Telefonaktiebolaget LM Ericsson (ERIC) 2010 Q4 法說會逐字稿

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  • Operator

  • Good morning, good afternoon.

  • I am Dino, the Chorus Call operator for this conference.

  • Welcome to the ST-Ericsson fourth quarter and yearly 2010 financial results conference call.

  • Please note that for the duration of the presentation all participants are in listen-only mode and the conference is being recorded.

  • After the presentation there will be an opportunity to ask questions.

  • (Operator Instructions)

  • At this time I would like to turn the conference over to Ms.

  • Carol Streitberger Brighton, Senior Vice President, Global Communications.

  • Please go ahead, madam.

  • Carol Streitberger Brighton - SVP Global Communications

  • Thank you.

  • Thank you and good morning and afternoon to everyone.

  • Thank you for joining our fourth-quarter 2010 conference call.

  • Hosting the call today is Gilles Delfassy, ST-Ericsson's President and Chief Executive Officer.

  • Also joining him on the call today are Jorgen Lantto, Executive Vice President, Chief Technology Officer, and Head of Strategic Planning; Tim Lucie-Smith, Chief Financial Officer; and Fabrizio Rossini, our Head of Investor Relations.

  • This call is being broadcast live over the Web, and can be accessed through the ST-Ericsson investor website.

  • A replay will be available shortly after the conclusion of the call until February 4.

  • Today we will be making forward-looking statements during the call.

  • These statements are based on our current expectations and certain planning assumptions, which are subject to risks and uncertainties.

  • The actual results may differ materially due to factors mentioned in today's press release and discussed in this conference call.

  • We encourage you to review the Safe Harbor statement contained in this press release that we issued with the results this morning.

  • As the usual reminder, please limit yourself to one question and a brief follow-up question.

  • Now I would like to turn the call over to Gilles Delfassy, ST-Ericsson's President and Chief Executive Officer.

  • Gilles, please go ahead.

  • Gilles Delfassy - President, CEO

  • Thanks, Carol.

  • Thank you very much for joining us today.

  • Hey, as you know, 2010 has been a tough but pivotal year for ST-Ericsson as we are now well on our way to completing the deep, profound transformation of our Company.

  • While of course today's numbers and our first-quarter outlook are certainly challenging, we will spend time to talk about why I am confident that we are on the path to market leadership and sustainable, profitable growth.

  • But first let's talk about the fourth quarter.

  • Sales came basically in line with our expectation, actually even slightly better.

  • We have seen strong growth in our new 2G and EDGE platforms.

  • Additionally our new HSPA+ products just started to ship.

  • This has helped to offset weakness in the TD-SCDMA market and the anticipated decline from our legacy partners.

  • The one point I would highlight here is that while our new products were only about 25% of our sales in fourth quarter, they grew over 50% sequentially.

  • The transition to our new portfolio has started to progress well.

  • Moving to our operating results, we had an operating loss of $119 million in the fourth quarter.

  • As we had anticipated and as we have noticed from the first preliminary reports I have read, this was larger than the previous quarter.

  • Actually, you may remember that during our last conference call we mentioned that we had exceptional events -- like for example, the positive seasonal effects of vacation days in the third quarter -- that would not recur in Q4.

  • In addition to this, we have seen negative currency effect to the tune of about $4.5 million and some price erosion due to our ongoing legacy products transition.

  • On the positive side, we realized $13 million of savings in the fourth quarter from our $115 million restructuring plan, which has been completed as planned and on time.

  • At the end of fourth quarter, our net financial position was negative $82 million, which included cash and cash equivalents of $68 million as well as $150 million of short-term bridge credit facilities provided by our parents on a 50-50 basis.

  • During the quarter, we also sold trade receivables again without recourse, of which $166 million were outstanding at the end of the quarter.

  • In order to meet our funding requirements in the short term, it is our plan to continue to use factoring operations in addition to the short-term bridge credit facilities that have been made available from both our parents.

  • Turning to our first-quarter outlook, we expect net sales to decline sequentially.

  • Part of this is due to the ongoing decrease in our legacy products that will be offset by the volume ramp of new products, but only later this year.

  • We also see the typical seasonality from fourth quarter to first quarter, and we also see a shorter quarter.

  • Moving on.

  • As I mentioned earlier, 2010 has been a pivotal year for ST-Ericsson.

  • We are now well on our way to completing our transformation like we set out to do.

  • We now have competitive products addressing each important segment in the market.

  • But if I may highlight one area, it is clearly smartphones and tablets.

  • Anyone who attended CES in Las Vegas a couple of weeks ago can surely confirm that this is where the action is now.

