Telefonaktiebolaget LM Ericsson (ERIC) 2011 Q1 法說會逐字稿

Good morning, good afternoon.

I am Christina, the Chorus Call operator for this conference.

Welcome to the ST-Ericsson first quarter 2011 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 by pressing star and one on your touchtone telephone.

(Operator instructions.)

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

Streitberger Brighton, Senior Vice President of Global Communications.

Please go ahead, madam.

Thank you, Christina.

Thank you and good morning and afternoon to everyone and hank you for joining our first quarter 2011 conference call.

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

Joining him on the call are Jorgen Lantto, Executive Vice President, Chief Technology Officer, Head of Strategy, and Manager of our Modem Business; Tim Lucie-Smith, Chief Financial Officer; Thierry Tingaud, Head of the Entry Solutions and Connectivity Business; Marc Cetto, Manager of our Smartphone and Tablet Business; 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 Friday, May 6th.

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

These statements are based on 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.

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

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

Gilles, please go ahead.

Thank you, Carol.

Good afternoon, good morning, and thank you very much for joining us today.

I will spend a few minutes discussing with you the status of our Company and then I will be glad to take your questions, together with my colleagues.

So, our first quarter sales were $444 million.

This was lower than what we had expected, due to a much steeper drop in sales of our legacy products, which included platforms of feature phones and ASICs for smartphones.

Mostly due to these lower sales, our first quarter adjusted operating loss increased.

Although we saw some positive effects coming from higher R&D service sales related in particular to LTE development, as well as some positive one-offs.

These, together with the restructuring plan savings, partially offset the negative impact of lower sales.

On a positive note, we continue to see progress in the transition to our new products.

While we are still fairly early in this transition, our revenue from new products as a percentage of the total revenue grew again this quarter.

This was driven mostly by the sales of our new high-speed Thor 21-megabit-per-second thin modems, which have nearly doubled sequentially.

With these modems, we were please to announce during the first quarter, along with T-Mobile USA and Samsung, lightning fast phones for the US market.

I hope some of you have been able to see the results of a couple of speed tests with these phones because they are quite impressive.

We've also made further inroads with customers on our entire NovaThor family of products, including the U8500 platform which, by the way, I'm happy to mention includes a new OEM partner during the first quarter.

And for a quick status check, we are on track to start shipping U8500 in volume during the second half of this year.

I would next like to spend some time talking a bit about our ambition in this market.

While clearly, today's financial situation is difficult and we are not without challenges to say the least, I hope it's clear to everyone that we are vying for market leadership in the long run.

At the Mobile World Congress this past February, we announced several new products which, in my humble opinion, are some of the most advanced and attractive in the market.

Our Thor modems offer flexible groundbreaking multi-mode solution in a small footprint and with industry-leading power consumption.

Our Nova application processors offer amazing multimedia and computing performance with one of the lowest power consumptions in the industry.

When we put them together, customers get the best of both worlds.

We are one of very, very few companies who can provide this level of performance and flexibility to the market, and it seems that this capability increasingly resonates with our customers as well.

Today, seven of the total nine device manufactures, ranked by revenue, are actively engaged with us on our new products.

We are working hard to serve these customers well and move over to our new products as quickly as possible.

Let me move briefly to second quarter.

Looking at the outlook for Q2, we expect sales to decline sequentially somewhere in the low teens, reflecting the ongoing erosion of our legacy products, which will not yet be compensated by the ramp of new products.

The situation in Japan, by the way, while manageable to date, remains an area of some uncertainty as we move into the middle of the year.

Along also with the evolution of the exchange rate between the US dollar and both the euro and the Swedish krona.

But, in spite of the strong headwinds in the short term, we continue to believe in the direction we have set, to be a formidable leader in the smartphone and tablet markets and the traction we have with customers helps confirm these beliefs.

Our main focus continues to be improving our efficiency while securing the successful execution and delivery of our new products to customers, which will drive the long-term success of our Company.

Thanks, everyone.

And now, for questions.

(Operator instructions.) Francois Monnet, Morgan Stanley.

Yes.

Hello, Gilles, it's Francois from Morgan Stanley.

A quick question -- actually, several questions, about Q2 and also H2.

The exposure to Nokia in Q2 should become to be extremely low.

If I do some computation with revenues maybe below $400 million, clearly, that should be very small maybe.

