fixed assets is located in China. We sell our products to customers in Hong Kong, North America, Europe, Japan, China and Southeast Asia. Our international operations may be subject to significant political and economic risks and legal uncertainties, including:

	•		changes in economic and political conditions and in governmental policies,policies;
	•		changes in international and domestic customs regulations,regulations;
	•		wars, civil unrest, acts of terrorism and other conflicts,conflicts;
	•		changes in tariffs, trade restrictions, trade agreements and taxation,taxation;
	•		difficulties in managing or overseeing foreign operations,operations; and
	•		limitations on the repatriation of funds because of foreign exchange controls.

     The occurrence or consequences of any of these factors may restrict our ability to operate in the affected region and decrease the profitability of our operations in that region.

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Our operating results could be negatively impacted by seasonality.

     Historically, our sales and operating results have been affected by seasonality. Sales of calculators, personal organizers and linguistic products are typically higher during the second and third quarters in anticipation of the start of the school year and the Christmas buying season. Similarly, our consumer servicesconsumers’ orders for electronics products have historically been lower in the first quarter from both the closing of our factories in China for the Chinese New Year holidays and the general reduction in sales following the holiday season. These sales patterns may not be indicative of future sales performance.

Our results could be harmed if we have to comply with new environmental regulations.

     Our operations create some environmentally sensitive waste that may increase in the future depending on the nature of our manufacturing operations. The general issue of the disposal of hazardous waste has received increasing attention from the PRCChinese national and local governments and foreign governments and agencies and has been subject to increasing regulation. Currently, relevant Chinese environmental protection laws and regulations impose fines on discharge of waste materials and empower certain environmental authorities to close any facility which causes serious environmental problems. Although it has not been alleged that we have violated any current environmental regulations by China government officials, there is no assurance that the Chinese government will not amend its current environmental protection laws and regulations. Our business and operating results could be materially and adversely affected if we were to increase expenditures to comply with environmental regulations affecting our operations.

IfOur insurance coverage may not be sufficient to cover the risks related to our operations and losses.

     We have not experienced any major accidents in the course of our operations which have caused significant property damage or personal injuries. However, there is anno assurance that we will not experience major accidents in the future. Although we have purchased the necessary insurances, including a business interruption policy, a fidelity guarantee policy and policies covering losses or damages in respect of buildings’ machineries, equipments and inventories, the occurance of certain incidents such as earthquake, war and flood, and the consequences resulting from them, may not be covered adequately, or at all, by the insurance policies under which we are protected. We also face exposure to product liability claims in the event that any of our products is alleged to have resulted in property damage, bodily injury or other adverse outcomeeffects. We only have product liability insurance for some of our products. Losses incurred or payments we may be required to make, may have a material adverse effect on our results of operations if such losses or payments are not fully insured.

We are a defendant in a putative class action lawsuits and this litigation that has been filed against us,could harm our business could be seriously harmed.regardless of the final outcome.

     On March 11, 2003, we were served with a complaint in an action captionedMichael Rocco v. Nam Tai, et al., 03 Civ. 1148 (S.D.N.Y.), or the Rocco Action. In addition to Nam Tai, certain directors are named as defendants. On or about April 9, 2003, a second complaint was filed in an action captionedA.J. & Celine Steigler v. Nam Tai, et al., 03 Civ. 2462 (S.D.N.Y.), or the Steigler Action, and together with the Rocco Action, the Actions. The Actions have been consolidated since July 2003 and purportspurport to represent a putative class of persons who purchased the common stock of Nam Tai from July 29, 2002 through February 18, 2003. Plaintiffs in the Actions assert claims under SectionSections 10(b) and 20(a) of the Securities Exchange Act of 1934 and allege that misrepresentations and/or omissions were made during the alleged class periodsperiod concerning the partial reversal of an inventory provision and a charge to goodwill related to Nam Tai’s LCD panels and transformers segment, or LPT segment. We have filed aDefendants’ motion to dismiss the lawsuit and thewas denied on September 27, 2004. The putative class action has not been certified as a class action by the court. In any event, our motioncourt but we expect plaintiffs to dismiss was heardseek such certification in November 2003 and we are awaiting the judgment of thenear future. The court thereof.has set May 23, 2005 to hear such a certification motion. Nam Tai believes it has meritorious defenses and it intends to defend the case vigorously. Nam Tai is aware of no other actions that have been filed which relate to these matters. The ultimate outcome of this litigation cannot be presently determined. However, this litigation could be very costly and divert our management’s attention and resources. In addition, we have no insurance covering our liability, if any, or that of our officers and directors, and we will have to pay the costs of the defense. Any adverse determination in this litigation could also subject us to significant liabilities, any or all of which could materially and adversely affect our business and operating results.

8We depend on our executive officers and skilled management personnel.

We are dependent on certain members     Our success depends to a large extent upon the continued services of our senior management.

executive officers. Generally, our employees are bound by employment or non-competition agreements. However, we cannot assure you that we will retain our executive officers and other key employees. We are substantially dependent uponcould be seriously harmed by the servicesloss of Mr. Tadao Murakami, our Chairman of the Board of Directors, Mr. Joseph Li, our Chief Executive Officer and President, and Mr. M. K. Koo, our Chief Financial Officer. We have employment agreements with each of Mr. Murakami, Mr. Koo and Mr. Joseph Li. Mr. Murakami’s employment may be terminated immediately and, pursuant to Mr. Koo’s and Mr. Joseph Li’s agreements, their employment may be terminated upon short notice. Mr. Koo’s and Mr. Li’s employment agreements provide that they may not compete with our business nor solicit any of our customers or employees for a period of six months following termination for any reason under the employment agreements. Mr. Murakami’s agreement doesexecutive officers. In order to manage our growth, we will need to recruit and retain additional skilled management personnel and if we are not have comparable provisions. Accordingly, Mr. Murakami may engage in a business that is in competition with us after his termination, which may have a material adverse effect onable to do so our business and operating results.our ability to continue to grow could be harmed. We maintain no key person insurance on these individuals. The loss of the servicesservice of any of these officers or key management personnel could have a material adverse effect on our business growth and operating results.

We may be unable to succeed in recovering on our judgment debts against Tele-Art.Tele-Art, Inc.

     We have two judgments in our favor against Tele-Art, Inc. awarded by The High Court of Justice in the British Virgin Islands for approximately $35.0 million. Because Tele-Art, Inc. is in liquidation, we may not realize the entire amount of our judgments, and the actual amount of the recovery, if any, is uncertain and dependent on a number of factors. We may incur substantial additional costs in pursuing our recovery, and such costs may not be recoverable.

We could become involved in intellectual property disputes.

     We do not have any patents, licenses, or trademarks material to our business. Instead, we rely on trade secrets, industry expertise and our

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customers sharing of intellectual property with us. We may be notified that we are infringing patents, copyrights or other intellectual property rights owned by other parties. In the event of an infringement claim, we may be required to spend a significant amount of money to develop a non-infringing alternative or to obtain licenses. We may not be successful in developing such an alternative or obtaining a license on reasonable terms, if at all. Any litigation, even without merit, could result in substantial costs and diversion of resources and could materially and adversely affect our business and operating results.

We may not pay dividends in the future.

     Although we have declared dividends during each of the last teneleven years, we may not be able to declare them or may decide not to declare them in the future. Our China subsidiaries are required to reserve 10% of profits for future development, which may affect our ability to declare dividends. We will determine the amounts of the dividends when they are declared and even if dividends are declared in the future, we may not continue them in any future period.

We are subject to the risk of increased taxes.

     We base our tax position upon the anticipated nature and conduct of our business and upon our understanding of the tax laws of the various countries in which we have assets or conduct activities. Our tax position, however, is subject to review and possible challenge by taxing authorities and to possible changes in law. We cannot determine in advance the extent to which some jurisdictions may assess additional tax or interest and penalties on such additional taxes.

     Several places in which we are located allow for tax holidays or provide other tax incentive to attract and retain business. We have obtained holidays or other incentives where available. Our taxes could increase if certain tax holidays or incentives are retracted, or if they are not renewed upon expiration, or tax rates applicable to us in such jurisdictions are otherwise increased.

Recently enacted changes in the securities laws and regulations are likely to increase our costs.

     The Sarbanes-Oxley Act of 2002 that became law in July 2002 has required changes in some of our corporate governance, securities disclosure and compliance practices. In response to the requirements of that act, the Securities and Exchange Commission, or SEC, and the New York Stock Exchange, or NYSE, have promulgated new rules on a variety of subjects. Compliance with these new rules as well as the Sarbanes-Oxley Act of 2002 has increased our legal, financial and accounting costs, and we expect these increased costs to continue indefinitely, particularly as new rules and regulations, including Section 404 of the Sarbanes-Oxley Act of 2002, come into effect. We also expect these developments to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be forced to accept reduced coverage or incur substantially higher costs to obtain coverage. Likewise, these developments may make it more difficult for us to attract and retain qualified members of our board of directors or qualified executive officers.

Risks Related to Our Operations in China, Hong Kong, Macao and MacaoJapan

     Our manufacturing facilities are located in China and some of our subsidiaries and several of our customers and suppliers are located in Hong Kong and China. Our PRC headquartersSome of our subsidiaries are located in Hong Kong, Macao China.and Japan. As a result, our operations and assets are subject to significant political, economic, legal and other uncertainties associated with doing business in China, Hong Kong, Macao and Macao,Japan, which are discussed in more detail below.

We are exposed to risks associated with doing business in China.

     Our principal manufacturing operations are located in Shenzhen, China. These operations could be severely impacted by evolving interpretation and enforcement of legal standards, by strains on Chinese energy, transportation, communications, trade and other infrastructures, by conflicts, embargoes, increased tensions or escalation of hostilities between China and Taiwan, and by other trade customs and practices that are dissimilar to those in the United States and Europe. Interpretation and enforcement of China’s laws and regulations continue to evolve and we expect differences in interpretation and enforcement to continue in the foreseeable future. Further, we may be exposed to fluctuations in the value of the renminbi yuan, or RMB, the local currency of China. Recently, China has been confronted with international pressure demanding the appreciation of the RMB. Should the Chinese government allow a significant RMB appreciation, our component and other raw material costs could increase and could adversely affect our financial results.

The Chinese government could change its policies toward, or even nationalize, private enterprise, which could harm our business and operating results.

     Over the past several years, the Chinese government has pursued economic reform policies including the encouragement of private economic activities and decentralization of economic regulation with a move towards a market economy. The Chinese government may not continue to pursue these policies or may significantly alter them to our detriment from time to time without notice. Changes in policies by the Chinese government resulting in changes in laws, regulations, or their interpretation, or the imposition of confiscatory taxation, restrictions on currency conversion or imports and sources of supply could materially and adversely affect our business and operating results. The nationalization or other expropriation of private enterprises by the Chinese government could result in the total loss of our investment in China.

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The Chinese legal system has inherent uncertainties that could materially and adversely impact our ability to enforce the agreements governing our factories and to do business.

     We do not own the land on which our factories in China are located. We occupy our principal manufacturing facilities under land use agreements with agencies of the Chinese government and we occupy other facilities under lease agreements with peasant collectives or other companies. The performance of these agreements and the operations of our factories are dependent on our relationship with the local government. Our operations and prospects would be materially and adversely affected by the failure of the local government to honor these agreements or an adverse change in the law governing them. In the event of a dispute, enforcement of these agreements could be difficult in China. Unlike the United States, China has a civil law system based on written statutes in which judicial decisions have limited precedential value. The Chinese government has enacted laws and regulations dealing with economic matters such as corporate organization and governance, foreign investment, commerce, taxation and trade. However, its experience in implementing, interpreting and enforcing these laws and regulations is limited, and our ability to enforce commercial claims or to resolve commercial disputes in China is unpredictable. These matters may be subject to the exercise of considerable discretion by agencies of the Chinese government, and forces and factors unrelated to the legal merits of a particular matter or dispute may influence their determination.

Fire, severe weather, flood or earthquake could cause significant damage to our facilities in China and disrupt our business operations.

     Our products are manufactured exclusively at our factories located in China. Fire fighting and disaster relief or assistance in China is not well developed. Material damage to, or the loss of, our factories due to fire, severe weather, flood, earthquake or other acts of God or cause may not be adequately covered by proceeds of our insurance coverage and could materially and adversely affect our business and operating results. In addition, any interruptions to our business caused by such disasters could harm our business and operating results.

Controversies affecting China’s trade with the United States could harm our results of operations or depress our stock price.

     While China has been granted permanent most favored nation trade status in the United States through its entry into the World Trade Organization, controversies between the United States and China may arise that threaten the status quo involving trade between the United States and China. These controversies could materially and adversely affect our business by, among other things, causing our products in the United States to become more expensive resulting in a reduction in the demand for our products by customers in the United States. Political or trade friction between the United States and China, whether or not actually affecting our business, could also materially and adversely affect the prevailing market price of our common shares.

Changes to Chinese tax laws and heightened efforts by the Chinese tax authorities to increase revenues could subject us to greater taxes.