  • And our ambitions here are big.

  • We aim to be a leader in the smartphone and tablet markets with our best-in-class modems and application solutions.

  • I am pleased to tell you that actually we see increasing traction today in this market for our products.

  • For example, the well-known U8500 platform, which we plan to ship as planned -- by the way, let me be precise here.

  • That will be with small volumes in the first half of this year and much larger volumes in the second half -- is generating more and more interest from our customers.

  • This product, which as you know has a great modem and a great application processing engine, all in one chip -- which is what some people call mod/app, a combination of modem and application processor in a single chip -- is available in all major flavors of high-level operating systems and is proving very attractive to our customers who want performance and a choice.

  • We are probably one of only two companies in the world who have this kind of offering.

  • And by the way, the U8500 is only the beginning of our series here.

  • Another area where we have seen strong interest is HSPA+ modems.

  • They are getting designed in at more and more customers who are looking for 21-megabit-per-second performance.

  • We are certainly the first and probably the only ones today who can provide that to the market, and we want to capitalize on it.

  • As for LTE, we demonstrated our new M700 modems last fall on the Quanta Computer tablet and also on the Nokia Booklet.

  • Actually that latest one was in front of China's prime minister Wen Jiabao, and we have pictures to testify of that.

  • In 2011, our focus is to deliver these exciting new products to our customers, building on that foundation to create even more opportunities for the future and, of course, to improve our financial performance.

  • We are squarely aimed at achieving market leadership and sustainable, profitable growth.

  • And I am confident that the work being done by our great employees around the world will get us there.

  • But before I close I want to say that I hope to see many of you next month at Mobile World Congress in Barcelona.

  • There you will see in person the real and exciting capabilities of our products and hear much more about our plans for the future, and I think it will be worth your while.

  • Thank you, and now for questions.

  • Operator

  • (Operator Instructions) Janardan Menon, Liberum Capital.

  • Janardan Menon - Analyst

  • Hi, thanks for taking the question.

  • You said that in Q4 about 25% of your sales was from new products.

  • So I calculate about $433 million of revenue was from older products, which perhaps you would call legacy products.

  • So I was just wondering; if you take a 12-month horizon, by Q4 of this year what kind of a decline would you expect in that part of your business?

  • I mean would it be fair to assume that it could halve, or would it decline at a slower rate than that?

  • The second question is, six months ago you were reasonably confident that you would see the U8500 ramp in some volume in the first half of this year, and now it seems to be pushed out more toward the second half of the year.

  • I was just wondering what gives you confidence that we will actually see that ramp in the second half.

  • And what are the chances that we might see some further pushout into the first half of next year or something like that?

  • Gilles Delfassy - President, CEO

  • Okay.

  • Yes, on the first question, I don't think we have a very precise outlook for how much will be a percentage of legacy products by the end of this year.

  • But I certainly expect it will be the majority of our products, to answer your question.

  • In terms of ramp of U8500, again as I mentioned we have always mentioned in the past that we would start to ramp in first half.

  • Actually that is why I thought it would be necessary to be a little more precise today.

  • Actually, you know the ramp of these new platforms is a process which takes time and is progressive.

  • So basically to clarify it, we think that there will be some limited volume in the first half probably; of course in second quarter and even in the second half of second quarter.

  • But the majority of the volume, the one that will impact our P&L, will happen in the second half of this year.

  • By the way, I am talking about the combination of several programs at several customers that we hope and plan to ramp this year.

  • And of course each program is a specific case, and of course at this level of complexity they all have their challenges and the risk of completion.

  • But at this point I need to tell you that I do not see the risk that it will be pushed out, as you were worried about next year.

  • I think that we will have a ramp this year in volume.

  • We will see about the exact profile of it; because again it depends how many of the platforms ramp, and when, and at which pace.

  • But I believe that we will see some sizable volume this year.

  • Janardan Menon - Analyst

  • Can you confirm that it will also ramp on Android phones based on your visibility at this point in time?

  • Gilles Delfassy - President, CEO

  • Based on my visibility in this point of time, absolutely.

  • Janardan Menon - Analyst

  • Okay.

  • Thank you very much.

  • Carol Streitberger Brighton - SVP Global Communications

  • Operator, next question, please.

  • Operator

  • Sandeep Deshpande, JPMorgan.

  • Sandeep Deshpande - Analyst

  • Thanks for taking my question.

  • Gilles, you have talked about your 21-megabits-per-second HSPA modems.

  • Can you -- is this within the existing customer base that you are selling these modems to?

  • Or is this new customers that you are getting for these modems?