Correct me if I'm wrong.

In terms of losses as well, do you expect to do anything for Q2?

Because it looks like you're going to lose more than $200 million a quarter.

That's a bit of a heavy loss.

And also, could you confirm that you see a target breakeven in Q2, 2012, or has this been delayed because the base is now much lower?

Hello, Francois.

Hi.

Yes, that's a lot cushions, effectively.

On your first thought, which is the second quarter, well, obviously, we will not comment on specific customers.

But, I mean, you have your own idea of what happens in the market.

Of course, you know that very well.

What I would say is that, clearly, the steep drop in sales is again related to legacy products.

That will decline.

These legacy products, our ASICs and all the feature phone platforms will decline again in second quarter.

On the losses, I will probably give the word to my friend, Tim, here and come back on the breakeven question in a minute -- in a second.

Yes.

I guess the easy answer is that we don't give any guidance on the level of losses going forward.

But, obviously, you can model the fact that the losses will be impacted by the fact that we see a decline in revenues going forward.

So, I mean, that's something that is inevitable and we have to take that into consideration.

And are you going to do anything about it?

I mean, we are doing something about it.

We are controlling our costs and I think you can see that in Q1, we're controlling our costs.

We will continue to keep our costs under control.

But, you have to realize that the way we're spending the money today is on R&D investments that are the basis for the future of the Company.

Yes.

We'll, as I said, we are going to work very hard on our efficiency but, still, while maintaining -- I mean, in other words there's no point.

I mean, the future of this Company, as you understand very well, is the ramp of the new products.

So, we need to find the fine line between improving our efficiency and still maintaining the execution of our critical new products.

So, that's what we are doing and will continue to do, of course, on a daily basis.

And Francois, to get back to your last -- for a cushion, we are still targeting breakeven in the second quarter, 2012, in spite of the headwinds.

Of course, as you understand very well, this was based on a set of assumptions, based -- assumptions on the exchange rate, currency exchange rate, customer market share, the product ramp and so on.

And, well, as you know, some of which have already changed, have already (inaudible); in particular, the rate of exchange is a bit headwind for us.

The devalue on Swedish krona.

We have a lot of costs in Swedish krona, which appreciated very, very significantly to the US dollar.

So, that's an additional headwind.

So we, of course, keep monitoring these variables.

Hopefully, the others will behave better than the exchange rate and we'll keep you updated.

But, that's absolutely still -- we are target -- we are still targeting Q2, 2012.

But, you -- sorry to question this target again, but given that most assumptions have gone the wrong way -- I mean, you've been talking about the currencies but, typically, Nokia has gone the wrong way as well and maybe Samsung.

We -- I'm just wondering, does it mean that you feel more confident about the ramp of U8500 and other products, or typically you should have put a target of earlier than Q2 2012 before?

There is something which is not consistent, I think.

Okay.

Let me try to explain that.

Yes, we (inaudible) so far.

It's clearly the currency.

That is a fact.

The other things which have (inaudible) our legacy businesses, but you know that was not what we were counting on, clearly, in the second quarter next year.

So, we have worse than expected legacy business, but that's going to be a big problem for us this year; quite less next year, if you see what I mean.

The expectation next year was mostly based on the ramp of new products and that was the basis for our target.

And this business is still there.

I mean, again, the legacy drop this year is a bit problem for this year.

Of course, I hate it because of its tough impact on the P&L this year, but that was not a key factor of breakeven assumption for second quarter, as you can guess.

It was mostly new products.

David Mulholland, UBS.

Hi, Gilles.

Thanks for taking my question.

Just a couple and then I might have a follow-up.

Firstly, you've mentioned a few one-offs in EBIT this quarter.

Is it possible to quantify that?

And secondly, just on -- you said revenue from new products grew as a percentage.

Did it actually grow significantly in absolute terms as well?

Tim?

Yes.

So, talking about one-offs, I mean, we're not going to quantify specifically what the one-offs are, but they were not a huge amount.

And I should also point out we had some negatives in Q4, which also were impacting.

So, we had some one-offs negatives in Q4.

We had a couple of positives this quarter.

I would put more emphasis on the fact that we've had continuous tight control of our OpEx and we are tracking with our OpEx according to plan.

There was a question on the revenue?

Yes, and the new product revenue.

You want to answer it, or you want --

(Inaudible.)