     Under applicable Chinese law, we have been afforded a number of tax concessions by, and tax refunds from, the Chinese tax authorities on a substantial portion of our operations in China by reinvesting all or part of the profits attributable to our Chinese manufacturing operations. However, the Chinese tax system is subject to substantial uncertainties with respect to its interpretation and enforcement. Following the Chinese government’s program of privatizing many state-owned enterprises, the Chinese government has oftemptedattempted to augment its revenues through heightened tax collection efforts. Continued efforts by the Chinese government to increase tax revenues could result in decisions or interpretations of the tax laws by the Chinese tax authorities that would increase our future tax liabilities or deny us expected concessions or refunds. For example, the tax reform of reducing the VAT tax refund from 17% to 13%, with effect from January 1, 2004, may affecthas adversely affected our margins.

Our results have been affected by changes in currency exchange rates. Changes in currency rates involving the Japanese yen, Hong Kong dollar or Chinese renminbi could increase our expenses.

     Our financial results have been affected by currency fluctuations, resulting in total foreign exchange gains of $189,000 during the year ended December 31, 2004, total foreign exchange losses of $62,000 during the year ended December 31, 2003 and total foreign exchange losses of $345,000 during the year ended December 31, 2002 and total foreign exchange gains of $530,000 during the year ended December 31, 2001.2002. We sell most of our products in United States dollars and pay our expenses in United States dollars, Japanese yen, Hong Kong dollars, and Chinese renminbi. While we face a variety of risks associated with changes among the relative value of these currencies, we believe the most significant exchange risk presently results from material purchases we make in Japanese yen. Approximately 16%8%, 8%16% and 16%6% of our material costs have been in Japanese yen during the years ended December 31, 2001, 2002, 2003 and 2003,2004, respectively, but sales made in Japanese yen accounted for less than 11% of sales for each of the last three years. An appreciation of the Japanese yen against the U.S.United States dollar would increase our expenses when translated into U.S.United States dollars and would materially and adversely affect our margins unless we made sufficient sales in Japanese yen to offset against material purchases made in Japanese yen.

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     Approximately less than8% and 6% of our revenues and 12% and 12% of our expenses were in Chinese renminbi and Hong Kong dollars, respectively, during the year ended December 31, 2004. Approximately 1% and 8% of our revenuerevenues and 13% and 12% of our expenses were in Chinese renminbi and Hong Kong dollars, respectively, during the year ended December 31, 2003. Approximately 4% and 10% of our revenues and 18% and 15% of our expenses were in Chinese renminbi and Hong Kong dollars, respectively, during the year ended December 31, 2002. An appreciation of the Chinese renminbi or Hong Kong dollar against the U.S.United States dollar would increase our expenses when translated into U.S.United States dollars and could materially and adversely affect our margins. In addition, a significant devaluation in the Chinese renminbi or Hong Kong dollar could harm our business if it destabilizes the economy of China or Hong Kong, creates serious domestic problems or increases our borrowing costs.

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We have suffered losses from hedging against our currency exchange risk.

     From time to time, we have attempted to hedge our currency exchange risk. We did not engage in currency hedging transactions for fiscal year 20022003 and 2003.2004. We have experienced in the past and may experience in the future losses as a result of currency hedging.

Political and economic instability in Hong Kong could harm our operations.

     Some of our subsidiaries’ offices and several of our customers and suppliers are located in Hong Kong, formerly a British Crown Colony. Sovereignty over Hong Kong was resumed by China effective July 1, 1997. Since then, Hong Kong has become a Special Administrative Region of China, enjoying a high degree of autonomy except for foreign and defense affairs. Moreover, China’s political system and policies are not practiced in Hong Kong. Under the principle of “one country, two systems,”systems”, Hong Kong maintains a legal system that is based on the common law and is different from that of China. It is generally acknowledged as an open question whether Hong Kong’s future prosperity in its role as a hub and gateway to China after China’s recent accession to the World Trade Organization (introducing a market liberalization in China) will be diminished. The continued stability of political, economic or commercial conditions in Hong Kong remains uncertain, and any instability could materially and adversely impact our business and operating results.

The spread of severe acute respiratory syndrome or similar illnesses may have a negative impact on our business and operating results.

     In March 2003, several economies in Asia, including Hong Kong and southern China, where our operations are located, were affected by the outbreak of severe acute respiratory syndrome, or SARS. Since January 2004, there has been a total of six confirmed SARS cases in southern China, Taiwan and Singapore. If there is a recurrence of a serious outbreak of SARS, it may adversely affect our business and operating results. For example, the future SARS outbreak could result in quarantines or closures to some of our factories if our employees are infected with SARS and ongoing concerns regarding SARS, particularly its effect on travel, could negatively impact our China-based customers and suppliers and our business and operating results.

     In addition, there has recently been an outbreak of avian influenza in humans in both ThailandAsian countries, including Vietnam, South Korea and Vietnam,Japan, which has proven fatal in some instances. As the human death toll continues to grow, many are concerned that the virus will mutate and trigger a human pandemic. If such an outbreak were to spread to southern China, where our operation facilities are located, it may adversely affect our business operating results.

We conduct operations in a number of countries and the effect of business, legal and political risks associated with international operations could significantly harm us.

We conduct operations in number of countries. There are risks inherent in doing business in international markets, including:

•	Difficulties in staffing and managing international operations;
•	Compliance with laws and regulations, including environmental laws, which vary from country to country and over time, increasing the costs of compliance and potential risks of non-compliance;
•	Exposure to political and financial instability, leading to currency exchange losses, collection difficulties or other losses;
•	Exposure to fluctuations in the value of local currencies;
•	Changes in value-added tax or VAT reimbursement;
•	Imposition of currency exchange controls; and
•	Delays from customs brokers or government agencies.

Any of these risks could significantly harm our business, financial condition and operating results.

Risks Related to Our Industry

We are exposed to general economic conditions. The currentAny slowdown in the technology products industry has affected and we expect it to continue tomay affect our business and operating results adversely.

     As a result of the economic downturn in the United States and internationally, and reduced capital spending, sales to OEMs in the electronics industry declined beginning in the second quarter of fiscal year 2001 and continuing through 2002. Lower consumer

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demand and high customer inventory levels have resulted in the delay and cancellation of orders for nearly all types of electronic products. As a result of order cancellations in 2001, we were required to write-downwrite down slow-moving inventory, which materially and adversely impacted our net income in 2001. Although the industry experienced a recovery in 2003 and 2004, we cannot assure that this recovery is sustainable or that the industry will not further decline. If the economic conditions in the United States or the other markets we serve worsen, orparticularly in the electronics and contract manufacturing businesses particularly, or if a wider or global economic slowdown occurs, this could materially and adversely impact our business and operating results.

The current economic downturn in11

Our business and operating results are dependent on growing global outsourcing trends.

     Over the last two decades, the EMS industry could continueexperienced rapid change and growth as the capabilities of EMS companies continued to have a material adverse effectexpand and consumer electronic product manufacturers adopted, and became increasingly reliant on, our business and operating results.

     Inmanufacturing outsourcing strategies to remain competitive. Despite the slow down of the EMS industry in 2001 and 2002 the EMS industry wasas a result of consumer electronic product manufacturers’ decreasing production requirement, growth has been renewed in an economic slowdown with an uncertain outlook. Some of the major contract manufacturers2003 and OEMs worldwide had announced job reductions2004 and plant closures aimed at reducing costs. Industry analysts had reduced their projections of the future growth of the EMS segment. Furthermore, Wall Street analysts had reduced earnings and revenue estimates across the entire EMS sector and had reportedwe believe that the EMS industry had excess capacity. For example,has the EMS industry in which we operate experiencedpotential for further growth as many consumer electronic product manufacturers continue to favor outsourcing over internal manufacturing, and the market for outsourcing, as a decrease in demand in 2001 and 2002. Softening demand for our products and services caused by the ongoing economic downturn was responsible in part for a decline in our operating income in 2001, as well as our write-down for slow-moving inventory. Although the industry experienced a recovery in 2003, we cannot assure that this recovery is sustainable orwhole, continues to flourish. However, there can be no assurance that the industrytrends of adopting manufacturing outsourcing strategies by consumer electronic product manufacturers will not further decline.

     The global economy may remain weak and market conditions continue to be challenging ingrow. If the EMS industry. As a result, individuals and companies may continue delaying or reducing expenditures, including those for electronic products. Further delays or reductions in spending in our industry in particular, and economic weakness generally,growing outsourcing trends discontinue, this could materially and adversely affectimpact our business and operating results.

Risks Related to Ownership of Our Common Shares

The market price of our shares will likely be subject to substantial price and volume fluctuations.

     The markets for equity securities have been volatile and the price of our common shares has been and could continue to be subject to wide fluctuations in response to variations in operating results, news announcements, trading volume, sales of common shares by our officers, directors and our principal shareholders, customers, suppliers or other publicly traded companies, general market trends both domestically and internationally, currency movements and interest rate fluctuations. Certain events, such as the issuance of common shares upon the exercise of our outstanding stock options could also materially and adversely affect the prevailing market price of our common shares.

     Further, the stock markets have recently experienced extreme price and volume fluctuations that have affected the market prices of equity securities of many companies and that have been unrelated or disproportionate to the operating performance of such companies. These fluctuations may materially and adversely affect the market price of our common shares.

The concentration of share ownership in our senior management allows them to control or substantially influence the outcome of matters requiring shareholder approval.

     On March 1, 2004,February 28, 2005, members of our management and Board of Directors as a group beneficially owned approximately 37.9%42.0% of our common shares. As a result, acting together, they may be able to control and substantially influence the outcome of all matters requiring approval by our shareholders, including the election of directors and approval of significant corporate transactions. This ability may have the effect of delaying or preventing a change in control of Nam Tai, or causing a change in control of Nam Tai that may not be favored by our other shareholders.

If we do not receive an unqualified opinion on the adequacy of our internal control over financial reporting as of December 31, 2006 and future year-ends as required by Section 404 of the Sarbanes-Oxley Act of 2002, investors could lose confidence in the reliability of our financial statements, which could result in a decrease in the value of our shares.

     As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring public companies to include a report of management on the company’s internal control structure and procedures over financial reporting in their annual reports on Form 20-F that contains an assessment by management of the effectiveness of the company’s internal control structure and procedures over financial reporting. In addition, the public accounting firm auditing the company’s financial statements must attest to and report on management’s assessment of the effectiveness of the company’s internal control structure and procedures over financial reporting. While we intend to conduct a rigorous review of our internal control structure and procedures over financial reporting in order to assure compliance with Section 404 requirements, if our independent auditors interpret Section 404 requirements and the related rules and regulations differently from us or if our independent auditors are not satisfied with our internal control structure and procedures over financial reporting or with the level at which it is documented, operated or reviewed, they may decline to attest to management’s assessment or issue a qualified report. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements, which could cause the market price of our shares to decline.

Changes to financial accounting standards may affect our reported results of operations and could result in a decrease in the value of our shares.

     The Financial Accounting Standards Board recently published amendments to Statement of Financial Accounting Standards No. 123 that would require stock-based compensation issued to employees to be treated as compensation expense using the fair value method. If we are required to record an expense for our stock-based compensation plans using the fair value method, we would incur significant compensation charges. Although we currently are not required to record any compensation expense in connection with options granted that have an exercise price equal to fair market value of our common stock at the grant date, if future laws and regulations require us to treat all stock-based compensation as a compensation expense using the fair value method, our results or operations could be adversely affected. For discussion of our employee stock option and employee stock purchase plans, see Note 2 – “Summary of Significant Accounting Policies – Stock Options” and Note 11 – “Shareholders’ Equity” to the Consolidated Financial Statements.

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Risks Related to Our Foreign Private Issuer Status

It may be difficult to serve us with legal process or enforce judgments against our management or us.

     We are a British Virgin Islands holding corporation having our PRC headquarters in Macao, China and some of ourwith subsidiaries in Hong Kong.Kong, Macao, Japan and China. We have appointed Stephen Seung, 2 Mott Street, Suite 601, New York, New York 10013 as our agent upon whom process may be served in any action brought against us under the securities laws of the United States. However, outside the United States, it may be difficult for investors to enforce judgments against us obtained in the United States in any of these actions, including actions based upon civil liability provisions of the Federal securities laws. In addition, all of our officers and most of our directors reside outside the United States, and all of our assets, and the assets of those persons who reside outside of the United States, are located outside of the United States. As a result, it may not be possible for investors to effect service of process within the United States upon those persons, or to enforce against those persons or ususe judgments obtained in United States courts grounded upon the liability provisions of the United States securities laws. There is substantial doubt as to the enforceability against us or any of our directors and officers located outside of the United States in original actions or in actions for enforcement of judgments of United States courts of liabilities based solely on the civil liability provisions of the securities laws of the United States.