  • Because this is quite an exciting product overall.

  • As well as -- I mean can you comment on whether this is -- these are stand-alone modem for credit cards, or are they going into handsets and tablets, etc.?

  • Gilles Delfassy - President, CEO

  • Yes, all very good questions, Sandeep.

  • The answer is yes, yes, yes, and yes, basically.

  • Actually, first of all I confirm that HSPA+ is a great product, these 21-megabit modems.

  • Even more so because a couple of -- just a few months ago nobody was really sure what will be the impact and the importance of 21 megabit in the deployment of operators on their way to LTE.

  • Actually, some network operators -- and very respectable ones, giant ones in the US, for example -- had even anticipated that they would skip 21 to go to, some of them 42, some of them [they] like LTE.

  • And actually what happened in the last quarter has been a complete reversal of that situation.

  • As you know, one I think I can mention them, T-Mobile in the US has been very bullish and very aggressive on 21.

  • They have started to deploy it with a lot of noise and poise.

  • That has turned the attention to that speed very, very brutally to their competitors that have hesitated.

  • But then most of them now are actually joining the bandwagon, and actually they are now putting much more interest on 21.

  • That couldn't be a better situation for us, because again there we believe that we are certainly the first and probably so far the only one able to ship 21 in volume.

  • So we had a couple of -- to be candid with you, we had a couple of OEMs which had taken the risk, so basically they had decided to be bullish on 21 even before that change of trend in the marketplace.

  • And these are the ones that are ramping these basically now in the first half of this year.

  • But now -- and these are typically our traditional customers.

  • But the good news is that we have actually seen great guys that we really wanted to work with and that not our traditional customers jumping to us and saying -- please, please, can we have -- when can you start shipping 21-megabit modems to us?

  • Of course, the time now to go to production, it will not be before the end of this year.

  • But we are very pleased to see more and more customers for these modems.

  • To answer the third part of your question, the majority of these applications is for smartphones.

  • It is thin modems for smartphones.

  • We have also of course applications in data-only modules, for example, for the Ericsson division doing data modules.

  • But the majority of the volume this year will be for smartphone applications.

  • Sandeep Deshpande - Analyst

  • Thanks, Gilles, for that.

  • One more follow up.

  • You are not giving any specific guidance in terms of your revenue in Q1/Q2.

  • But would do you see that, given some on this legacy is rolling off, that you will see an accelerated seasonality in Q1?

  • Normal seasonality is that you will see a decline in wireless revenues in Q1.

  • So will you see something more accelerated in Q1, for instance?

  • Gilles Delfassy - President, CEO

  • Yes, as I mentioned in the script and as we mentioned in the release, we see a serious decline in first quarter this year compared with last year; and that is a combination of several things.

  • First of all, unfortunately we do not yet have enough of these great new products ramping in volume yet.

  • It will come, but we don't have them enough.

  • So this being said, other than that what we have is first of all a traditional, historical -- at least in our portfolio of customers -- historical decrease in first quarter compared to fourth quarter.

  • We also this year have a pretty short first quarter compared with fourth quarter, just 92 days compared to 97 days last quarter.

  • So the combination of these I would call calendar effects -- which is again these two, traditional historical seasonality weakness plus a shorter quarter -- just that is already probably going to cause an 11% to 12% decrease in the top line.

  • Added to that, unfortunately, we will have a continuing decline of legacy products that we anticipate to be a few percent.

  • So basically if you want to have a precise -- well, as precise as possible numbers, we estimate that the combination of these three effects will probably drive a decline of probably mid teens, maybe mid to high teens in first quarter.

  • Sandeep Deshpande - Analyst

  • Thank you very much, Gilles.

  • Carol Streitberger Brighton - SVP Global Communications

  • Thank you.

  • Operator, next question, please.

  • Operator

  • Anil Doradla, William Blair.

  • Anil Doradla - Analyst

  • Thank you for taking my question.

  • I had a couple of questions.

  • On the U8500 design wins, can you guys give us some perspective of the total number of design wins, or even the geographic presence of those design wins?

  • The second part of my question was -- some of your competitors are talking about going to 28 nanometers.

  • Can you share your strategy in terms of evolving to more smaller geometric nodes over the next couple of years?

  • Thank you.

  • Gilles Delfassy - President, CEO

  • Sure.

  • Well, on the first part of your question, which is design-ins, I can say that -- well, first of all, we are very happy with the turn that has taken, the design-in activity in the last quarter.

  • So basically we have had what I believe are very, very good news in the last couple of months.

  • In terms of -- well, we gave numbers of design-ins in the past.