No, no, no.

The new products.

No, basically, the answer is no, there was not -- there was a clear growth in percentage.

And it's not a huge growth in absolute numbers but, again -- so, clearly, no.

But again, remember this is a seasonally low quarter so, even without a big growth in absolute numbers, it's still an interesting result.

And of course, growth in the percentage, which unfortunately is also due to the decline of (inaudible), as you justly pointed out.

Okay.

Just a couple of follow-ups, then.

Could you possibly talk a bit about TD-SCDMA and how that's going?

I know you talked about it the last couple of quarters.

And then, secondly, just looking forward, following on from Francois' point on Q2 targets for next year, can you give us sort of percentages at less than 20% that you would expect to have legacy products by Q2 next year, or what sort of level are we looking at?

I guess Thierry Tingaud is the most (inaudible).

He will answer that question.

Yes.

Concerning TD, I didn't get exactly your point.

The level of sales in --

Level of sales.

Yes, so we have -- on TD-SCDMA, the market is still a very competitive market and we have been declining compared to sequentially on the TD-SCDMA market.

However, you know that China Mobile has been issuing some new central bidding process end of last year.

And so far, end of Q1, we still don't have the result of this central bidding process.

So, what we have been doing in Q1 is supplying our customers, which we are winning the previous central bidding process that China Mobile has confirmed at Q4.

And we are expecting to see the second central bidding process from China Mobile, to see the results probably during May because, even as of today, we still don't have this result.

And for your information, which are public information, the number of subscribers that we have now on TD-SCDMA from China Mobile was around 24.5 million subscribers, end of February.

These are public information.

And during February, 2011 the number of subscribers increased by 1.9 million, or roughly, subscriber more during the quarter.

So, that gives you a visibility on the current TD-SCDMA market.

Okay.

And the second point, which was percentage of legacy products in Q2.

Well, we don't project what this -- we don't disclose these percentages that long in advance.

As you -- but of course, as you can guess, legacy has already -- is already declining.

We continue to decline.

So of course, the vast majority of our revenue in Q2 '12 will be new products.

The exact percentage I will not tell you, I will not know it, whatever you prefer to understand.

Great.

Operator, next question, please.

Didier Scemama, RBS.

Good afternoon, Gilles, and good afternoon, Carol.

Thanks for taking my question.

My question is related to Nokia and the U8500 engagement that is public.

I'm sure you've seen that Nokia has announced this morning that they're going to outsource some of their Symbian development.

Actually, the majority of their Symbian development, to Accenture.

So, I was wondering if you thought that this announcement made any difference or whether that's a negative for the ramp of U8500 at Nokia?

And I've got a quick follow-up.

Yes, naturally.

Well, of course, yes, we've noticed that announcement this morning.

We take it rather as a -- actually, as a positive because, let's be accounted here.

I mean, obviously, the reason of Nokia -- one of the reasons of Nokia dropping Symbian was to save the R&D expenses.

So, it was clear Nokia made no mystery on the fact that the resources supporting Symbian would go down in the future.

They talked about the EUR 1 billion saving and so on.

So that was, I think, introducing some level of uncertainty and maybe stress in the resources developing Symbian, which actually are very critical for us because they are finishing the development of the platforms that we are getting ready to ship in volume.

So actually, the fact that these engineers now have a future, have a roadmap, they have an employer, they will have a salary for the next -- for the years to come.

In my humble opinion -- and again, that's very recent news, so I'm just giving you my impression here.

But, in my opinion, that's quite reassuring because that will -- I'm expecting that they will increase their safety, their comfort and their motivation and complete these developments in the required timeframe.

Okay, great.

And then a quick follow-up would be on the thin modem business.

Yes.

Have you seen any additional traction with customers?

And related to that, if -- when you mentioned in the press release that you are now engaged with seven out of the top nine handset manufactures, I mean, how many of those are new?

New -- I'm sorry.

I'm sorry, the new compared with --

How many of those are using your new products, the new --

Oh, okay.

Yes.

Let me clarify that because I think it's important; all of them.

The seven out of nine we only considered the customers engaged on our new products, not the legacy, otherwise it would not mean anything, right?

So, that was for the clarification.

On your other question, which is have we seen further traction in thin modems, the answer is absolutely yes.

Some of these seven are actually actively engaged in thin modem.