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     No treaty exists between Hong Kong or the British Virgin Islands and the United States providing for the reciprocal enforcement of foreign judgments. However, the courts of Hong Kong and the British Virgin Islands are generally prepared to accept a foreign judgment as evidence of a debt due. An action may then be commenced in Hong Kong or the British Virgin Islands for recovery of this debt. A Hong Kong or British Virgin Islands court will only accept a foreign judgment as evidence of a debt due if:

	•		the judgment is for a liquidated amount in a civil matter;
	•		the judgment is final and conclusive and has not been stayed or satisfied in full;
	•		the judgment is not, directly or indirectly, for the payment of foreign taxes, penalties, fines or charges of a like nature (in this regard, a Hong Kong or British Virgin Islands court is unlikely to accept a judgment for an amount obtained by doubling, trebling or otherwise multiplying a sum assessed as compensation for the loss or damage sustained by the person in whose favor the judgment was given);
	•		the judgment was not obtained by actual or constructive fraud or duress;
	•		the foreign court has taken jurisdiction on grounds that are recognized by the common law rules as to conflict of laws in Hong Kong or the British Virgin Islands;
	•		the proceedings in which the judgment was obtained were not contrary to natural justice (i.e., the concept of fair adjudication);
	•		the proceedings in which the judgment was obtained, the judgment itself and the enforcement of the judgment are not contrary to the public policy of Hong Kong or the British Virgin Islands;
	•		the person against whom the judgment is given is subject to the jurisdiction of the Hong Kong or the British Virgin Islands court; and
	•		the judgment is not on a claim for contribution in respect of damages awarded by a judgment, which does not satisfy the criteria stated previously.

     Enforcement of a foreign judgment in Hong Kong or the British Virgin Islands may also be limited or affected by applicable bankruptcy, insolvency, liquidation, arrangement and moratorium, or similar laws relating to or affecting creditors’ rights generally, and will be subject to a statutory limitation of time within which proceedings may be brought.

     No treaty exists between Macao and the United States providing for the reciprocal enforcement of foreign judgments. However, the courts of Macao are generally prepared to accept a foreign judgment as evidence of a debt due. An action may then be commenced in Macao for recovery of this debt. A Macao court will only accept a foreign judgment as evidence of a debt due if:

	•		there is no doubt to the authenticity of the judgment documents and the understanding of the judgment;
	•		pursuant to the law of the place of judgment, the judgment is final and conclusive;
	•		the judgment was not obtained by fraud or the matter in relation to the judgment is not within the exclusive jurisdiction of Macao courts;

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•		the judgment will not be challenged on the ground that the relevant matter has been adjudicated by the Macao court, except matters which have first been adjudicated by courts outside Macao;
	•		pursuant to the law of the place of the judgment, the defendant has been summoned and the proceedings in which the judgment was obtained were not contrary to natural justice; and
	•		the enforcement of the judgment will not cause any orders that may result in apparent public disorder.

     Enforcement of a foreign judgment in Macao may also be limited or affected by applicable bankruptcy, insolvency, liquidation, arrangement and moratorium, or similar laws relating to or affecting creditors’ rights generally, and will be subject to a statutory limitation of time within which proceedings may be brought.

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Future issuances of preference shares could materially and adversely affect the holders of our common shares or delay or prevent a change of control.

     Our Board of Directors may amend our Memorandum and Articles of Association without shareholder approval to create from time to time and issue one or more classes of preference shares (which are analogous to preferred stock of corporations organized in the United States). While currently no preference shares are issued or outstanding, we may issue preference shares in the future. Future issuance of preference shares could materially and adversely affect the rights of the holders of our common shares, or delay or prevent a change of control.

Our status as a foreign private issuer exempts us from certain of the reporting requirements under the Securities Exchange Act of 1934 and corporate governance standards of the New York Stock Exchange, or NYSE, limiting the protections and information afforded to investors.

     We are a foreign private issuer within the meaning of rules promulgated under the Securities Exchange Act of 1934. As such, we are exempt from certain provisions applicable to United States public companies including:

	•		the rules under the Securities Exchange Act of 1934 requiring the filing with the CommissionSEC of quarterly reports on Form 10-Q, current reports on Form 8-K or annual reports on Form 10-K;
	•		the sections of the Securities Exchange Act of 1934 regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Securities Exchange Act of 1934;
	•		the provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material information; and
	•		the sections of the Securities Exchange Act of 1934 requiring insiders to file public reports of their stock ownership and trading activities and establishing insider liability for profits realized from any “short-swing” trading transaction (i.e., a purchase and sale, or sale and purchase, of the issuer’s equity securities within less than six months).

     In addition, because the Company is a foreign private issuer, certain of the corporate governance standards of the NYSE that are applied to domestic companies listed on that exchange may not be appliedapplicable to us.

     Because of these exemptions, investors are not afforded the same protections or information generally available to investors holding shares in public companies organized in the United States or traded on the NYSE.

Item 4.Information on the Company

History and Development of Nam Tai

     Nam Tai Electronics, Inc. was founded in 1975 and moved its manufacturing facilities to the People’s Republic of China, or China in 1980 to take advantage of lower overhead costs, lower material costs and competitive labor rates available and subsequently relocated to Shenzhen, China in order to capitalize on opportunities offered in Southernsouthern China. We were reincorporated as a limited liability International Business Company under the laws of the British Virgin Islands in August 1987. Our principal manufacturing and design operations are based in Shenzhen, China, approximately 30 miles from Hong Kong. Our PRC headquarters are located inis at Macao, China. Some of our subsidiaries’ offices are located in Hong Kong and Macao, which provides us access to Hong Kong’s and Macao’s infrastructure of communication and banking and facilitates management of our China operations and transportationoperations. One of our products out of China through the port of Hong Kong.

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subsidiaries also has an office in Japan.

     Our corporate administrative matters are conducted in the British Virgin Islands through our registered agent, McW. Todman & Co., McNamara Chambers, P.O. Box 3342, Road Town, Tortola, British Virgin Islands. Our agent for service of process in the United States is Stephen Seung, 2 Mott Street, Suite 601, New York, New York 10013. Our principal executive offices are located in the British Virgin Islands at 116 Main Street, 3rd Floor, Road Town, Tortola, British Virgin Islands, and the telephone number is (284) 494-7752.

     In 1978, Mr. Koo, the founder of the Company, began recruiting operating executives from the Japanese electronics industry. These executives brought years of experience in Japanese manufacturing methods, which emphasize quality, precision, and efficiency in manufacturing. Senior management currently includes Japanese professionals who provide technical expertise and work closely with both our Japanese component suppliers and customers.

     For a number of years, we specialized in manufacturing large-volume, hand-held digital consumer electronic products and established a leading position in electronic calculators and handheld organizers for OEMs such as Texas Instruments Incorporated and Sharp Corporation. Over the years, we have broadened our product mix to include a range of digital products for business and personal use, as well as key components and subassembliessub-assemblies for telecommunications and consumer electronic products. In August 1999, we established Nam Tai Telecom (Hong Kong) Co. Ltd.,Company Limited, which targetstargeted the expanding market for telecommunications components including LCD modules as well as end products, including cordless phones and family radio systems. Nowadays, color and monochrome LCD modules to displaydisplaying information have become one of our major products. Since December 2002, we have also produced RF modules for integration into cellular phones and other hand-held consumer electronic products, such as personal digital assistants, or PDAs, laptop computers and other products with wireless connectivity. In 2003, we further diversified our product mix by manufacturing CMOS sensor modules for integration into various image

14

capturing devices such as digital cameras for cellular phones and home entertainment products, flexible printed circuit, or FPC subassembliessub-assemblies for integration into various LCD modules, front light panels for handheld video game devices and digital camera accessories for use with the cellular phones and home entertainment products. In 2004, we expanded our business on CMOS sensor modules and FPC sub-assemblies. We also further broadened our product line by manufacturing back light panels for handheld video game devices and Bluetooth^TM wireless headset accessory for cellular phones.

     In September 2000, we acquired for $2.0 million a 5% indirect shareholding in both TCL Mobile Communication (HK) Co., Ltd. and Huizhou TCL Mobile Communication Co., Ltd., together known as TCL Mobile, through the acquisition of 25% of the outstanding shares of Mate Fair Group Limited, or Mate Fair, a privately held investment holding company incorporated in the British Virgin Islands with a 20% shareholding interest in TCL Mobile. TCL Mobile is engaged in manufacturing, distributing and trading of digital mobile phones and accessories in China as well as in overseas markets. In October 2002, we began to provide TCL Mobile with mobile LCD modules used in its mobile phones.

     In October 2000, we completed the acquisition of the J.I.C. Group (BVI) Limited. The J.I.C. Group (B.V.I.)(BVI) Limited and its subsidiaries, or the J.I.C. Group, are principally engaged in the manufacture and marketing of transformers and LCD panels, a key component for a variety of consumer electronic products. Of the purchase price of $32.8 million, we paid $11.0 million in cash and issued 3.48 million of our common shares.

     In November 2002, Mate Fair sold a portion of its equity interest in Huizhou TCL Mobile Communication Co., Ltd. for which we received proceeds of approximately $10.4 million, reducing our direct equity interest (held through Mate Fair) in TCL Mobile to approximately 3%. In November 2002, we invested $5.1 million of the proceeds in TCL International Holdings Limited’s 3% convertible notes that are due in November 2005. In August 2003, we disposed of those convertible notes to independent third parties and received proceeds of approximately $5.03 million in cash. TCL International Holdings Limited is another company in the TCL Group, which consists of the TCL Corporation and its subsidiaries, and is publicly listed on The Stock Exchange of Hong Kong Limited, or the Hong Kong Stock Exchange.

     In January 2002, we acquired a 6% equity interest in TCL Corporation (formerly known as TCL Holdings Corporation Ltd.), for a considerconsideration of approximately $12.0 million. TCL Corporation, an enterprise established in the PRC,China, is the parent company of the TCL Group of companies. TCL Corporation changed from a limited liability company to a company limited by shares in April 2002. In January 2004, TCL Corporation listed its A-shares on the Shenzhen Stock Exchange at Chinese renminbiRMB 4.26 (equivalent to $0.52) per A-share. The Company’s interest in TCL Corporation has since been diluted to 3.69% and represents 95.52 million promoter’s shares of TCL Corporation after its initial public offering.

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Pursuant to Article 147 of the Company Law of China, the Company is restricted from transferring its promoter’s shares within three years from the establishment date. The Company is, however, entitled to receive dividends and other rights similar to holders of A-shares. As these promoter’s shares have a restriction on their sale prior to April 2005, the Company hired an independent valuer to determine the fair value of these shares as of December 31, 2004 and recognized an unrealized gain of $6.55 million, which has been recorded as a separate component of accumulated other comprehensive income, based on the Company’s cost of $11.97 million and an estimated fair value of $20.70 million.

     In January 2002, we entered into a transaction which resulted in the listing of a company holding J.I.C. Group’s business on the Hong Kong Stock Exchange. To effect the transaction, we entered into an agreement with the liquidators of Albatronics, whose shares had been listed on the Hong Kong Stock Exchange and which was placed into voluntary liquidation in August 1999. Under the agreement, we agreed to transfer the J.I.C. Group into J.I.C. Technology Company Limited, a new company, for a controlling interest in J.I.C. Technology Company Limited. Albatronics’ listing status on the Hong Kong Stock Exchange was withdrawn and J.I.C. Technology Company Limited was listed on the Hong Kong Stock Exchange free from the liabilities of Albatronics. This arrangement was more cost effective than using an initial public offering. For our contribution to J.I.C. Technology Company Limited, we received a combination of ordinary and preference shares, which are analogous to common stock and convertible preferred stock, respectively, of companies organized under U.S.United States law and which upon their full conversion, could result in us, the creditors and the Hong Kong public owning approximately 92.9%, 5.8% and 1.3%, respectively, of the outstanding ordinary shares of J.I.C. Technology Company Limited. On June 4, 2002, the reverse merger was completed and all the shares of Albatronics were transferred to the liquidators for a nominal consideration. The preference shares are non-redeemable, non-voting shares that rankpari passu with ordinary shares of J.I.C. Technology Company Limited on the payment of dividends or other distribution other than on a winding-up. No holder of preference shares (including Nam Tai) may convert them if such conversion would result in the minimum public float of 25%, which required (required under the Hong Kong Stock Exchange Listing Rules,Rules) not being met. In August 2002, we acquired an additional 7,984,000 ordinary shares of J.I.C. Technology Company Limited for a cash consideration of $437,000. During the period from June to November 2003, we disposed of a total of 42,600,000 ordinary shares for cash consideration of $4.0 million. In November 2003, we converted 175,100,000 preference shares into 170,000,000 ordinary shares of J.I.C. Technology Company Limited.

     During the period from November to December 2004, we further disposed of a total of 128,000,000 ordinary shares of J.I.C. Technology Company Limited for cash consideration of $12.95 million. The disposal resulted in a net gain on partial disposal of a subsidiary of $6.25 million and the release of unamortized goodwill of $3.52 million. During the same period, we converted all 423,320,000 preference shares into 410,990,290 ordinary shares. As of December 31, 2003,2004, we held 263,900,688546,890,978 ordinary shares of J.I.C. Technology Company Limited, equivalent to 74.86%71.63% of issued ordinary shares, and 423,320,000 preference shares. Upon full conversion of the preference shares owned, we will hold approximately 88.39% of J.I.C. Technology Company Limited.