  • I will not give you a number now.

  • I can just tell you that we are happy with the additions that -- with the news that happened in the last quarter.

  • In terms of color or split, I don't want to give you details in geography because in some cases -- I can tell you it is diverse in terms of geography.

  • But I can tell you it is also diverse in terms of high-level-wise.

  • So we have a good combination of the major high-level [OICs] on the surface of this planet.

  • On technology, as you know, the [basement] of the main digital chip of a U8500 is [in] 45 nanometers today.

  • Of course we are not going to stay here.

  • We have of course transition ongoing to smaller geometries, both at the 32 and 28 nanometer.

  • We have several new products planned in these geometries.

  • And of course, we will have exciting new products with advanced modem and advanced application solutions in these 32- and 28-nanometer products, it is too early to announce them in detail, but stay tuned.

  • Of course, we will have more activity in this regard.

  • Of course, we are already designing in 32 and 28.

  • Anil Doradla - Analyst

  • Thank you very much.

  • Carol Streitberger Brighton - SVP Global Communications

  • Thank you very much.

  • Operator, next question, please.

  • Operator

  • Simon Schafer, Goldman Sachs.

  • Simon Schafer - Analyst

  • Yes, thanks so much, Gilles.

  • I guess I wanted to just ask a follow-up question as it relates to cost, then.

  • I understand that your current restructuring program is finished, but in light of what obviously from -- at least in the near term -- is maybe a lower recovery rate and maybe a fast acceleration of legacy product, when are you at the point when you would consider an additional restructuring program?

  • Gilles Delfassy - President, CEO

  • Yes.

  • Well, first of all, you are correct that the recoveries are not as fast as we would like it to be.

  • That is certainly something which is very present in our mind, and we are looking at all the angles here.

  • But as we mentioned, we just finished two very, very significant restructuring.

  • Our priority short-term, honestly, will be more on growing the top line now and also improving on the efficiency of our execution machine.

  • So in terms of huge, very significant changes to our scope, I don't see that or at least not short-term.

  • Of course, improving our efficiency, having actions here and there to do -- to be more optimal, absolutely.

  • Simon Schafer - Analyst

  • Got it.

  • Does that mean just -- obviously if you are in the mode of just concentrating on your top-line growth and then I suspect the new ramps with your new product is going to be associated with some pretty significant R&D and ramp cost as you build for those customers.

  • Does that mean that the loss run rate in the first half of 2011 on a quarterly basis is relatively similar to what you saw in the second half of 2010?

  • Gilles Delfassy - President, CEO

  • Just to clarify, the ramp of these new programs will of course require a lot of working capital because we are talking about big volumes here.

  • In terms of, you say the R&D, no; I think that the R&D positioning, ambition, capability that we have we believe is perfectly able, adequate to handle that ramp of new products and platforms, including the customer support which will peak -- of course, will peak now as we are getting closer to volume deliverance.

  • Now, on the running rate, maybe Tim, you want to give a quick comment?

  • Tim Lucie-Smith - SVP, CFO

  • Yes, I think, obviously looking forward we have given the guidance on Q1.

  • The effect of that -- we have talked about the fact that we see still an effect in reducing sales on our legacy products.

  • I think we have to consider that that will continue until we see a significant impact from the ramp of the new products in Q3.

  • That obviously is going to impact our operating income over the next couple of quarters.

  • Simon Schafer - Analyst

  • Okay.

  • Thank you very much.

  • Carol Streitberger Brighton - SVP Global Communications

  • Thank you.

  • Operator, next question.

  • Operator

  • Johannes Schaller, Deutsche Bank.

  • Johannes Schaller - Analyst

  • Thank you for taking my question.

  • Just quickly coming back to the U8500, in terms of the ramp it is pretty clear that it will be H2 heavy.

  • But can you give us a little bit more detail maybe on timing?

  • Also, will it be possible for a customer to buy a product with a U8500 chip in Q2 in the market?

  • Or is that just really the date for the chips getting delivered for assembly?

  • Then maybe quickly coming to LTE multi-mode chips, it looks like for 2011 you are pretty much -- along with another vendor -- the only company that is offering LTE multi-mode.

  • Maybe can you give us an update where you stand here, where you see competition standing, and how you see demand shaping up for those chips?

  • Thank you.

  • Gilles Delfassy - President, CEO

  • Yes, sure.

  • In terms of 8500, it is hard to give you more granularity than what I already said.

  • Yes, if everything goes great maybe there will be the first terminals, the very first terminals that you can put your hands on before the middle of the year.

  • But I cannot guarantee that.