Maybe, Jorgen, you want to say something without disclosing, of course, names.

But, you want to say a couple of things since you visited a lot of them recently?

Yes.

So, as Gilles mentioned, we have very good traction on the thin modems.

We have announced and we have commercially deployed the first 21-megabit-per-second smartphones with customers.

And we have announced our Thor 7400 LTE platform as well recently, which has a lot of traction with customers.

So, both on HSPA+ and on LTE we have very good traction in the market.

Obviously, the majority of short-term business will be related to HSPA, but LTE is coming as well later on.

Thanks, Didier.

Next question, operator.

Sandeep Deshpande, JP Morgan.

Yes.

Hi.

Thank you for letting me ask a question.

Quickly, two or three short questions.

Firstly, I don't know whether you answered this already, but how much was your legacy business in this -- in the first quarter?

And in the guided revenue, how much is the legacy business still existing?

Secondly, in the seven out of nine of the top ten vendors that you are expecting to be shipping in volume in Q2 next year, I mean, what level of -- I mean, do you know from the handsets that you are currently designing in with them that these are going to be high volume handsets?

Because, very often with many of the handset vendors, that they have multiple suppliers and exactly what the volumes are is unknown.

So, is this something that you know, which is why you're telling us that you're fairly secure in your view that you will breakeven, given particularly that the revenue would need to rise?

I mean, given the guidance into the second quarter, almost over 90% year-on-year by the second quarter to break even based on the number that you have published.

Yes.

I'll answer on the -- Tim, you want to answer on the legacy portion and I'll answer on the second.

I mean, the simple answer is that the legacy sales in Q1 was the vast majority of our sales.

I mean -- so, I think that answers the question.

So, I mean, the -- talking about new products versus legacy.

So --

So, you had previously given 70% something, 70% - 75% was the figure I remember.

It's a little bit less -- it was over 70%, correct, Sandeep.

This is Fabrizio.

And it's now around 65%, 66%.

Okay.

Yes.

And Sandeep, on your second question, which is on our programs in development, are they -- how big are they and how confident are we.

Well, again, we can only believe what our customers are saying.

I can assure you that the -- at least the visibility we have today is that these programs are not marginal.

These programs are visibility, high volume handsets and terminals.

And in a lot of cases we are still, of course, another source; not the only source.

As you mentioned, there are several suppliers.

Of course, we are, in almost all the cases -- not all, by the way, but in almost all the cases we vie to be one of two or one of three major suppliers for these handset vendors.

But, in more and more cases, these handset vendors -- again, (inaudible) important long-term strategic advantage for them.

And that's why, in spite of the quite sad short term, we still see more and more big handset manufacturers basically telling us, hey, we know that long term we have only you and a very, very small number of others to deal with.

So, you're important for us moving forward.

So -- and according to that, what they tell us is that the programs we are developing together are indeed high volume, high visibility handsets, not marginal ones.

So, that's the best visibility we have today.

And is it that -- in that mix of customers, is there some large new customers that you haven't really discussed with the market at this point?

Absolutely.

Yes, absolutely.

Thank you.

We have a big -- I mean, again, these are all big names because they are all in the top nine, so -- and we have not discussed many of them with you guys so far.

So, you can guess that they are big names that hopefully will surprise you, will be a nice surprise for you, that will come to the market very soon.

Thank you, Sandeep.

Thank you, Sandeep.

The next question.

Janardan Menon, Liberum Capital.

Yes, thanks for taking the question.

Just going back to the 90% to 100% jump in revenues that you're forecasting year-on-year from Q2 this year to Q2 next year, how should we model that?

I mean, from which quarter will we see a very big inflection in your revenue trend?

Would that be likely to start from Q3 this year itself, or is it going to be sort of Q1 next year that we will start seeing massive jumps in your revenue?

A second question is can you -- when you're saying you're actively engaged, can I just clarify that you've actually got design wins with all these seven customers for your new products?

And on the Nova apps processor and the NovaThor product, combined product, can you confirm that you've already got any design wins on those products as well?

Thank you very much.

Yes, sure.

On your first question, yes, there will be -- obviously, it won't happen overnight, so there will be a gradual increases.

I mean -- I don't know how precise I can be.

I don't expect it to be a big jump in Q1.

I'm expecting more of the normal seasonal pattern with more heavy in the back end of the year, would be my guess.