     In January 2003, we invested $10.0 million for a 25% equity interest in Alpha Star Investments Ltd., the ultimate holding company of JCT Wireless Technology Limited, or JCT. JCT is engaged in the design, development and marketing of wireless communication terminals and wireless application software and is using us to manufacture wireless communication terminals and their related modules for JCT.modules. As of December 31, 2003,2004, we recognized net sales of $20.8$34.2 million to JCT for 2003.the year. However, in September 2004, we made an impairment to write down our $10.0 million investment in Alpha Star to a fair value of approximately $3.0 million. As of December 31, 2004, another analysis had been conducted by an independent valuer, who determined that no further impairment to value was required.

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     In January 2003, we disposed of 20% of our equity interest in Namtek Software Development Company Limited to a company that is owned by the management of Namtek Software Development Company Limited for a cash consideration of $160,000. As of the date of disposal, Namtek Software Development Company Limited was fair valued at $3.3 million.

     On January 23, 2003, the listing of our shares was transferred to the NYSE from the NASDAQ National Market with symbol of “NTE”. On June 30, 2003, we implemented a three-for-one stock split with both the stock size and market price to be divided by three. As of December 31, 2003,2004, there were 41,231,27242,664,536 common shares outstanding.

     In June 2003, one of our subsidiaries, J.I.C. Technology Company Limited, disposed of its transformers operation to a third party for a cash consideration of $2.4 million. The gain from disposal of this discontinued operation amounted to $2.0 million, net of $0.1 million shared by minority interest.

     In August 2003, we set up our PRC headquartersfirst subsidiary, Nam Tai Investments Consultant (Macao Commercial Offshore) Company Limited in Macao due toas our continuous increase in investment in China.PRC headquarters. Macao, like Hong Kong, is a special administrative region of the China and has recently introduced an incentive program to attract investment to Macao. In March and November 2004, we further established Zastron (Macao Commercial Offshore) Company Limited and J.I.C. (Macao Commercial Offshore) Company Limited in Macao.Macao, respectively.

     In November 2003, our common shares were listed in the Regulated Unofficial Market (Freiverkehr) on the Frankfurt Stock Exchange, in Germany. The stocks are being traded on Xetra, the Deutsche Borse AG electronic trading system under the stock symbol of “884852”.

     In December 2003, we placed approximately $5.3 million into an escrow account for an investment in Stepmind. The investment will bewas to occur in two phases. For the first phase, approximately $2.64 million, representing 7.66% of the equity interest in Stepmind, was released to Stepmind in January 2004. The second phase amounting to approximately $2.65 million will bewas released to Stepmind in August 2004 subject to fulfillment of certain conditions. Upon successfulIn August 2004, we disposed of our entire interest in Stepmind to one of the shareholders of Stepmind at the original subscription price for those shares.

     In April 2004, we increased our shareholding in TCL Mobile from approximately 3% to 9% through the acquisition of Jasper Ace Limited, or Jasper Ace, which directly holds a 9% equity interest in TCL Mobile, for a consideration of approximately $102.2 million. The consideration was satisfied by the exchange of our 72.2% equity interest in Mate Fair, plus cash of $25 million in cash, and the issuance of 1,416,764 new Nam Tai shares and resulted in a net investment cost of $79.5 million. In July 2004, Nam Tai transferred all its shares in TCL Mobile to TCL Communication Technology Holdings Limited, or TCL Communication, in exchange for 90 shares of TCL Communication. In August 2004, we further subscribed for 254,474,910 shares in TCL Communication at a consideration of approximately $16 million. The consideration was satisfied by the dividend receivable from TCL Communication. Together with the 90 shares it received in July 2004, Nam Tai in total holds 254,475,000 shares in TCL Communication, representing 9% of the shareholding of TCL Communication. In September 2004, shares of TCL Communication were listed on the Hong Kong Stock Exchange by way of introduction. There were no new shares issued or sold in connection with the listing, and therefore no dilution to Nam Tai’s original stake in TCL Communication. As of December 31, 2004, we still hold 254,475,000 shares, representing 9% of the total issued shares of TCL Communication.

     As of December 31, 2004, the Company’s investment in TCL Communication was stated at fair value based on the traded market price of TCL Communication’s shares. The Company recognized an unrealized loss of $58.3 million in its consolidated statements of income based on the Company’s cost of $79.5 million and a fair value of $21.2 million.

     In April 2004, shares of Nam Tai Electronic & Electrical Products Limited, or NTEEP, a wholly owned subsidiary of the Company, were listed on the Hong Kong Stock Exchange. Since all of the shares of NTEEP involved in the second phase, our total investment will represent 11.33%initial public offering, or IPO, were existing shares of NTEEP owned by Nam Tai, all of the equity interestproceeds raised in Stepmind. Stepmindthe IPO went to Nam Tai instead of NTEEP. The offer price of NTEEP’s share was founded$0.497, which resulted in July 2000net proceeds of approximately $92.8 million and is a fabless solutions and components supplier, developing applications which require high performance and secured data links.

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gain of approximately $71.1 million to the Company. As of December 31, 2004, we held 600,000,000 shares of NTEEP, representing 75% of the total issued shares of NTEEP.

     Also refer to the section of this Report entitled Item 5. Operating and Financial Review and Prospects for a further discussion of our investments and acquisitions.

     An important element of our strategy is to acquire companies that would complement our existing products and services, augment our market coverage and sales ability or enhance our technological capabilities. Accordingly, we may acquire additional businesses, products or technologies in the future or make investments in related businesses for strategic business purposes.

Capital Expenditures

     Our principal capital expenditures and divestitures over the last three years include the following:

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Our major capital expenditure in 2004 included:

•	$13.8 million for new factory expansion;
•	$7.7 million for the expansion of an LCD factory (which included 5.8 million paid as a deposit for fixed assets);
•	$0.7 million for the expansion of our high-resolution color LCD module production capacity;
•	$14.5 million for machineries used mainly for FPC sub-assemblies;
•	$5.6 million for other capital equipment; and
•	$2.1 million for construction work in relation to the electricity supply for Nam Tai Electronic (Shenzhen) Co., Ltd.

Our major capital expenditures in 2003 included:

	•		$6.0 million for machinery for manufacturing RF modules,modules;
	•		$1.2 million for new factory expansion,expansion;
	•		$0.4 million for machinery on FPC sub-assembly,sub-assemblies;
	•		$1.7 million for expansion of our high resolutionhigh-resolution color LCD module production capacity,capacity;
	•		$6.7 million for other capital equipment,equipment; and
	•		$1.1 million for construction of a new trade union building for the use of our workers in China.

Our major capital expenditures in 2002 included:

	•		$12.3 million for a new STN LCD panel production line,line; and
	•		$4.0 million for completion of the new factory expansion.

     Our major capital expenditures in 2001 included:

	•		$13.0 million for the purchase and interior improvements on 24,200 square feet of contiguous prime office space at Shun Tak Centre in the Central district of Hong Kong,
	•		$6.4 million for the purchase of new staff residences in Hong Kong,
	•		$5.5 million for the construction and machinery for a new 138,000 square foot five-story factory building within the Company’s existing manufacturing complex,
	•		$5.5 million for the purchase of new chip on glass production lines, and
	•		$2.0 million for the additions to and improvement of the production facilities for producing LCD products.

In order to expand production capacity, we are buildinghave built a new factory consisting of approximately 250,000265,000 square feet adjacent to our principal manufacturing facilities in Shenzhen, China. The construction commencedwas completed in September 2003December 2004 and we expect constructionfull operations to be completed by the endcommence in April 2005. As of the fourth quarter in 2004. We have budgeted $40.0December 31, 2004, we had spent $15.0 million to cover the cost of construction, and fixtures and equipment for the new factory, of which $1.2 million has already been spent in 2003. We plan to financefactory. The financing for these improvements to our manufacturing facilities were obtained from cashinternal resources. In October 2004, our existing production facility for the LCD panels segment also relocated to new factory premises which are approximately 670,000 square feet and twice the size of the former factory premises. This new factory provides room for the future expansion of production capacity. As of December 31, 2004, we had spent $7.7 million for this relocation and financed this amount with a combination of internal resources and banking facilities.bank financing.

Other capital expenditures we have planned for 20042005 include:

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•	•		$6.7 8.0 million for machinery for manufacturing RF modules,land purchase;
•	•		$2.016.5 million for the expansion of our high resolution color LCD module production capacity,new factory expansion;
•	•		$3.914.0 million for machinery for FPC subassembly,machinery; and
•	•		$6.54.5 million for expansion of our LCD factory.other equipment.

     Our plans for capital expenditures are subject to change from time to time and could result from, among other things, our consummation of any significant amount of additional acquisition or strategic investment opportunities, which we regularly explore.

Business Overview

     We are an electronics manufacturing and design services provider to a select group of the world’s leading OEMs of telecommunications and consumer electronic products. Through our electronics manufacturing services operations, we manufacture electronic components and subassemblies,sub-assemblies, including LCD panels, LCD modules, RF modules, FPC subassembliessub-assemblies and image sensors.sensors modules. These components are used in numerous electronic products, including cellular phones, laptop computers, digital cameras, copiers, fax machines, electronic toys, handheld video game devices and microwave ovens. We also manufacture finished products, including cellular phones, palm-sized PCs, personal digital assistants, electronic dictionaries, calculators, and digital camera accessories and Bluetooth^TM wireless headset accessory for use with cellular phones.

     We assist our OEM customers in the design and development of their products and furnish full turnkey manufacturing services that utilize advanced manufacturing processes and production technologies. Our services include hardware and software design, component purchasing, assembly into finished products or electronic subassembliessub-assemblies and post-assembly testing. These services are value-added and assist us in

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obtaining new business but do not represent a material component of our revenue. We also provide original design manufacturing, or ODM, services, in which we design and develop proprietary products that are sold by our OEM customers using their brand name.

     We were founded in 1975 as an electronic products trading company based in Hong Kong and shifted our focus to manufacturing of electronic products in 1978. We moved our manufacturing facilities to China in 1980 to take advantage of lower overhead costs, lower material costs and competitive labor rates, available and subsequently relocatedrelocating to Shenzhen, China in order to capitalize on opportunities offered in Southernsouthern China. We were reincorporated as a limited liability International Business Company under the laws of the British Virgin Islands in August 1987. Our principal manufacturing and design operations are based in Shenzhen, China, approximately 30 miles from Hong Kong. Our PRC headquarters are located in Macao, China. Some of our subsidiaries’ offices are located in Hong Kong and Macao, which provides us access to Hong Kong’s and Macao’s infrastructure of communication and banking and facilitates management of our China operations and transportationoperations. One of our products out of China through the port of Hong Kong.subsidiaries also has an office in Japan.

Our Customers

     Historically, we have had substantial recurring sales from existing customers. About 89.1%89.4% of our 20032004 net sales came from customers that also used our services in 2002.2003. While we seek to diversify our customer base, a small number of customers currently generate a significant portion of our sales. Sales to our 10 largest customers accounted for 83.7%84.8%, 84.8%84.9% and 84.9%82.5% of our net sales during the years ended December 31, 2001, 2002, 2003 and 2003,2004, respectively. Sales to customers accounting for 10% or more of our net sales in the year ended December 31, 2001, 2002, 2003 or 20032004 were as follows:

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* Less than 10% of our total net sales.

     Our largest OEM customers based on net sales during 20032004 include the following (listed alphabetically):

     At any given time, different customers account for a significant portion of our business. Percentages of net sales to customers vary from quarter to quarter and year to year and fluctuate depending on the timing of production cycles for particular products.

     Sales to our OEM customers are primarily based on purchase orders we receive from time to time rather than firm, long-term purchase commitments from our customers. Although it is our general practice to purchase raw materials only upon receiving a purchase order, for certain customers we will occasionally purchase raw materials based on such customers’ rolling forecasts. Uncertain economic conditions and our general lack of long-term purchase commitments with our customers make it difficult for us to accurately predict revenue over the longer term. Even in those cases where customers are contractually obligated to purchase products from us or repurchase unused inventory from us, we may elect not to immediately enforce our contractual rights because of the long-term nature of our customer relationships and for other business reasons, and instead may negotiate accommodations with customers regarding particular situations.

Our Products

     During 2003, our operations are generally organized in two segments, Consumer Electronics Products, or CEP, and LCD panels and transformers, or LPT. The activities of our LPT segment relate primarily to our J.I.C. subsidiary that we acquired in October 2000. In 2004, our operations were re-organized into three reportable segments consisting of consumer electronics and communication products, or CECP, telecommunication components assembly, or TCA and LCD panels, or LCDP. In 2003, CECP and TCA were classified as a single reportable segment as CEP while LCDP also comprised the transformers operations and collectively referred to as LPT as a result of the disposal of transformer business in 2003.