  • Again, all of these -- we have several programs progressing.

  • I can assure you that development teams at our customers and our support teams are typically working day and night to cross the finish line, especially because the software dimension of these platforms is very heavy.

  • So it is hard to predict with more accuracy than what I already told you when you will find these exciting new terminals to play with.

  • Again, best case you will find a few; but probably as I said a limited number if it is before the middle of this year.

  • And of course I hope much more after the middle of this year.

  • In terms of LTE multi-mode, yes, you are correct.

  • Actually, you know, most of the early volume in LTE has not been multimode.

  • They have been single-mode LTE modems.

  • And by the way they have typically been supported by chipsets which were not the typical semiconductor manufacturer chipset, but vertically developed chipsets.

  • Single-mode LTE only, done by some couple of OEMs in the marketplace.

  • In terms of LTE multimode, as I mentioned in the script we have effectively done -- we have made very good progress.

  • We are demonstrating functional and quite -- with very good performance solutions on LTE with (technical difficulty).

  • I'm sorry, the phone went to mute, surprising me for a second.

  • So I will continue my sentence.

  • Yes, so we -- honestly the market is not yet huge this year And LTE multimode.

  • We have some good prospects for multimode LTE business in the back half of this year.

  • I think it is too early to make sure that -- to comment about them, to size them in terms of again size of business and so on.

  • But yes, we believe that certainly we will be in the early pack of LTE multimode solutions.

  • Johannes Schaller - Analyst

  • Quickly a follow-up on the U8500.

  • It is probably right to think about the Q4 opportunity being larger than the Q3 opportunity, because you are over the course of the year ramping up.

  • Right?

  • Gilles Delfassy - President, CEO

  • I think it makes sense, yes.

  • Typically, yes.

  • Johannes Schaller - Analyst

  • Okay, thank you.

  • Very clear.

  • Carol Streitberger Brighton - SVP Global Communications

  • Thank you.

  • Next question, operator, please.

  • Operator

  • Didier Scemama, RBS.

  • Didier Scemama - Analyst

  • Yes, good afternoon, everybody.

  • My question, first on U8500, although I think we forget how much opportunity there is on single modem as well.

  • But just to talk about U8500 again if I may.

  • Gilles, since you got very good news about two months ago, I was wondering if you could maybe share with us whether the U8500 is going to be the working horse, if I may use that expression, for your Tier 1 customers?

  • Or if it is going to be, let's say, a second source or third source for your Tier 1 customers?

  • I have a follow-up.

  • Gilles Delfassy - President, CEO

  • Yes, waiting for your follow-up.

  • No, in most of the cases 8500 is the primary smartphone platform for that segment for our customers.

  • Not in all the cases; actually, I think that there is one case where it is -- they also have another similar platform coming from another supplier.

  • Nobody is perfect.

  • But in most -- in all these cases but that one, the U8500 will be -- if that is your question -- the major or even the only solution for that segment, which is high-end smartphones, by our customers.

  • By the way, you are totally correct; thin modems are also a very exciting opportunity.

  • As you know, the U8500 has a 14 megabit mode, a [14-4] megabit modem.

  • And since there is that new fashion and that new trend to move to 21, a lot of our customers are now talking to us about -- even our existing U8500 customers are talking to us about ramping 8500 and quickly, I think -- a version with the 21 megabits modem associated, which of course we really do not mind at all.

  • Didier Scemama - Analyst

  • Okay, and in terms of follow-up, I mean you mentioned this morning and the analyst meeting obviously that your legacy custom business of RS and power management ASIC was rapidly declining.

  • What I was wondering is, if the ramp-up of your U8500 solution would be as quick effectively?

  • If one business is going down is the other one going up?

  • Maybe not at the same time, but when they do ramp.

  • Gilles Delfassy - President, CEO

  • Well, I mean, again as you know, a lot of our legacy RF and power management business -- I mean let's be clear; it is mostly for a big Finnish customer, right?

  • I mean that is our largest customer for RF ASICs and power management ASICs.

  • In that case, typically one U8500 ramping is replacing a kit of power management plus RF ASIC.

  • So it is just internal cannibalization, except of course what we get is 3 or 4 times more than what we lose.

  • So that one is okay.

  • But as you know, this large customer is ramping up for high-end smartphones.

  • They are also ramping competitive solutions; and that was decided many years ago, so there is nothing really we can do about this for low-end smartphone or high-end feature phone, if you prefer.

  • That is also going to cannibalize part of our RF ASIC and power management ASIC, and this one we will not get new one.

  • We will only lose the old one, not get the new one.

  • So that is why it is pretty complex over all that; but I guess you see what I am talking about.