And of course, this will sort of be inline with the customer ramps, which are typical in this industry.

On your question -- on your definition of actively engaged, our definition is -- I give it to you.

We declare a program -- I mean a customer is actively engaged when there is a precise program with a precise schedule, with a precise device, and with the team of customer engineers working on our platform.

So, as you know, in this industry, when a customer decides to work on a platform development, it's quite significant in terms of resources.

We are talking about customer engineering involvement in the -- in some cases in the hundreds, but very sizeable in any case.

So, this is why we believe that we have a very, very strong probability of success with these customers and we declare them actively engaged.

We are -- I don't know if that corresponds to your definition of design wins, there are so many, but at least I give you as precisely as I could our definition of activity engaged here.

On application processors, Nova, yes, absolutely.

We have -- some of these programs are Nova programs and application processors.

And one small follow-up, if I might.

I remember that you had said that you had got about four separate customer wins on the U8500, one of which, no doubt, was Nokia.

Are the other three also beginning to ramp in the next few months or quarters, or is there any shortfall on those ramps at the other customers?

We expect all three others to be in volume this year, yes.

Okay.

Thank you very much.

And by the way, I don't know if you noticed, but maybe I slipped it into a sentence and I didn't pronounce it right.

We announced a fifth one today.

Okay, okay.

Yes, I did notice.

Thank you.

Okay.

Thank you very much.

Next question, operator, please.

Oh, and that fifth one, however -- I need to tell you, I cannot commit they will be in production this year.

It's marginal.

Maybe this year, maybe very early next.

Yes, I'm sorry.

Next question, please.

Tristan Gerra, Robert W.

Baird.

Hi.

Good afternoon.

And actually, congratulations on the traction for your 21-megabit-per-second base thin, which we hear is actually very strong from the channel.

A few questions on the connectivity solutions, if you could give us an update on new products and the ramp.

A couple of years ago, I think ST was talking about 55 nanometer base products and we haven't really heard much on this.

If you can just give us an update on that.

Yes.

Thank you very much for the kind words and Thierry will answer your question.

Yes.

So, concerning connectivity, actually, we have devices which are in the 55 nanometer technology and as well in the 45 nanometer technology.

We have Wi-Fi solutions which are going to ramp second half of this year.

And the good news is that, during the first quarter, we have been ramping up with the new devices, which is a 2900.

This is a device which includes GPS, Bluetooth and FM radio.

Don't think we have seen yet the front of the market, but we are starting delivering this device during the first quarter.

And we'll see the phone very, very soon because we have delivered hundreds of thousands of units already and we will actually -- they will be in some phones with very, very high visibility.

So, very, very famous phones.

Unfortunately, in some of these phones we'll only have the 2900 and in some of them will have the 2100 and the modem, for example.

But, these are very, very visible phones.

And connectivity, as you have understood, we are mostly doing integrated solutions, which we call combos now.

And that's the right thing that comes as a great complement to our platforms.

Unfortunately, again, we have not mentioned that too much, but here we have a very similar situation to the rest of our platform.

We have new excellent products ramping up now, but a strong decline of very old legacy devices that were in the connectivity portfolio, like USB products, for example, that we were carrying for years that actually were extremely profitable and very big and that, of course, are now disappearing.

So, that's -- we have never discussed that with you guys, but I think it's a good opportunity to tell you.

It's a very similar situation than the model application platform.

Exciting new products ramping, a lot of hopes, but not offsetting yet the decline of the old dinosaurs.

And just to follow up on this -- and I understand that it's probably too early to really quantify, but how should I look at the mix of new products next year between baseband application, processor and combo connectivity chip?

Should we assume that combos will be a substantial percentage of those new products, or are these going to be very small next year?

No, no.

We're expecting to have the majority of the revenue coming from new products next year, in connectivity as well.

And also, could you talk about the future OS platforms that the 8500 is going to potentially support going forward and timing on this?

Marc Cetto will take that question gladly, I'm sure.

Yes.

So, we today are supporting Linux (inaudible), as we are seeing it, of course.

We will have support on our products for Windows phone, the timing of which, for the first product timing is still being finalized together with our partner there.

And that's what we are focusing on at the moment.

We have deemphasized [Migo], as we announced already.

But, we had some developments in Migo that will -- it maybe be used in some other of these configurations that could appear in the market soon.