     The dollar amount (in thousands) and percentage of our net sales by business segment and product category for the years ended December 31, 2001, 2002, 2003 and 20032004 were as follows:

(1)		Included in componenttelecom, components assembly are our sales from our manufacture of rechargeable battery packs through a joint venture we had with Toshiba Battery Co., Ltd. We sold our interest in the joint venture to a Toshiba relatedToshiba-related company and ceased manufacturing rechargeable battery packs as of April 30, 2002. Accordingly, revenue from sales of battery packs was not included after that date.
(2)		LCD panels and components consist of products manufactured and sold by our subsidiaries in the J.I.C. Group. We acquired the J.I.C. Group in 2000 and their sales were consolidated with ours beginning on October 1, 2000.
(3)		We sold our transformers operation to a third party in June 2003.

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Please refer to page F-34Note 19 “Segment Information” of the consolidated financial statementsConsolidated Financial Statements and Item 8.8 Financial Information — Export Sales which sets forth the information of net sales to customers by geographic area.

Consumer Electronic and Communication Products, or CECP

     The consumer electronic and communication products we manufacture are primarily finished products and include:

•	A BluetoothTM wireless headset accessory for cellular phones, which we began manufacturing in March 2004.
•	CMOS sensor modules, which we began manufacturing in June 2003, for integration into various image-capturing devices such as digital cameras for cellular phones and home entertainment products.
•	Digital camera accessories for use with cellular phones and home entertainment products.
•	Electronic calculators that include basic function calculators, desktop display style, scientific and advanced graphic calculators.
•	Digital management devices that include PDAs and electronic personal organizers.
•	Linguistic products, including electronic dictionaries, spell checkers and language translators.

Telecommunication Component Assembly, or TCA

          Telecommunications Components Assembly

     We manufacture the following subassembliessub-assemblies and components:

•

Color and monochrome LCD modules to display information as part of telecommunication products such as cellular phones and telephone

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systems, appliances and office automation products, such as copiers and facsimile machines. Our LCD modules could be manufactured for use in most other hand-held consumer electronic devices, such as electronic games and digital cameras.

	•		RF modules, which we began manufacturing in December 2002, for integration into cellular phones. These modules could be manufactured for use in most other hand-held consumer electronic products, such as PDAs, laptop computers and other products with wireless connectivity.
	•		CMOS sensor modules, which we began manufacturing in June 2003, for integration into various image capturing devices such as digital cameras for cellular phones and home entertainment products.
	•		Cellular phones in SKD form.
	•		FPC subassemblies,sub-assemblies which we began manufacturing in March 2003 for integration into various LCD modules.
•	•Front light panels for handheld video game devices.
Front•	Back light panels for handheld video game devices, which we began manufacturing in January 2003.August 2004.
	•		1.9 and 2.4 GHz high frequency cordless telephones, home feature phones, family radio systems and transceivers.

LCD Consumer Products

     The LCD-based consumer electronic products we manufacture are primarily finished products and include:

	•		Digital camera accessories for use with the cellular phones and home entertainment products.
	•		Electronic calculators that include basic function calculators, desktop display style, scientific and advanced graphic calculators.
	•		Digital management devices that include PDAs and electronic personal organizers.
	•		Linguistic products, including electronic dictionaries, spell checkers and language translators.

Software Development Services

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     We offer our OEM customers software development services principally for the operation of electronic dictionary products many of which are manufactured by us, as well as personal organizers and MP3 devices.for major Japanese customers. In addition, to generating revenue from ourwe focus on research and development services, our software design,for car navigation products which typically occurs at the product design stage, oftenwe aim to results in our providing license and/or manufacturing services to the OEM assembly customers.

LCD Panels, and Transformersor LCDP

     With the acquisition of the J.I.C. Group in October 2000, we began producing LCD panels and transformers.

LCD Panelspanels.

     LCD panels are information display components and are featuredfound in numerous applications in electronics products, includingsuch as watches, clocks, calculators, pocket games, PDAs and cellularmobile and wirelesscordless telephones. Currently,We are a customized LCD panel manufacturer, and we use only a small portion ofdevelop each product from design concept all the LCD panels in our assembly operations. We plan to increase the volume of LCD panels we supply by approximately 50% to our assembly business in 2004.

Transformers

     Transformers are generally used to increase or reduce the voltage of an electric power supply to allow a particular part of electrical equipment to be used. The transformers we produce are used in home appliances, telecommunications equipment, computers and computer peripherals. We sold our transformers operationway to a third party in June 2003.high quality mass producible product.

Our Manufacturing and Assembly Capabilities

     We utilize the following production techniques:

•	•		Chip on Film,or COF, is an assembly method for bonding integrated circuit chips and other components onto a flexible printed circuit. This process allows for greater compression of the size of a product when assembled enabling the production and miniaturization of small form factor devices like cellular phones, PDAs, digital cameras and notebook PCs. AtAs of December 31, 2003,2004, we had two14 COF machines. These machines connect the bump of Large Scale Integrated,large scale integrated, or LSI, driver onto FPC pattern with Anisotropic Conductive Film,anisotropic conductive film, or ACF, and mount chip resister cap components to FPC through Surface Mount Technology,surface mount technology, or SMT, is available. These COF machines have the ability to pitch fine to 4038 micrometers and a total production capacity of up to 400,0004,000,000 chips per month.
•	•		Chip On Glass,or COG, is a process that connects integrated circuits directly to LCD panels without the need for wire bonding. We apply this technology to produce advanced LCD modules for high-end electronic products, such as cellular phones and PDAs. AtAs of December 31, 2003,2004, we had 1321 COG lines.lines in our principal manufacturing facilities. These machines provide an LCD of dimension of up to 200 millimeters (length) x 150 millimeters (width) x 2.8 millimeters2.2 (height), a process time per chip of five seconds, a pin pitch fine to 5038 micrometers and a total production capacity of up to 4,000,000 chips per month. During 2004, our subsidiary, Jetup Electronic (Shenzhen) Co. Ltd., or Jetup, also started manufacturing COG LCD modules. As of December 31, 2004, Jetup had five COG lines and is capable of bonding 1,000,000 pieces of COG LCD modules a month. They are able to bond LCD panels up to sizes of 100 millimeters x 100 millimeters x 2.2 millimeters thick, with an accuracy of five microns’ tolerence, in a cycle time of 12-15 seconds per piece.
•	•		Chip On Board,or COB, is a technology that utilizes wire bonding to connect large-scale integrated circuits directly to printed circuit boards. We use COB in the assembly of consumer products such as calculators, personal organizers and linguistic products. AtAs of December 31, 2003,2004, we had 4852 COB machines. These machines are fully automatic bonding machines and use ultrasonic mounting technology. The bonding time, pressure, power and each wire loop are under machine programmable control. These machines provide a high speed chip mounting time of per 2 millimeters wire per 0.25 second, a bond pad fine to 75 micrometers and a total production capacity of up to 2,600,0003,000,000 chips per month.
•	•		Outer Lead Bonding,or OLB, is an advanced technology used to connect PCBs and large-scale integrated circuits with a large number of connectors. We use this technology to manufacture complex miniaturized products, such as high-memory PDAs. AtAs of December 31, 2003,2004, we had three OLB machines. The machines include multi-pinned Tape Carrier Packaged Large Scale Integrated Circuit,tape carrier packaged large scale integrated circuit, or TCP LSIC, bonding which is up to 280 pins, which also provide ultra thin assembly with module thickness to around one millimeter and high accuracy bonding with pin pitch to 100 micrometers. The total production capacity is 12,000 units per month.

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•		Tape Automated Bonding with Anisotropic Conductive Film,or TAB with ACF, is an advanced heat sealing technology that connects a liquid crystal display component with an integrated circuit in very small LCD modules, such as those used in cellular phones and pagers. AtAs of December 31, 2003,2004, we had 2735 systems of TAB with ACF machines. The machines provide process time of 24 to 25 seconds per component, a pin pitch fine to 200 micrometers and a total production capacity of up to 2,360,0003,660,000 components per month. During 2004, Jetup also started manufacturing TAB LCD modules. As of December 31, 2004, Jetup had two TAB lines and is capable of bonding 250,000 pieces of TAB LCD modules a month. They are able to bond LCD panels up to sizes of 120 millimeters x 120 millimeters x 2.2 millimeters thick, with an accuracy of 10 microns’ tolerence in a cycle time of 20-25 seconds per piece.

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•
	•		Fine Pitch Heat Seal Technology,or FPHS technology, allows us to connect LCD displays to PCBs produced by COB and outer lead bonding that enables very thin connections. This method is highly specialized and is used in the production of finished products such as PDAs. AtAs of December 31, 2003,2004, we had eight machines utilizing FPHS technology. The machines provide a pin pitch fine to 260 micrometers and a total production capacity of up to 268,000 units per month.
•	•		Surface Mount Technology,or SMT, is a process by which electronic components are mounted directly on both sides of a printed circuit board, increasing board capacity, facilitating product miniaturization and enabling advanced automation of production. We use SMT for products such as electronic linguistic devices. AtAs of December 31, 2003,2004, we had 2129 SMT productions lines. The production time per chip ranges from 0.072 second per chip to 0.8 second per chip and high precision ranging from +/-0.09-0.05 millimeter to +/-0.1 millimeter. The components size ranges from 0.6 millimeter (length) x 0.3 millimeter (width) to 55 millimeters (length) x 55 millimeters (width). Ball Grid Array,grid array, or BGA, ball pitch is 0.5 millimeter and ball diameter is 0.2 millimeter. The total production capacity is 490,445,000670,000,000 resistor capacitor chips per month.
•	•		Twisted Nematic LCDs,or TN type LCD, is the most conventional and economical and is suitable for most common LCDs usedlow information content display systems such as those found in devices like calculators, watches, car audio, car clusters and watches. Atother medical instruments. As of December 31, 2003, we2004, J.I.C. had two TN LCD lines. The lines use 360 millimeter by 400 millimeter glass sheets and have acapable of total capacity of about 90,000100,000 pairs of glass sheetspanels (each sheet of glass of 360 millimeters x 400 millimeters size) per month.
•	•		Super-Twisted Nematic LCDs,or STN, type LCDs allow for clearer visibility and wider viewing angle than TN-type LCDs. STN LCDscapable of providing higher information content display systems are suitable for usefound in devices likeapplications such as cordless phones, mobile phones, MP3 players, pocket games and PDA personal digital assistants. We began manufacturing thesePDAs. J.I.C. started producing STN LCDs in the second quarter of 2002 and, atas of December 31 2003, we had one STN LCD line. It uses2004, was equiped with a automated line capable of capacity 50,000 pairs of glass (each sheet of glass of 360 millimeter bymillimeters x 400 millimeter glass sheets and has a capacity of about 40,000 to 50,000 glass sheetsmillimeters size) panels per month.

     AtAs of December 31, 2003,2004, we had threefour clean rooms at our principal manufacturing facilities, which housed COF and COG capabilities for LCD module and front light or back light panel manufacturing. We also had threehave five clean rooms at another of our factories, which are used to manufacture LCD panels. Of our sixnine clean rooms atas of December 31, 2003, three2004, six were class ten thousand, and three were class thousand.

Quality Control

     We maintain strict quality control programs for our products, including the use of total quality management, or TQM, systems and advanced testing and calibration equipment. Our quality control personnel test the quality of incoming raw materials and components. During the production stage, our quality control personnel also test the quality of work-in-progress at several points in the production process. Finally, after the assembly stage, we conduct testing of finished products. In addition, we provide office space at our principal manufacturing facilities for representatives of our major customers to permit them to monitor production of their products and we provide them with direct access to our manufacturing personnel.

     All of our manufacturing facilities are certified under ISO 9001 quality standards, the International Organization for Standardization’s, or ISO’s highest standards. The ISO is a Geneva-based organization dedicated to the development of worldwide standards for quality management guidelines and quality assurance. ISO 9000, which was the first quality system standard to gain worldwide recognition, requires a company to gather, analyze, document, monitor and make improvements where needed. Our certification under an ISO 9001 quality standard demonstrates that our manufacturing operations meet the most demanding of the established world standards. Our principal manufacturing facilities are also certified under an ISO 14001 quality standard, which was published in 1996 to provide a structured basis for environmental management control.

     We started the implementation of the Six Sigma approach in 2004 and our principal manufacturing facilities have been recognized by the China Association for Quality of the Chinese Government as a “National Advanced Enterprise for the Promotion of Six Sigma”. Six Sigma is an internationally recognized approach that uses facts and data to develop better solutions, thereby reducing defects and production times, and improving customer satisfaction. This approach allows the Company to lower its costs due to the minimization of manufacturing defects. This results in improved profit margins and higher competitiveness.

Our Suppliers

     We purchase thousands of different component parts from numerous suppliers. We are not dependent upon any single supplier for any key component. We purchase components from suppliers in Japan, China and elsewhere. We generally base component orders on received purchase orders in an effort to minimize our inventory risk by ordering components and products only to the extent necessary although for certain customers we will occasionally purchase raw materials based on such customer’s rolling forecasts.