  • Didier Scemama - Analyst

  • Yes, I understand very well.

  • So what you're saying is that your legacy business is declining because of effectively share loss, but that will be more than compensated in the second half effectively?

  • Gilles Delfassy - President, CEO

  • Yes.

  • Again in the segment where the U8500 is ramping it is replacing a kit of legacy products and it is replacing with much higher value in revenue and in margins.

  • So that is great.

  • There is also a portion which is going away for decisions made, again, long time ago.

  • But again since it is lower-end phones, it is a lower-end product as well.

  • Didier Scemama - Analyst

  • Thank you.

  • My last question is one of your competitors -- at least it seems like it has leaked on the Internet -- is showing a quad-core A9 processor available late this year.

  • What is your plan for that, please?

  • Gilles Delfassy - President, CEO

  • Yes, we have -- we are not commenting on -- everything we had to announce in terms of new products, we have.

  • Just rest assure that we are very serious in the performance of our application solutions, and rest assured that of course we are not going to only propose -- even this year we are not going to only propose the already very good dual Cortex-A9 solution at 45 nanometer of U8500.

  • Which by the way, is largely over 1 gigahertz for each core, so it's already a very good solution.

  • But again, we are going to have more -- I mean higher performance solution but we have not announced anything yet.

  • Stay tuned.

  • Didier Scemama - Analyst

  • Thank you.

  • Carol Streitberger Brighton - SVP Global Communications

  • Thank you very much.

  • Operator, next question, please.

  • Operator

  • Nicolas Von Stackelberg, Macquarie.

  • Nicolas Von Stackelberg - Analyst

  • Yes, my question is about restructuring.

  • You said that you are now done with your second program.

  • So we should not assume any P&L impact in the first quarter.

  • What about cash restructuring?

  • How much do you think we should pencil in for that still to come from the program that just ended?

  • Gilles Delfassy - President, CEO

  • Tim, you want to take that question?

  • Tim Lucie-Smith - SVP, CFO

  • Yes, so what we have said is that the program is substantially complete.

  • So in terms of savings there is a tail of savings; we are talking about $3 million to $5 million that we should still -- we will see in Q1 in this current quarter.

  • Now in terms of cash, we will have a significant outflow still because of the fact that the restructuring in Europe has been completed; the people have left the Company; but there is a significant amount of cash still to be paid out.

  • So we are talking about $60 million to $70 million that we will pay out during the course of 2011.

  • Nicolas Von Stackelberg - Analyst

  • Okay, $60 million to $70 million still to come.

  • You also pointed out that we should get ready for sequential decline in sales of course in the first quarter.

  • You also pointed out that at some stage during half-one you will have to invest in working capital to prepare for the ramp of the new product in the second half.

  • So putting it all together, unfortunately we don't have so much detail on your balance sheet; but would it be fair to assume that a strengthening of your equity base would be called for?

  • Tim Lucie-Smith - SVP, CFO

  • No, I don't think that is a fair assumption.

  • But it is a fair assumption to see that we will have a significant cash requirement related to the ramp-up.

  • That cash requirement is because of the buildup in working capital.

  • You will see some of that already in the first half of the year, and -- both in terms of inventory buildup but also in terms of CapEx.

  • Our CapEx is a relatively small amount because of we're only investing in the test equipment and so forth.

  • But we will see a significant growth in our CapEx from the $70 million that we spent in 2010.

  • We will see a substantial growth here, a double-digit growth in 2011.

  • Nicolas Von Stackelberg - Analyst

  • Sorry, $70 million is just CapEx?

  • Tim Lucie-Smith - SVP, CFO

  • $70 million is what we spent in 2010; and we will see double-digit, significant double-digit growth in 2011.

  • Gilles Delfassy - President, CEO

  • In CapEx.

  • Tim Lucie-Smith - SVP, CFO

  • In CapEx.

  • Nicolas Von Stackelberg - Analyst

  • Okay, so in addition to that of course, the investment in inventory.

  • So if you add together the elements that you have given us, plus assuming that there will be an operating loss at the start of next year --

  • Tim Lucie-Smith - SVP, CFO

  • Yes.

  • Nicolas Von Stackelberg - Analyst

  • I mean it does seem like you will require fresh external financing.

  • Can you help us?

  • Ericsson already stated that they are firmly behind you and committed to ST-Ericsson.

  • So in principle it shouldn't be so difficult.

  • It is really just to give us a steer on what we should expect in terms of the size.