So, we are looking at not developing activity anymore on Migo.

Okay.

And then just a quick last one.

When do you think Voice Over LTE will be finalized?

And is that really the key catalyst for LTE moving in the mainstream in the cell phone market?

It's important for us.

I will leave Jorgen (inaudible) to answer that question but, before he answers, voice over LT is actually quite a big milestone for us because, as you know full well, a lot of operators traditionally using CDMA technologies -- which is a market where we cannot participate -- are moving to LTE.

But of course, in the transition period, all their terminals doing more the LTE plus CDMA which, again, of course, is a big buyer for sale -- of sales -- for us to sell.

And that situation will be alleviated when they move to VoLTE because then they will much less need the legacy CDMA chipset, which is mostly used to carry the voice traffic today.

So, that was just an introduction to tell you that we are following VoLTE quite attentively.

And Jorgen, if you want to continue on that, please?

Yes.

Thanks, Gilles.

So, as Gilles says, Voice Over LTE is a very important development for the industry and for ST-Ericsson as well.

So, I would say that probably 2013 is the area of major commercial launch of Voice Over LTE with multiple operators in multiple markets.

There are trials going on this year and there certainly will be more next year.

And there could even be some initial commercial launches during 2012.

And (inaudible) again, we are involved in many of these trials and the early commercial launches, right?

Yes, yes.

Absolutely.

Thank you very much.

Operator, next question, please.

Kai Korschelt, Deutsche Bank.

Yes, hi.

I just wanted to clarify two things.

The first one was on the ramp schedule for the 8500 in the second half, did you say it was three or four customers which will ramp in volume this year?

And then my second one is, just to be clear on the legacy revenues, does your breakeven target assume that you will have no legacy sales in the second quarter, or will there still be a legacy portion in Q2?

Thank you.

Yes.

I mean, that is definitely the second cushion because I think we had it already and we politely declined to give you a precise percentage of our legacy products in Q2 '12, although I can clearly tell you, and you will anticipate, that will be a minority; clearly, a small minority of our business at that time.

On 8500, the ramp, Marc, maybe you want to clarify that.

Yes.

The current plan is that three of them will run this year.

Two of them are really on the verge of being currently between December, January, February.

So, it remains to be seen, but (inaudible).

Thank you.

Operator, next question, please.

Guenther Hollfelder, Unicredit Markets and Investments.

Thanks.

Could you describe a little bit what you are seeing right now in terms of prices for your new design wins?

I understand from the ST conference call that your gross margin right now is about 40% and whether -- let's say the current pricing allows you to get to a 45% or a 50%, then, next year when you target the breakeven sales level.

Thanks.

Yes.

Thank you, Guenther.

Yes, we do not disclose our gross margin.

So, I'm sorry I could not attend the ST call.

I hope that they have not given the gross margin because they are not supposed to.

But anyway, no, we don't discuss our gross margin but, certainly, I will answer conceptually on your question.

Yes, we are expecting, since we are moving from a catalog of products which were honestly not super leading edge in their technology.

We are moving from that situation to a situation where we are selling platform components which represent, we think, a much better value for our customers.

We are expecting to bring -- again, since we bring more value to our customers, we are expecting to be rewarded by these customers for that position and value with a slightly higher gross margin.

This is exactly the direction that we are taking.

I will not give you precise numbers, though.

And maybe an update concerning the shrink roadmap going into 2012, what you are expecting to come out with?

The shrink roadmap.

I don't know if we --.

Yes.

I mean, again, we are -- I think it's pretty public, the 8500, for example, handset 47 in the meter and there will be, of course, new devices at 32.

I touched on the meter for production next year.

Marc, you want to add something?

32 and 28.

So, we will sample the 32 nanometer this year and 28 nanometer next year.

In samples.

In samples.

And both (inaudible) will be in production by the end of next year.

Thank you, Guenther.

Operator, next question, please.

Jerome Ramel, Exane BNP Paribas.

Yes.

Good afternoon.

With all the ramp up you expect in the second half of this year with all the design win you have, do you see your competitors being more aggressive in terms of pricing because they want to keep their market share, or do you -- have you seen any reaction from your main competitor there?

Yes.

I mean, for us it's hard to comment on the behavior of our competitors.

These are strange people so it's quite difficult to predict.