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     The major component parts we purchase include the following:

	•		off-the-shelf and custom integrated circuits or “chips,”“chips”, most of which we purchase presently from Toshiba Corporation, and Sharp Corporation and certain of their affiliates;
	•		LCD panels, which are available from many manufacturers. In 2003,2004, we purchased LCD panels from Epson Hong Kong Ltd., Toshiba Matsushita Display Technology Co. Ltd., Optrex Corporation and Sharp Corporation for LCD panels and in the future we may produce some LCD supplies internally;
	•		CMOS sensor,sensors, which we purchase entirelymainly from Omnivision Technologies Inc.;
	•		solar cells and batteries, which are standard “off-the-shelf” items that we generally purchase in Hong Kong from agents of Japanese manufacturers; and
	•		various mechanical components such as plastic parts, rubber keypads, PCBs, indium tin oxide, or ITO, glass used in the production of LCD panels, and packaging materials from various local suppliers in China.

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     Whenever practical, we use domestic China suppliers who are often able to provide items at low costs and with short lead times.

     Certain components may be subject to limited allocation by certain of our suppliers. During 2000, there was an industry-wide shortage of components in the electronics industry as supply was unable to satisfy growing world demand. In some cases, supply shortages and delays in deliveries of particular components have resulted in curtailed production, or delays in production of assemblies using scarce components. These supply shortages have contributed to an increase in our inventory levels and reduction in our margins. We expect that shortages and delays in deliveries of some components will continue. If we are unable to obtain sufficient components on a timely basis, we may experience manufacturing delays, which could harm our relationships with current or prospective customers and reduce our sales.

     The principal raw materials used by the Company are large scale integrated, circuits or LSI, circuits (CMOS), Semiconductors,semiconductors, LCD panels and batteries. At times, the pricing and availability of these raw materials can be volatile, due to numerous factors beyond the Company’s control, including general economic conditions, currency exchange rates, industry cycles, production levels or a supplier’s tight supply. In the past, we have asked our customers to share in the increased costs of raw materials where such increased costs would adversely affect the Company’s business, results of operations and financial condition. Our customers have generally agreed when so requested in the past. We cannot assure you, however, that our customers will agree to share costs in the future and that our business, results of operations and financial condition would not be adversely affected by increased volatility of raw materials.

Production Scheduling

     The typical cycle for a product to be designed, manufactured and sold to an OEM customer is one to two years, which includes the production period, the development period and the period for market research and data collection (which is undertaken primarily by our OEM customers). Initially an OEM customer gathers data from its sales personnel on products for which there is market interest, including features and unit costs. The OEM customer then contacts us, and possibly other prospective manufacturers, with forecasted total production quantities and design specifications or renderings. From that information, we in turn contact our suppliers and determine estimated component and material costs. We later advise our OEM customer of the development costs, charges (including molds, tooling and software design, if applicable) and unit cost based on the forecasted production quantities desired during the expected production cycle.

     Once we and the OEM customer agree to the quotation for the development costs and the unit cost, we begin the product development if we are engaged to do so. This development period typically lasts less than six months, but may be longer if software design is included. During this time we complete all molds, tooling and software required to manufacture the product with the development costs generally borne by our customer. Upon completion of the molds, tooling and software, we produce samples of the product for the customer’s quality testing, and, once approved, commence mass production of the product. We recover the development costs in relation to molds, tooling and software from our customers.

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     The production period usually lasts approximately six to twelve months. In some cases, our OEM customer handles all product design and development and engages us only at the point of initial production. Typically, more advanced products have shorter production runs. If total production quantities change, the OEM customer often provides only limited notice before discontinuing orders for a product. At any point in time we aremay be in different stages of the development and production periods for the various models under development or in production for our OEM customers.

     Generally, our production is based on purchase orders received from OEM customers. Purchase orders are often supported by letters of credit or written confirmation from the OEM customer and generally may not be cancelled once confirmed without the mutual consent of the parties. Even in those cases where customers are contractually obligated to purchase products from us or repurchase unused inventory from us, we may elect not to immediately enforce our contractual rights because of the long-term nature of our customer relationships and for other business reasons, and instead may negotiate accommodations with customers regarding particular situations.

     We did not suffer a material loss resulting from the cancellation of OEM customer orders in 2001 to 2003.2004. In 2001, we wrote down our inventory for $3.8 million for slow-moving raw materials relating to cancelled, reduced or delayed orders. However, subsequently we were able to use some of these raw materials in production or we received compensation for the unused raw materials from certain of our customers, and the gain of $2.0 million was recorded in cost of sales during 2002.

Sales and Marketing

     We focus on developing close relationships with our customers at the development and design phases and continuing throughout all stages of production. We identify, develop and market new technologies that benefit our customers and position us well as an EMS provider.

     Sales and marketing operations are integrated processes involving direct salespersons, project managers and senior executives. We direct our sales resources and activities at several management and staff levels within our customers and prospective customers. We receive unsolicited inquiries resulting from word of mouth, from public relations activities, and through referrals from current customers. We evaluate these opportunities against our customer selection criteria and assign direct salespersons.

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Seasonality

     Historically, our sales and operating results are often affected by seasonality. Sales of calculators, personal organizers and linguistic products are often higher during the second and third quarters in anticipation of the start of the school year and the Christmas buying season. Similarly, our consumer services for electronics products have historically been lower in the first quarter resulting from both the closing of our factories in China for the Chinese New Year holidays and the general reduction in sales following the holiday season. As we have diversified our services for complex components, we expect that seasonality may be less of a factor affecting our business.

Transportation

     Typically, we sell products F.O.B. Hong Kong, which means that our customers are responsible for the transportation of finished products from Hong Kong to their final destination.     Transportation of components and finished products to and from Shenzhen is by truck. Component parts purchased from Japan are generally shipped by air. To date, we have not been materially affected by any transportation problems. However, transportation difficulties affecting air cargo or shipping, such as an extended closure of ports that materially disrupts the flow of our customers’ products into the United States, could materially and adversely affect our sales and margins if, as a result, our customers delay or cancel orders or seek concessions to offset expediting charges they incurred pending resolution of the problems causing the port closures.

Competition

     General competition in the contract EMS industry is intense and characterized by price erosion, rapid technological change and competition from major international companies. This intense competition has resulted in pricing pressures, lower sales and reduced margins. We believe that the principal competitive factors in our targeted markets are product quality, pricing, flexibility and timeliness in responding to design and schedule changes, reliability in meeting product delivery schedules, technological sophistication and geographic location. Many of our competitors have greater financial, technical, marketing, manufacturing, regional shipping capabilities and logistics support and personnel resources than we do and we may not be able to continue to compete successfully.

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     The EMS services we provide are available from many independent sources as well as from current and potential customers with in-house manufacturing capabilities. Our EMS competitors include Celestica, Inc., Flextronics International Ltd., Jabil Circuit, Inc., Sanmina-SCI Corporation, Hon Hai Precision Industry Co., Ltd., Jabil Circuit, Inc., Sanmina-SCI Corporation and Solectron Corporation. Our principal competitors in the manufacture of our traditional product lines of calculators, personal organizers and linguistic products include Kinpo Electronics, Inc. and Inventec Co. Ltd. Our principal competitors in the manufacturemanufacturing of image capturing devices and the CMOS sensortheir modules areinclude Lite-On Technology Corporation, The Primax Group and Logitech Inc.International S.A. Our principal competitors in the manufacture of mobile phone accessories include Elcoteq Network Corp. Our competitors in the manufacturing of RF modules include Wavecom and WKK International (Holdings) Ltd. Our competitors in the manufacturing of LCD panels include Truly International Holdings Ltd. and Varitronix International Ltd. We have numerous competitors in the telecommunications, subassembliestelecommunication, sub-assemblies and components product lines, including Philips, Samsung and Varitronix.Varitronix International Ltd. Our competitors in our FPC sub-assemblies business include Solectron Corporation.

Research and Development

     We invest in research and development for manufacturing and assembly technology that provide us with the potential to offer better and more technologically advanced services to our OEM customers or assist us in working with our OEM customers in the design and development of future products. We plan to continue acquiring advanced design equipment and to enhance our technological expertise through continued training of our engineers and further hiring of qualified system engineers. These investments are intended to improve the speed, efficiency and quality of our assembly processes.

     In our ODM business, we are responsible for the design and development of new products, the rights to which we own. We sell these products to OEM customers to be marketed to end users under the customers’ brand names. To date, we have successfully developed a number of electronic dictionaries, cordless telephones and calculator products. Our efforts to expand or maintain the ODM business may not be successful and we may not achieve material revenues or profits from our efforts. To date, our ODM design activities have not been a material portion of our research and development budget.

Patents, Licenses and Trademarks

     We do not have any patents, licenses or trademarks on which our business is substantially dependent. Instead, we rely on our trade secrets, industry expertise and long-term relationships with our customers and suppliers.

Organizational Structure

     We are a holding company for Nam Tai Investments Consultant (Macao Commercial Offshore) Company Limited, Nam Tai Group Management Ltd.,Limited, Nam Tai Electronic & Electrical Products Limited, Nam Tai Telecom (Cayman) CompanyZastron Precision-Tech Limited, Namtek Software Development Company Limited and J.I.C. Technology Company Limited and their subsidiaries. The chart below illustrates the organizational structure of the Company and our principal operating subsidiaries atas of December 31, 2003.2004.

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     Our significant operating entities are described below:

J.I.C. Technology Company Limited

     J.I.C. Technology Company Limited was formed in the Cayman Islands in January 2002 in connection with a reverse merger with Albatronics, of which we owned slightly more than 50% of the outstanding capital stock. J.I.C. Technology Company Limited was listed on the Hong Kong Stock Exchange in June 2002. We currently hold 74.86% of the ordinary shares of J.I.C. Technology Company Limited, and upon full conversion of the preference shares we own, we would own approximately 88.39% of J.I.C. Technology Company Limited.

J.I.C. Enterprises (Hong Kong) Ltd.

     J.I.C. Enterprises, incorporated in Hong Kong, was established in 1983 and has been in the LCD business for almost 20 years. Originally a small trading company for LCD panels and electronics products, J.I.C. Enterprises is now strategically focused on the sales and marketing of LCD panels and is responsible for customer relationship development.

Jetup Electronic (Shenzhen) Co., Ltd.

     Jetup Electronic was incorporated in 1993 in China and handles the manufacturing and processing works of LCD panels through its factory plants in Baoan County, Shenzhen.

Nam Tai Investments Consultant (Macao Commercial Offshore) Company Limited

     Nam Tai Macao was established in August 2003 in Macao, China as our PRC headquarters, due to our continuous increase in investment in China. Macao, like Hong Kong, is a special region of China and has recently introduced an incentive program to attract investment in Macao. Its principal business is the provision of management and sales co-ordination and marketing services to other group companies.

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Nam Tai Group Management Limited

     Nam Tai Group Management Limited was established on March 9, 2001 in Hong Kong and provides management services to other group companies.

Nam Tai Telecom (Cayman) Company Limited

     Nam Tai Telecom (Cayman) Company Limited was incorporated in June 2003 in the Cayman Islands, and is the holding company for Zastron Electronic (Shenzhen) Company Limited.

Zastron Electronic (Shenzhen) Company Limited

     Zastron Electronic (Shenzhen) Company Ltd. was organized as Zastron Plastic & Metal Products (Shenzhen) Ltd. in March 1992 as a limited liability company pursuant to the relevant laws of China. Zastron engaged in production of metallic parts and PVC plastic products, much of which is used in products manufactured in our principal manufacturing facilities. In August 2002, Zastron Plastic & Metal Products (Shenzhen) Ltd. changed its name to Zastron Electronic (Shenzhen) Co. Ltd. and the nature of business was expanded to include manufacturing of telecommunication products and LCD modules and become one of our principal manufacturing arms. In June 2002, Zastron’s equity interest was transferred from Nam Tai Electronic & Electrical Products Limited (Hong Kong) to Nam Tai Group Management Limited. In October 2002, Zastron’s silk screening business was transferred to Jieyao Electronics (Shenzhen) Co. Ltd., a former subsidiary of J.I.C. Technology Company Limited and was sold in June 2003. In December 2002, the equity interest of Zastron was transferred from Nam Tai Group Management Limited to Nam Tai Telecom (Hong Kong) Company Limited. In December 2003, the equity interest of Zastron was transferred from Nam Tai Telecom (Hong Kong) Company Limited to Nam Tai Telecom (Cayman) Company Limited.

Nam Tai Electronic & Electrical Products Limited

     Nam Tai Electronic & Electrical Products Limited, or NTEEP, was incorporated in June 2003 in the Cayman Islands, and is the holding company for Namtai Electronic (Shenzhen) Co., Ltd. and Nam Tai Investments Consultant (Macao Commercial Offshore) Company Limited. Its shares were listed on the Hong Kong Stock Exchange on 28 April 2004 and we hold 75% of the issued ordinary shares of NTEEP.

Namtai Electronic (Shenzhen) Co., Ltd.