  • Tim Lucie-Smith - SVP, CFO

  • Yes, I mean the steer is that both of our parents fully support us in terms of financially, and that our idea is to continue to utilize the factoring facilities that we have; and on top of that to continue to increase as necessary the short-term facilities from our parents on a 50-50 basis.

  • Now those facilities, which at the end of Q4 were $200 million, of which $150 million was utilized, that has already been improved to increase that to $300 million.

  • And that is a part of the ongoing process of supporting us from the parents with the short-term facilities.

  • Nicolas Von Stackelberg - Analyst

  • So the $150 million has been extended to $300 million now?

  • Tim Lucie-Smith - SVP, CFO

  • Yes.

  • The $150 million was the utilization of $200 million facility that we had at the end of Q4.

  • And subsequent to that we have already been approved to increase that facility to $300 million; and obviously we will continue to monitor the level of the facilities and adjust them as necessary.

  • Nicolas Von Stackelberg - Analyst

  • But if you add all of that together -- the extended facility, the additional room you may have in selling receivables, plus the cash that you still have on hand -- can you give us a view on what you think -- how much is the total cash that you have available?

  • Tim Lucie-Smith - SVP, CFO

  • Yes, I think we are not giving that kind of guidance in numeric terms.

  • But I think you have got some of the elements at least in order to work that through.

  • I am sorry about that, but we are not really giving that kind of detail.

  • Gilles Delfassy - President, CEO

  • Yes, that would probably -- I mean we probably don't think it's necessary to be more precise at this point.

  • But again, as you pointed out yourself, we have seen confirmed just today -- since the two meetings analyst meetings of our two parents were today -- both have made it very clear that they will continue to support us as required during that transition.

  • So as we mentioned the only two sources of financing that we are considering today are short-term bridge loans from our parents and factoring of receivables.

  • And we believe that with that we can cross the river and basically arrive to the point where we self-finance.

  • Nicolas Von Stackelberg - Analyst

  • Excellent.

  • Then finally, when would you -- or what would be the turning point for you to consider extending your disclosure?

  • Tim Lucie-Smith - SVP, CFO

  • Yes, I think that for the moment we have decided not to extend our disclosure significantly.

  • But obviously we will continue to review that and also discuss it with our parents.

  • I think if we make a decision to extend the disclosure that we are currently doing significantly, we would come back on that and probably would be at a year-end.

  • Nicolas Von Stackelberg - Analyst

  • Excellent.

  • Thank you very much.

  • Carol Streitberger Brighton - SVP Global Communications

  • Thank you.

  • Operator, next question please.

  • Operator

  • [Stickerson] Parker, UBS.

  • Katherine Parker - Analyst

  • It's [Katherine Parker] here on behalf of Gareth Jenkins.

  • I just wanted to ask a question with regard to when you aim to achieve your breakeven target from a profitability standpoint; and what would be the implied revenue level in absolute terms from that, please?

  • Gilles Delfassy - President, CEO

  • Okay, I can give a quick start and Tim may jump in as he wishes.

  • We have tried to give you with as much detail as possible everything we are doing to make that breakeven quarter happen.

  • I assure you that the whole management team and all the employees of the Company know and are really looking at that point as a fundamental point in the history of the Company.

  • So we are all extremely eager to see that point and to make that point arrive as early as possible.

  • Again, we're working on top line, on margin, and on OpEx as well as we have described earlier.

  • This being said, it is probably not the time or at least we consider it's not the time to give you a precise forecast on when this famous breakeven quarter will happen.

  • I can assure you we will really do everything we can to make it happen as early as possible.

  • Now to be more precise, you said at around what level of -- where would be that breakeven point.

  • Actually there was a number, so there is a history here that I found when I arrived in the Company.

  • My predecessor a couple of years ago had mentioned that after all restructuring actions, he was seeing the breakeven point around $750 million of revenue per quarter, three-quarters of a billion per quarter.

  • Of course, that starts to be a long time ago, that is about two years ago.

  • A lot of things have changed.

  • The rate of exchange is impacting it.

  • Also, our ambitions in this market have evolved since then.

  • However, I will not give you a precise number, but I believe that we are probably a little -- we may be a little above that, but probably not far.

  • So that is about as precisely as I can answer that question as of now.

  • And Tim, feel free to --

  • Tim Lucie-Smith - SVP, CFO

  • Yes, no, I could just confirm what you said.

  • It is a little bit above that $750 million and obviously because of the time that has gone past, and I think at some point we could be maybe more precise on that.

  • But for the moment I think we can say --

  • Gilles Delfassy - President, CEO

  • At some point we could announce a breakeven quarter and that would be great, but unfortunately we are not there yet.