No, seriously, but the fact is, you're remember in some cases we are stealing -- oh, stealing, we are taking share from our competitors.

In some other cases we are actually replacing the competitor which is, in any case, leaving the market, right?

So, I think it's pretty clear who I'm talking about.

So, again, in that case we -- that will not increase competitor pressure, competitive pressure.

However, I mean, of course we are prepared to face tough competition.

This is market is extremely competitive, as you know.

But we believe that we bring enough advantages with the value of our platform and, in particular, the fact that -- remember, we believe we will be one of the very few companies able to provide a complete solution, including a thin modem, advanced thin modems of high speed, advanced application processors and advanced connectivity.

We believe very few companies will be able to provide all of that value.

So, we are hoping that that will help us find our way in a very competitive marketplace.

Okay.

So, you haven't seen any price pressure early stage, or abnormal price pressure, I would say?

Oh, we have a very competitive marketplace.

I mean, you've read -- I mean, if you're interested, you can read the reports of a big company based in California, which I think it's a public document, of course, mentioned that they are expecting higher connectivity in the platforms market.

But, that's why we are here for.

So, we think that's the marketplace that we know and how -- and that we want to be in.

Okay.

And the second question, obviously you have been a little bit caught by surprise by the speed of the shrink of the legacy business.

I'd just like to understand what is different in the visibility with your client with the ramp up of the new platform going forward versus the legacy business.

I'd just like to understand what -- how can you be confident you will ramp up in the second half when you have been caught by surprise by the speed of the shrink of the legacy business.

So, what is different between the two?

Yes.

I mean, well, the legacy business is legacy, so it's products which are winding down -- and you -- to be very honest with you, you are exactly right.

We have been caught by surprise in the speed of decline of some big customers of the legacy products.

And by the way, if you follow -- as I know you follow this industry very well, you will know that we have not been the only one being very surprised with the steep decline of some legacy products.

But again, to be perfectly candid, when we invent -- when we're designing platforms for the future, we expect them to be, of course, much more successful than the old products.

I mean, for example -- well, okay, normally I don't do that, but if we take a particular example.

In one of our -- in several of our customers we deliver feature phone platforms.

I think you know what I'm talking about.

And everybody knows that feature phone platforms, which is our legacy business with these customers, is a market which is disappearing very fast.

So, although we have been surprised by the rate of the decline, we are not surprised that it's declining.

That's -- we knew it would be happening.

On the other hand, the new designs that we have with these same customers are on their new phones ranges, which are smartphone beds.

Phones which are -- the things which are popular now with, again, higher VOS and application stores and all of these good things.

So that's why, clearly, our anticipation is that we can be much more confident in the increase of volume of the new products because they are in much newer phones, in much -- and by the way, also in bigger number of customers because we are also less dependent on one of two big guys on dying products and big guys, if you see what I mean.

Thank you very much.

Operator, next question, please?

Andrew Gardiner, Barclays Capital.

Thanks very much.

I just had another question on the breakeven target, and going back to the acknowledgement that it is essentially going to take a 90% to 100% increase in the -- in revenue on a year-on-year basis.

Are you sticking with that level or are there other sort of cost cutting initiatives that you could possibly see that you may have to implement at some point later this year, or is -- because of the way you've set out your platform strategy and the portfolio going forward, are you really fixed to those R&D and marketing targets as we have them at the moment?

I think we have no -- of course we do both.

I mean, we have both -- we are going to focus on our top line with the growth of top line revenue as you just discussed.

And again, we have a wide range of new products and new customers ramping up.

So hopefully, we are going -- we should be less impacted by one disappointment or one customer losing share and so on.

So, again, that's working on our top line with all our new products.

At the same time, of course we are going to continue to work on our efficiency, as I mentioned, and to work on our OpEx.

I mean, clearly, we want to keep it under control and we're going to manage both and adjust accordingly to work -- towards that target.

Thank you.

Operator, next question, please.

Peter Knox, Societe Generale.

Thanks for taking the question.

Just in terms of the balance sheet, with the $195 million of net debt now, can you just outline how you expect to be in terms of cash flow over the next couple of quarters, particularly as you start to ramp these new products in the second half of the year?

What sort of working capital requirements will that mean and how do you finance that?

Do you have recourse to your parents in terms of financing or would you look for external financing?

Tim?

Yes.