     Namtai Electronic (Shenzhen) Co., Ltd. was established as Baoan (Nam Tai) Electronic Co. Ltd. in June 1989 as a contractual joint venture company with limited liability pursuant to the relevant laws of China. The equity of Baoan (Nam Tai) Electronic Co. Ltd. was 70% owned 70% by Nam Tai Electronic & Electrical Products Limited and 30% owned by a Chinese company. In 1992, the Chinese company transferred all of its equity interest in the contractual joint venture to Nam Tai Electronic & Electrical Products Limited, a Hong Kong subsidiary of Nam Tai, which name was subsequently changed to Nam Tai Trading Company Limited, and the company changed its name to Namtai Electronic (Shenzhen) Co., Ltd. NamtaiIt is the principal operating arm of NTEEP.

Nam Tai Investments Consultant (Macao Commercial Offshore) Company Limited

     Nam Tai Investments Consultant (Macao Commercial Offshore) Company Limited was established in August 2003 in Macao, China. In March 2004, the equity interest of Nam Tai Investments Consultant (Macao Commercial Offshore) Company Limited was transferred from the Company to NTEEP and became its wholly owned subsidiary. Its principal business is the provision of management and sales co-ordination and marketing services to other companies within the NTEEP group.

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Zastron Precision-Tech Limited

     Zastron Precision-Tech Limited, or Zastron, was incorporated in June 2003 in the Cayman Islands, and is the holding company for Zastron Electronic (Shenzhen) Co., Ltd. and Zastron (Macao Commercial Offshore) Company Limited.

Zastron Electronic (Shenzhen) Co. Ltd.

     Zastron Electronic (Shenzhen) Co. Ltd. was organized as Zastron Plastic & Metal Products (Shenzhen) Ltd. in March 1992 as a limited liability company pursuant to the relevant laws of China. Zastron Plastic & Metal Products (Shenzhen) Ltd. was engaged in the production of metallic parts and PVC plastic products, much of which is used in the products manufactured in our principal manufacturing facilities. In August 2002, Zastron Plastic & Metal Products (Shenzhen) Ltd. changed its name to Zastron Electronic (Shenzhen) Co. Ltd. and expanded the nature of its business to include manufacturing of telecommunication products, LCD modules, TFT LCD modules and others. It also became one of our principal manufacturing arms. Zastron Electronic (Shenzhen) Co. Ltd. is currently a wholly-owned subsidiary of Zastron.

Zastron (Macao Commercial Offshore) Company Limited

     Zastron (Macao Commercial Offshore) Company Limited was established in March 2004 in Macao, China and is a wholly owned subsidiary of Nam Tai Electronic & Electrical Products Limited. NamtaiZastron. Its principal business is the provision of management, sales co-ordination and marketing services to other companies within the Zastron group.

J.I.C. Technology Company Limited

     J.I.C. Technology Company Limited, or J.I.C., was formed in the Cayman Islands in January 2002 in connection with a reverse merger with Albatronics, of which we owned slightly more than 50% of the outstanding capital stock. J.I.C. was listed on the Hong Kong Stock Exchange in June 2002. We currently hold 71.63% of the issued ordinary shares of J.I.C.

Jetup Electronic (Shenzhen) Co., Ltd. is one

     Jetup Electronic was incorporated in 1993 in China and handles the manufacturing and processing works of our principal manufacturing armsLCD panels through its factory plants in Baoan County, Shenzhen.

J.I.C. (Macao Commercial Offshore) Company Limited

     J.I.C. (Macao Commercial Offshore) Company Limited was incorporated in November 2004 in Macao, China and is engaged in researcha wholly-owned subsidiary of J.I.C. Technology Company Limited. Its principal business is the provision of management, sales co-ordination and development, manufacturing and assembling our electronic products in China. In December 2003,marketing services to other companies with the equity interest of Namtai Electronic (Shenzhen) Co., Ltd. was transferred from Nam Tai Electronic & Electrical Products Limited (Hong Kong) to Nam Tai Electronic & Electrical Products Limited (Cayman Islands).J.I.C. Group.

Namtek Software Development Company Limited

     Namtek Software Development Company Limited was incorporated in May 2002 in the Cayman Islands and was established as the holding company for Shenzhen Namtek Co., Ltd. and Namtek Japan Company Limited.

Shenzhen Namtek Co., Ltd.

     Shenzhen Namtek Co., Ltd. was organized in December 1995 as a limited liability company pursuant to the relevant laws of China. Shenzhen Namtek Co., Ltd. commenced operations in early 1996 developing and commercializing software for the consumer electronics industry, particularly for our customers and for products we manufacture or we will manufacture in the future. At December 31, 2003,2004, Shenzhen Namtek Co., Ltd employed approximately 7793 software engineers and provides the facilities and expertise to assist in new product development and research, enabling us to offer our customers program design for microprocessors, enhanced software design and development services, and strengthening our ODM capabilities. In July 2002, Shenzhen Namtek Co., Ltd set up a branch office in Shanghai for employing more expertise to assist in new product development and research. As of December 31, 2003, Shenzhen Namtek Co., Ltd’s Shanghai office employed approximately 11 software engineers.

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Namtek Japan Company Limited

     Namtek Japan Company Limited was incorporated in June 2003 in Tokyo, Japan and is the sales and marketing arm of software business of Namtek Group in Japan.

Property, Plant and Equipment

     Our registered office and principal executive office in the British Virgin Islands is located at McNamara Chambers, P.O. Box 3342, Road Town, Tortola. Our principal

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executive office in the British Virgin Islands is located at 116 Main Street, 3^rd Floor, Road Town, Tortola. Corporate administrative matters are conducted at this office through our registered agent, McNamara Corporate Services Limited. We do not own any property in the British Virgin Islands. The table below lists the locations, square footage, principal use and lease expiration dates of the facilities used in our principal operations.

     In order to expand our production capacity, we are buildinghave built a new factory consisting of approximately 250,000265,000 square feet on portions of the vacant land adjacent to our existing factory complexprincipal manufacturing facilities in Shenzhen, China. Construction beganThe construction completed in September 2003 andDecember 2004. We expect full operations can commence in April 2005. As of December 31, 2004, we expect it to be completed by the end of the fourth quarter in 2004. After completion, the production capacity is expected to increase from 40% to 60%. We have budgeted $40.0had spent $15.0 million to cover the cost of construction and fixtures and equipment for the new factory. AsThe financing of December 31, 2003, the construction project has already incurred $1.2 million. We currently plan to finance these improvements to our manufacturing facilities were obtained from cashinternal resources.

     In October 2004, our existing production facility for the LCD panels segment also relocated to new factory premises which are approximately 670,000 square feet and twice the size of the former factory premises. This new factory provides room for future expansion of production capacity. As of December 31, 2004, we had spent $7.7 million for this relocation and financed this amount with a combination of internal resources and banking facilities.bank financing.

Hong Kong

     In 2001, our Hong Kong offices relocated to 15/F, China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road, Central, Hong Kong. The office is conveniently located above the ferry terminal and beside the highway, permitting easy transportation by sea or by land to and from the manufacturing facilities in Shenzhen. The purchase and renovation of the 24,200 square feet of contiguous prime office space, including transaction fees, cost $13.0 million.

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     As of December 31, 2003,2004, we own fourone residential flatsflat in Hong Kong purchased for total consideration of $5,999,000. These properties are$1,108,000. This property is occupied by one member of senior management and formforms a part of theirhis compensation.

     Until 1996, we owned approximately ten acres of land in Hong Kong carried on our books at a cost of approximately $523,000. Between 1997 and 20032004, we sold approximately 7.7 acres of land for net proceeds of $7,281,000,$7.28 million; realizing a gain of $7,027,000.$7.03 million. We plan to sell the remaining land and, pending the sale, to continue to carry the land at a cost of approximately $134,000.

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Macao

     In August 2003, we set upestablished our PRC headquarters in Macao, China due to our continuous increaseand set up Nam Tai Investments Consultant (Macao Commercial Offshore) Company Limited in investment inMacao, China. Macao, like Hong Kong, is a special administrative region of China and has recently introduced an incentive program to attract investmentinvestments to Macao. In March and November 2004, we further established Zastron (Macao Commercial Offshore) Company Limited and J.I.C.(Macao Commercial Offshore) Company Limited in Macao.Macao, China, respectively. We currently lease three offices and all of them under two-year leases expiring in July 2005 and December 2006, respectively. The monthly rental cost is approximately $905 per office.

Shenzhen, China

Principal Manufacturing Facilities

     Our principal manufacturing facilities are located in Baoan County, Shenzhen, China. TheIn December 1993, we acquired a 50-year lease for thisthe first piece of land was purchased for approximately $2.45 million in December 1993 and has a term of 50 years. Thismillion. The first phase facility consistsconsisted of 160,000 square feet of manufacturing space, 39,000 square feet of offices, 212,000 square feet of new dormitories, 26,000 square feet of full service cafeteria, and recreation facilities and a swimming pool. The total cost of this addition to our complex, excluding land, was approximately $21.8 million. In November 2000, we began construction of another addition to our factory complex. We completed construction in October 2002, adding a new five-story factory with 138,000 square feet of production facilities, including one floor for assembling, one floor of office space, one floor for warehouse use and two floors of class thousand clean room facilities. Prior to this addition, we had only one floor of class ten thousand clean room facilities at our factory complex. As of December 31, 2002, we had spent $9.1 million to complete the construction of the new facility. With thethis new addition, we had approximately 626,000 square feet of manufacturing space at our principal manufacturing complexfacilities as of December 31, 2002, with only minimal additions in 2003.

     In July 1999, we purchased aanother vacant lot of approximately 280,000 square feet (approximately 6.5 acres) bordering our current manufacturing complex located in Shenzhen, China at a cost of approximately $1.2 million. We are buildinghave built another factory consisting of approximately 250,000265,000 square feet.feet of space. Construction has beganstarted in September 2003 and we expect it to be completed by the end of the fourth quarter in December 2004. We have budgeted $40.0expect full operation can commence in April 2005. With this new addition, our principal manufacturing facilities now consists of 557,835 square feet of manufacturing space, 87,462 square feet of offices, 189,952 square feet of dormitories and 60,765 square feet of cafeteria space and a full services recreational building. As of December 31, 2004, we had spent $15.0 million to cover the cost of construction and fixtures and equipment for the new factory, of which $1.2 million has already been spent in 2003. We currently plan to financefactory. The financing for these improvements to our manufacturing facilities was obtained from cash resources and banking facilities.internal resources.

LCD Factory

     Our LCD factory was leased since 1997 and has about 151,738 square feet of manufacturing space. The facility produces LCD panels to the specifications of our OEM customers and has an average monthly output of 12 to 14 million pieces. The lease of the facility will expire on August 31, 2004.     In October 2003, Jetup Electronic (Shenzhen) Co., Ltd. entered into a tenancy agreement for new factory premises, and plans to replace its existing factory premises in order to expand its manufacturing facilities to cope with future development. Alsowhich is also located in Baoan County, Shenzhen, China, the new factory premises, including dormitories, are about 600,000 square feet which are two times the size of the existing factory premises. Jetup Electronic (Shenzhen) Co. Ltd. plansand relocated to move into the new factory premises in the third quarter ofOctober 2004. The existingnew factory premises will then be returned toare about twice the landlord.size of the former factory premises and consist of 383,547 square feet of manufacturing space, 32,005 square feet of offices, 221,666 square feet of dormitories, and 36,807 square feets of cafeteria and recreational spaces. This new factory provides room for the future expansion of production capacity. As of December 31, 2004, we had spent $7.7 million for this relocation and financed this amount with a combination of internal resources and bank financing.

Software Development

     We currently lease threetwo offices in which we conduct software development. Our Shekou, Shenzhen, China office hasis approximately 8,93112,374 square feet, which we lease under two one-year leases expiring in August and September 2004, respectively. The monthly rental is approximately $6,017. Our Shanghai, China office, has approximately 4,754 square feet, which we lease under a three-year lease expiring in July 2005. The monthly rental is approximately $4,033.$7,667. In July 2003, we opened an office in Tokyo, Japan to further expand our sales and marketing team in Japan for our software development business. The Tokyo office has approximately 904 square feet, which we lease under a two-year lease expiring in June 2005. The monthly rental for the Tokyo office is approximately $1,900.

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$1,975.See Item 3. Key Information — “Risk Factors.” — “Risks Related to Our Operations in China, Hong Kong, Macao and Japan.”

Item 5.Operating and Financial Review and Prospects

     Except for statements of historical facts, this section contains forward-looking statements involving risks and uncertainties. You can identify these statements by forward-looking words including “expect,” “anticipate,” “believe,” “seek,” “estimate,” “intends,” “should,”“expect”, “anticipate”, “believe”, “seek”, “estimate”, “intends”, “should”, or “may.”“may”. Forward-looking statements are not guarantees of our future performance or results and our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under the section of this Report entitled Item 3. Key Information — “Risk Factors.” This section should be read in conjunction with our Consolidated Financial Statements included as Item 18 of this Report.