  • But I assure you we are trying.

  • Katherine Parker - Analyst

  • Okay, great.

  • Thanks very much.

  • If I could just ask a follow-up question.

  • What we saw at CES a couple of weeks ago was announcement with Microsoft looking to work with NVIDIA, Texas Instruments, and Qualcomm on a ARM-based solutions.

  • Just wondering what you make of that, if that's okay.

  • Gilles Delfassy - President, CEO

  • Yes, sure.

  • Actually we -- these companies have traditionally been working on -- there is a technicality which is DirectX compatibility which -- I don't want to waste your time here, but that is a technical feature that we have not had in the past and therefore -- and that was necessary to meet Microsoft's requirements in terms of application processor.

  • The only thing I can tell you is that we are certainly not thinking that this situation will last forever.

  • We are working on it both internally, of course, to have that technical capability necessary and also of course together with Microsoft to make it happen.

  • And this seems to be not without interest; so not more to say at this time.

  • Katherine Parker - Analyst

  • If I could just ask one final question.

  • What we have noted over the last couple of weeks is a number of semiconductor companies holding structurally higher inventory, just given concerns about capacity.

  • Is that something that you are also considering thinking about?

  • Or is that you just at a different phase of your product ramp, so you're naturally holding a higher level of inventory?

  • Does that make sense?

  • Gilles Delfassy - President, CEO

  • Tim, you want to take this one?

  • Tim Lucie-Smith - SVP, CFO

  • Yes, I think it makes sense to say that today we have a higher level of inventory than we would expect to have on a normal optimized basis because of the fact that we are looking -- that we are managing potential future restraint in supply and connected with the ramp-up of the products that we see in the coming quarters.

  • So because of that, we have a slightly higher level of inventory today than we would normally have expected to have.

  • Katherine Parker - Analyst

  • And when do you think those supply constraints start to ease off for you?

  • Is this something we should look for into the second half of the year?

  • Tim Lucie-Smith - SVP, CFO

  • Certainly not before the second half of the year.

  • Katherine Parker - Analyst

  • Okay.

  • Excellent.

  • Thanks very much.

  • Carol Streitberger Brighton - SVP Global Communications

  • Thank you.

  • We have one last question, operator.

  • Operator

  • Tristan Gerra, Robert Baird.

  • Tristan Gerra - Analyst

  • Good afternoon.

  • Could you talk a little bit more about your tablet strategy?

  • There's been companies making a big push obviously with ARM-based application processors without baseband.

  • So is your strategy there to embed the baseband?

  • Or do you have also a roadmap for standalone application processor in that segment?

  • Gilles Delfassy - President, CEO

  • Hi, Tristan.

  • I can confirm that we have the capabilities and we have demonstrated it to manufacture application solutions, I mean, chips that would be adequate to power tablets.

  • Actually I think that we even have demonstrated already a tablet powered by our solutions in the fourth quarter in Shanghai World Expo.

  • So the tablet market is indeed attractive to us.

  • We believe we have the capabilities to play a role in this market.

  • We have not announced as of yet the dedicated -- I mean the precise products toward that market.

  • By the way, the tablet -- the good thing is that a tablet solution is not very far from a high-end smartphone solution.

  • I mean of course, there we just did [200] larger display, but that is not really a big difference.

  • So it has been not a big chasm for us to jump from a high-end smartphone to tablet solutions.

  • We will give more details on the precise products when we stand -- but be assured that you will see tablets powered by -- we believe you will see tablets powered by our solutions soon.

  • Tristan Gerra - Analyst

  • Great, thank you.

  • Carol Streitberger Brighton - SVP Global Communications

  • Thank you very much, and Gilles, I will turn it over to you for some closing remarks.

  • Gilles Delfassy - President, CEO

  • Thanks, Carol, and thank you all very much for your time today.

  • Just to wrap up briefly, I think we mentioned it several times, but I want to repeat.

  • 2010 has been a pivotal year for us for ST-Ericsson.

  • Clearly we are not happy with where we are financially.

  • I went to make it clear to you and we want to work on it.

  • However, this being said, we are pleased with the progress we are making on transforming the Company to make it take a quite different shape and certainly ambition.

  • Today we have leadership products for the smartphone and tablet markets, and our razor-sharp focus in 2011 is to deliver these products, growing our top line, and improving our financial performance.

  • So thanks again; and again I look forward to seeing many of you in Barcelona with more exciting things to show you and to discuss.

  • Operator

  • Ladies and gentlemen, the conference is now concluded and you may disconnect your telephones.

  • Thank you for joining us and have a pleasant day.

  • Goodbye.