So, yes, we will continue to need financing over the next few quarters, both for the -- for losses, but also for the increasing working capital that will come with the ramp up of the new products in the second half.

What our plan is, is that we will continue to use short-term financing from our parents, together with the factoring.

Factoring at the moment is limited by our level of sales but, as our sales pick up, also our level of factoring can pick up.

So, the combination of short-term borrowing from our parents and factoring, we believe is the right plan for us and also is the most cost effective way to finance the Company going forward.

Thank you.

Operator, next question, please.

Gunnar Plagge, Nomura International.

Yes.

Hello, Gilles.

At the beginning of the presentation you presented almost a framework of assumptions that enabled you a couple of months ago before this breakeven target.

And you mentioned first that the exchange rate dynamics during the quarter were not supportive.

The second criteria that you mentioned were market share dynamics, and the third were new product ramps and design wins.

So, could you maybe comment on the second and third criteria, whether the dynamics during the quarter were fully supporting the assumption that went into the breakeven goal in Q2?

Yes.

I mean, clearly, currency was a strong headwind and we hope it would behave better, but that's all we can do on that front.

On the other ones, which are of course the ones that we control much more, I can say that we are still inline with our expectations.

We have -- of course, nothing is perfect.

We have plusses and minuses everywhere.

But again, the good thing is that we are working now on the ramp up and the new customers front, where we are working with more -- with a wider range of opportunities.

So, again, we are less dependent on one particular one.

Thank you.

Next question, Operator.

Nicolas von Stackelberg, Macquarie.

Yes.

Thanks for taking my question.

I was wondering whether you could comment on the price differential between Windows phone, the silicone platform, versus Android and Symbian at this stage?

And maybe, also, how quickly, from your point of view, cost can be driven out of this platform.

Thank you.

Sorry, Nicolas, you're breaking up.

Can you repeat the question, please?

Sorry.

Can you hear me now?

Yes.

Okay.

My question is about the price differential when comparing the silicone platform for Windows phone to Android and Symbian.

Where do you currently see it and how quickly do you think cost can be driven out of that platform?

Yes, so we cannot -- this is Marc Cetto.

Difficult to comment.

I mean, we -- difficult to comment publicly on the differences there.

From a hardware perspective, today those platforms are pretty much built on the same type of hardware.

There is a lower cost on the market that is developing and that will be also be part of the ramping in a big way.

And our intention for Windows is to do also that out in time and to bring out in time Windows phone platforms to lower price points.

And -- I mean, can you give us a feel for the time it will take to drive the price point lower to the vicinity of where other platforms, platforms using other operating systems currently are?

Well, maybe that's getting a little detailed because that's not our doing entirely.

So, our customers wait.

I'm sure that you have noted that Nokia mentioned that it's very important for them to drive the Windows phone platforms to lower price points.

So, you can bet that we want to be a very big part of that initiative of our customer.

In terms of precise timing, I mean, again, it depends on them probably more than us.

So, maybe it's hard for us to comment here.

Thank you very much.

Operator, we have time for one last question.

David Mulholland, UBS.

Hi.

Sorry, my question has also already been asked.

I tried to remove.

But, just to check and get a final confirmation, you're sticking by both the revenue target as breakeven and level for Q2 next year, as in $770 million, Gilles?

Yes.

Again, as we said, we are still targeting breakeven in second quarter '12.

Again, there are a couple of assumptions associated to it and we are going to try to monitor all of those to still keep that target with us.

Thank you, everyone, for your questions.

Gilles, I'll turn it over to you for some closing remarks.

Hey, I also want to thank you, everyone, for your questions.

We had a lively session and thank you for your interest.

And as I mentioned earlier, clearly, our near-term challenges are plenty.

We are blessed with many great problems to solve.

But, we will not lose sight of what we aim to do, which is to become the leader in the smartphone and tablet markets, drive innovation in mobile broadband with our high-speed slim modems, and enable cooler -- coolest and affordable devices.

And with the traction that we have with leading customers, we are working really hard to deliver our great new products to them and get underway to growth as quickly as possible.

We are very motivated here.

We don't like that (inaudible) situation.

Thanks a lot for your attention.

Talk to you soon.

Ladies and gentlemen, the conference has now concluded and you may disconnect your telephone.

Thank you for joining and have a pleasant day.

Goodbye.