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Operating Results

Overview

     We are an electronics manufacturing and design services provider to a select group of the world’s leading OEMs of telecommunications and consumer electronic products. Through our EMSelectronics manufacturing services operations, we manufacture electronic components and subassemblies,sub-assemblies, including LCD panels, LCD modules, RF modules, FPC subassembliessub-assemblies and image sensors.sensors modules. These components are used in numerous electronic products, including cellular phones, laptop computers, digital cameras, copiers, fax machines, electronic toys, handheld video game devices and microwave ovens. We also manufacture finished products, including cellular phones, palm-sized PCs, PDAs, electronic dictionaries, calculators, and digital camera accessories and Bluetooth^TM wireless headset accessory for use with cellular phones.

     We assist our OEM customers in the design and development of their products and furnish full turnkey manufacturing services that utilize advanced manufacturing processes and production technologies. Our services include hardware and software design, component purchasing, assembly into finished products, or electronic subassembliessub-assemblies and post-assembly testing. These services are value-added and assist us in obtaining new business but do not represent a material component of our revenue. We also provide ODM services, in which we design and develop proprietary products that are sold by our OEM customers using their brand name.

Net Sales and Cost of Sales

     We derive our net sales principally from manufacturing services that we provide to OEMs of telecommunications and consumer electronic products. The market for the products we manufacture is generally characterized by declining unit prices and short product life cycles. Sales to our OEM customers are primarily based on purchase orders we receive from time to time rather than firm, long-term purchase commitments from our customers. We recognize sales, net of product returns and warranty costs, typically at the time of product shipment or, in some cases, as services are rendered.

     A substantial percentage of our net sales are to a small number of customers. During the years ended December 31, 2001, 2002 and 2003, sales to our ten largest customers were 83.7%, 84.8% and 84.9% of our net sales, respectively. Furthermore, our customers accounting for 10% or more of our net sales aggregated approximately 44.1%, 60.2% and 46.7% of our total sales, respectively, for the same three-year period. The loss of any of our largest customers or a substantial reduction in orders from any of them would materially and adversely affect our business and operating results.

     We plan to continue to leverage on our solid customer relationships and to expand our business. During 2003, we were able to expand our product line to higher margin products and we were able to benefit from the increase in production capacity from the commencement of operation of our new factory premises.

     For LCD Consumer Products, we will continue to focus on educational products, cellular phone accessories and home entertainment products. In 2004, we will begin delivery of new products, like bluetooth headsets for cellular phones and new home entertainment products, in addition to the Eyetoy USB Cameras for Playstation 2.

     For Telecom Component Assembly, we will continue to focus on high end color LCD modules and CMOS sensor modules. We shall seek opportunities to expand our product line and customer base for these products.

     We plan to relocate our existing production facility for the LPT segment to new factory premises. It is expected that the relocation to the new factory premises will be completed in the third quarter of 2004. The new premises, which are about 600,000 square feet, are two times the size of the existing factory premises. This new factory will provide room for future expansion of production capacity. We intend to spend approximately $6.5 million for this relocation and finance this amount with a combination of internal resources and bank financing.

     Our production is typically based on purchase orders received from OEM customers. However, for certain customers, we will occasionally purchase raw materials based on such customers’ rolling forecasts. Purchase orders are often supported by letters of credit or written confirmation from our OEM customers. We generally do not obtain firm, long-term commitments from our customers. Uncertain economic conditions and our general lack of long-term purchase commitments with our customers make it difficult for us to accurately predict our revenue over the longer term. Even in those cases where customers are contractually obligated to purchase products from us or to repurchase unused inventory from us, we may elect not to immediately enforce our contractual rights because of the long-term nature of our customer relationships and for other business reasons, and instead may negotiate accommodations with customers regarding particular situations.

     We did not suffer a material loss resulting from the cancellation of OEM customer orders in 2001 to 2003. In 2001 however, we wrote down our inventory for $3.8 million to cost of sales for slow-moving raw materials relating to cancelled, reduced or delayed orders. Subsequently, we were able to use some of these raw materials in production or we received compensation for the unused raw materials from certain of our customers, and the gain of $2.0 million was recorded in cost of sales during 2002.

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Gross Margins

     Our gross margins and operating income generally improve during periods of high-volume and high-capacity utilization in our manufacturing facilities and decline during periods of low-volume and low-capacity utilization. Over the last several years our gross profit margins have declined substantially, from 17.2% in 1999 to 14.8% in 2000 and 12.8% in 2001 before increasing to 16.1% in 2002 and 16.3% in 2003. The $3.8 million inventory write-down in 2001 has reduced the gross margin by 1.7% in 2001 and our subsequent gain of $2.0 million recorded in cost of sales during 2002, as discussed above, increased our gross margin by 0.8% for 2002.

     An increased mix of more complexComplex products that generally have relatively high material costs as a percentage of total unit costs and accordingly our strategic shift to produce more of such products has historically been a factor that has adversely affected our gross margins. This is the primary reason for the decline in our gross margins between 1999 and 2001. During this period, we diversified our product mix from predominantly low complexity electronic products, including calculators and electronic dictionaries, to include more complex components and subassemblies,sub-assemblies, like LCD modules and RF modules. We believe our gross margin improved in 2002 and 2003 as a result of the experience we acquired in manufacturing these more complex products as we changed our strategic focus. Despite the lower gross margin on more complex products, we believe that the opportunity for growth in the demand for these complex products justifies the shift in our strategic focus. Furthermore, we believe that the experience in manufacturing processes and know-how that we have developed from producing more complex products are a competitive advantage for us relative to many of our competitors.

     The increased costs associated with developing advanced manufacturing techniques to produce complex products on a mass scale and at a low cost have also negatively impacted our gross margins. For example, in our initial production runs of LCD modules and RF modules, we experienced low production yields and other inefficiencies that caused our gross margin to decrease. Although we believe we have improved the efficiency and quality of our manufacturing processes relating to LCD modules and RF modules, we may not be able to improve or maintain our gross margin for these products. Furthermore, in January 2003, we began to produce color and TFT LCD modules, each a complex component used in a variety of devices. The increased costs associated with manufacturing these products and other new complex products could have a negative impact on our future gross margins. The complex manufacturing processes involved in the production of complex products is also capital intensive, thereby increasing our fixed overhead costs. It has been our strategy to shift our focus more to the business of key components sub-assembly. The key components sub-assembly business generally accounts for relatively lower gross profit margin business. Nam Tai has been very successful in shifting its focus to key components sub-assembly, which accounted for 59% of our sales in 2004. We believe that the strong growth of this business will offset the impact of lower gross profit margins and we can continue to achieve strong growth in our overall profits. In the long run, we expect to achieve an overall gross profit margins of around 12%.

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Income Taxes

     Under current BVI law, our income is not subject to taxation. Subsidiaries operating in Hong Kong and the PRCChina are subject to income taxes as described below, and our subsidiary operating in Macao is exempted from income taxes. This would be valid unless the Macao government changes its policy towards offshore companies.

     Under current Cayman Islands law, Nam Tai Telecom (Cayman) Company Limited, Nam Tai Electronic & Electrical Products Limited, Zastron Precision-Tech Limited, J.I.C. Technology Company Limited and Namtek Software Development Company Limited are not subject to profit tax in the Cayman Islands as they have no business operations.

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operations in the Cayman Islands. However, they may be subject to Hong Kong income taxes as described below if they are registered in Hong Kong.

     The provision for current income taxes of the subsidiaries operating in Hong Kong has been calculated by applying the current rate of taxation of 16% for 2001 and 2002 and 17.5% for both 2003 and 2004 to the estimated taxable income earned in or derived from Hong Kong during the applicable period.

     The basic corporate tax rate for Foreign Investment Enterprises in China, such as our ChinaChinese subsidiaries, is currently 33% (30% state tax and 3% local tax). However, because all of our ChinaChinese subsidiaries are located in Shenzhen and are involved in production operations, they qualify for a special reduced state tax rate of 15%. In addition, the local tax authorities in the regions in which our subsidiaries operate in Shenzhen are not currently assessingassessed any local tax.tax, though that could change at any time. Moreover, several of our ChinaChinese subsidiaries are entitled to certain tax benefits and certain of our ChinaChinese subsidiaries have qualified for tax refunds as a result of reinvesting their profits earned in previous years in China for a minimum period of five years.China.

     Efforts by the Chinese government to increase tax revenues could result in decisions or interpretations of the tax laws by the Chinese tax authorities that are unfavorable to us and which increase our future tax liabilities, or deny us expected refunds. Changes in Chinese tax laws or their interpretation or application may subject us to additional Chinese taxation in the future.

     Our effective tax rates were 2%8%, 4%1% and 1% for 2001, 2002, 2003 and 2003,2004, respectively. The significant factors that causecaused our effective tax rates to differ from the applicable statutory rates of 15% were as follows:

Strategic Investments

     An important element of our strategy is to make investments in companies that provide the potential to complement our existing products and services, become new customers, augment our market coverage and sales ability, enhance our technological capabilities and expand our service offerings. We account for investments of less than 20% under the cost method and we account for investments between 20% and 50% under the equity method. Our material investments over the last five years include:

     Stepmind. In December 2003, we placed approximately $5.3 million into an escrow account for an investment in Stepmind. The investment will bewas to occur in two phases. For the first phase, approximately $2.64 million, representing 7.66% of the equity interest in Stepmind, was released to Stepmind in January 2004. The second phase amounting to $2.65 million will bewas released to Stepmind in August 2004 subject to fulfillment of certain conditions. Upon successful subscriptionIn August 2004, we disposed of our entire interest in Stepmind to one of the shares inshareholders of Stepmind at the second phase, our total investment will represent 11.33% of the equity interest in Stepmind. Stepmind was founded in July 2000 and is a fabless solutions and components supplier, developing applications which require high performance and secured data links.original subscription price for those shares.

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     Alpha Star/JCT Wireless.JCT.In January 2003, we invested $10.0 million for a 25% equity interest in Alpha Star Investments Ltd., the ultimate holding company of JCT. JCT is engaged in the design, development and marketing of wireless communication terminals and wireless application software and is using us to manufacture wireless communication terminals and their related modules. In September 2004, we made an impairment to write down our $10.0 million investment in Alpha Star to a fair value of approximately $3.0 million. As of December 31, 2004, another analysis had been conducted by an independent valuer, who determined that no further impairment to value was required.

     TCL Group.Over the period from September 2000 through November 2002, we made three investments in the TCL Group of companies and disposed of some portionsa portion of the investment in 2002 and 2003, respectively.2003. In 2004, we further increased our investment in TCL Mobile from holding approximately 3% to 9% through the acquisition of Jasper Ace. The TCL Groupgroup of companies is a leading OEM for numerous consumer electronic and telecommunications products in the domestic Chinese market.

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•

In September 2000, we made a strategic investment of $2.0 million to acquire a 5% indirect equity interest (through a 25% direct equity interest in Mate Fair) in both TCL Mobile Communication (HK) Co., Ltd. and Huizhou TCL Mobile Communication Co., Ltd., together known as TCL Mobile. TCL Mobile is engaged in manufacturing, distributing and trading of digital mobile phones and accessories in China and overseas markets. In October 2002, we began to provide TCL Mobile with LCD modules used in its mobile phones.

•

In January 2002, we acquired a 6% equity interest in TCL Corporation (formerly known as TCL Holdings Corporation Ltd.), the parent of the TCL Group of companies, for approximately $12.0 million.

	•		In November 2002, Mate Fair sold a portion of its equity interest in Huizhou TCL Mobile Communication Co. Ltd. for which we received proceeds of approximately $10.4 million, reducing our direct equity interest (held through Mate Fair) in TCL Mobile to approximately 3%.

	•		In November 2002, we invested $5.1 million in the 3% convertible notes of TCL International Holdings Limited that are due in November 2005. TCL International Holdings Limited is another company in the TCL Group and is publicly listed on the Hong Kong Stock Exchange. Those convertible notes of TCL International Holdings Limited were disposed of in August 2003 for approximately $5.03 million.

•

In April 2004, we increased our shareholding in TCL Mobile from approximately 3% to 9% through acquiring Jasper Ace, which directly holds 9% equity interest in TCL Mobile, at a consideration of approximately $102.2 million. The consideration was satisfied, by the exchange of our 72.2% equity interest in Mate Fair, plus cash of $25 million and the issuance of 1,416,764 new Nam Tai shares and resulted in a net investment cost of $79.5 million.

     Deswell Industries.In September 2000, we purchased 500,000 common shares in Deswell Industries Inc., a Nasdaq-listed company, representing approximately 9% of the outstanding shares of Deswell at the time of the purchase for an aggregate of $7.5 million. Deswell is a manufacturer of injection-molded plastic parts and components, electronic products and subassembliessub-assemblies and metallic molds and accessory parts for OEMs and contract manufacturers. During the first quarter of 2002, we sold our Deswell shares in the open market for aggregate proceeds of $10.1 million.

     The following details the impact of our strategic investments on our income statements for each of the years ended 2001, 2002, 2003 and 2003: