Telefonaktiebolaget LM Ericsson (ERIC) 2012 Q4 法說會逐字稿

Ladies and gentlemen, good afternoon.

Welcome to the ST-Ericsson 2012 Fourth Quarter Financial Results Investor and Analyst Call.

I'm Selena, the Chorus Call operator.

(Operator Instructions).

The conference is being recorded.

(Operator Instructions).

At this time, it's my pleasure to hand over to Mr. Fabrizio Rossini, Head of Investor and Analyst Relations.

Please, go ahead, sir.

Thank you very much, Selena.

Good morning, and good afternoon to everyone.

Thank you for joining ST-Ericsson fourth quarter 2012 conference call.

Also on the call today is Didier Lamouche, ST-Ericsson's President and Chief Executive Officer.

Also joining him on the call today are Carlo Ferro, Chief Operating Officer, and Marc Cetto, Senior Vice President, Head of the Smart Platform Solutions.

Mats Norin, Executive Vice President and CTO, will not be able to join at this time due to customer meetings engagement.

This call is being broadcast live over the Web and can be accessed through the analyst section of the ST-Ericsson Website.

A replay will be available shortly after the conclusion of the call.

Today, we will be making forward-looking statements.

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 the press release issued yesterday and discussed in this conference call.

In particular, forward-looking statements contained in this presentation and the fourth quarter 2012 closing are based on a going-concern assumption.

In the month of December 2012, ST-Ericsson's shareholders issued press releases about their future intent with respect to ST-Ericsson -- on December 10 by STMicroelectronics and on December 20 by Ericsson.

Please, read this presentation in conjunction with this information.

We encourage you to review the safe harbor statement contained in the press release that we issued with the results and that appears at the start of our presentation today.

As a usual reminder, during the Q&A session that will follow the presentation, please, limit yourself to one question and a brief follow-up question.

And now it's my pleasure to turn the call over to Didier Lamouche, ST-Ericsson's President and Chief Executive Officer.

Thank you, Fabrizio.

Good afternoon, or good morning, everyone.

And thank you for your attendance to this call today.

I hope that you were able to log our Website because I will use as a support the chart that we posted on this Website and that [will come forth on our hand].

And I encourage you to follow them.

I am on page 5 now -- on slide 5 now.

We have our Q4 results that we announced yesterday.

We are closing on what has been a year of incremental progress when we compare to 2011 and of steady progress inside 2012 for ST-Ericsson.

In February last year, we showed you our roadmap for transformation of our Company.

This is the one which is depicted on the chart number 5, a high-level roadmap, where we basically have identified four key blocks of action that we needed, absolutely, to implement or to tackle in order to turn the Company around.

We have been executing throughout the year on each block relentlessly, addressing products, customer base, organization, and company culture.

So, of course, I'm not intending to give you all the details and all the proof points, but I would like to give you and to highlight some of the achievements that we have -- that are, for me, the most important that we made throughout this year in each of the four categories.

First, and this is on page 6, in terms of products, we have streamlined our roadmap, refocusing our effort, as you know, on ModAps, meaning integrated solution between a modem -- an application processor, and thin modem, as we announced in April.

We have also created our application processor partnership with ST as part of our new business model, and this is what is illustrated on this chart.

Our roadmap has been refocused, is more simple, and you will see later on that we have perfectly executed on it.

On page 7, this is addressing the customer side, which was a key point of the Company.

We said we would engage with market shapers.

We did, as we have largely contributed -- as we have largely contributed to put on the market critical smartphones for Samsung, HTC, and others.

So we have brought altogether 20 devices to the market containing either -- containing our ModAp solution, NovaThor platform, and many more containing our thin modem platforms.

And we have added five products additional in the fourth quarter.

We will come back on that in a minute.

Our customers also launched a large number of feature phones, which are not represented here but that we consider as being our base, historical business.

On slide number 8, organization -- a lot of work has been done on the organization, as you know.

We had absolutely to improve our execution, our speed, and our focus.

And this is the driving force behind the reorganization that has been done this year.

I would like to illustrate only two things or maybe three -- to give you three details showing you that this organization has accomplished tremendously good results.

The first one maybe is on the site consolidation, which was a critical element of our strategy in order to reduce our spending, our costs, and improve our efficiency.

We entered into the year with -- in April with 44 sites.

We closed the year with 31.

And we have two additional, unfortunately, closures ongoing at the moment.

We have also reduced our operating expenses by over $100 million during the course of the year, while reducing our losses by over 50%.

And Carlo will give you more color and details around this in a minute.

At the same time, because reducing costs -- I wouldn't say it's easy, but reducing costs is always painful but is always doable.

But what is really difficult is at the same time to reduce costs and to continue to execute and even further improve your execution.

I would like to give you simply one element of measurement.

And this is a funny graph, which is on top of the orange box.

We have taken -- it took us more than ten months to introduce the first smartphone with the Gingerbread Android version.

Then, six months after, it took us less than seven months to introduce the first smartphone with the Jelly Bean version.

And, lately, in Q4, and I am talking here about our Galaxy S III mini introduction with our customer Samsung, it took us less than four months, from start to ramp up to the market, to introduce that new version of Android.

So this is efficiency improvement which is clearly measurable.

Chart number 9, finally.

I said at the beginning of the year that we needed fundamentally to work on the culture of this Company; first, to transform, I would say, an R&D-focused culture into a product, pragmatism approach.

Two elements to just give you some reference of what we have been able to do.

On LTE, we finally entered in the final stage of certification and customer test for this groundbreaking technology that we are now very close to be ready to bring to the market.

And, finally, I really, really wanted to transform the culture of the Company from inventing brilliant ideas to really deliver products on time.

I would like to mention the successful introduction and sampling of our breakthrough FD-SOI technology, FD-SOI NovaThor platform, that we first announced in February in Barcelona last year for the first product available, at least in a bench-test mode, at the end of the year, on time, as we committed to you.

So, clearly, those are a few landmarks of the achievements that we have made this year.

And I'm extremely proud of this.

Of course, that said, the recent -- and this is page 10.

The recent developments that we have -- that you are aware around the Company have introduced the key element of, first, uncertainty into our future evolution.

And I will comment further on that a bit later.

Turning now to the customer side, and I would like to talk on page 11, a chart that you are used to have every quarter now.

This is just to illustrate the 20 smartphone introductions throughout the year that I was telling you about before.

You see that Q4 was extremely active also with four products for HTC and one flagship product for Samsung.

In October, we announced the Galaxy S III mini, which is powered by an ST-Ericsson NovaThor ModAp, making it the fourth smartphone for Samsung which is using the NovaThor platform.

This is not only the fourth one.

This is also, and we are extremely proud of it -- this is also the first time that we have been selected by the market leader to power their flagship product, which is now shipping in high volume across the globe.

We have also accelerated, as you see, the product acceleration of our NovaThor platform at existing customers like HTC, launching, as I said before, four phones targeting the Chinese market.

And, of course, I look forward to sharing more news and more customer wins throughout 2013 with you.

On slide 13, in terms of product strategy, clearly, it would be too long to mention everything we did well, but we saw good progress with our clear focus on our Thor LTE modem and NovaThor integrated modem and application processor.

Our Thor M7400 LTE multi-mode modem has now, and I'm proud to say that, passed the key maturity milestone, and it is in the final stages of certification with standard bodies and leading operators around the globe, while we are extensively testing in the field across the globe these products.

Last quarter, we also tested and demonstrated with this product our first VoLTE, voice over LTE technology, which is very important for numbers of key operators around the world in their race to streamline their costs and to simplify their network.

During Q4, and that's the second bullet on this chart, we also sampled our NovaThor 8540 platform to customers.

The 8540 is an integrated modem, 28-nanometer, and application processor, 28-nanometer platform which uses the same modem as the Thor M7400.

And, therefore, it benefits from this level of modem maturity.

We expect this product to be market ready in the second quarter.

This is a 28-nanometer product.

And I will show you some data before.

It has been very well accepted by the market and clearly shows benchmark performance compared to the competition.

And last but not least, the bet and the decision that we took in February -- some of you told me it was a very bold bet to announce in February the first FD-SOI-based product for being available in December.

We did it.

We did it.

We demonstrated it in CES, for those who have seen.

It's called NovaThor L8580 ModAp.

It was announced, as I said, at CES a week ago -- a few weeks ago.

I invite you to switch to page 14 to compare those products.

The NovaThor L8580 ModAp is a multi-mode, LTE-enabled, integrated smartphone platform which features, actually, an eQuad-powered application processor running at up to 2.5 gigahertz.

It includes also a full connectivity suite.

And it will be sampling with some selected customers this quarter.

Importantly enough and beyond technology, I think interesting to show you on this page, page 13, the benchmark that we have recorded using real-life and customer applications.

This shows you -- and, in this chart, lower is better.

This shows you the speed at which you can transcode a video before YouTube upload using four types of devices.

The three top devices are, basically, Quad application-processor-based products.

And the two bottom are, first, the 8540 and the 8580.

So you see clearly, clearly that we are capable to deliver superior speed with those dual processors than with Quad processors available on the market today.

And, if you have questions further on, Marc will be available to answer those questions.

As you can see here, the eQuad processor 8580 runs at the fastest clock speed, 2.5 gig.

We have even demonstrated 2.8 at CES.

And, obviously, as you can see, it's really twice as fast as the fastest processor on the market today.

Now let me explain you why in a minute.

And I will finish with two charts on my marketing pitch why we believe this technology is now superior to everything which is available on the market.

Our eQuad technology is as powerful or more powerful than the physical Quad technology only because it occupies half of the space of the silicon needed for a superior performance.

Why?

It's explained on page 14.

We have concentrated in this product, the 8580, all the innovations that our team was able to bring at the same time in a single given product.

The first innovation is SOI.

SOI clearly helps boosting the speed while keeping the technology in a planar sequence, while keeping the planar technology.

The second innovation is not only SOI; it's FD-SOI, fully depleted.

This one helps to simplify the process.

It helps also, by definition, to keep the cost at a manufacturable level, at the competitive level, while at the same time lowering the power consumption of the device.

And the third unique innovation that we have embedded into this product is the unique transistor structure, which is illustrated on the right-hand side of the diagram.

Be ensured that I will not go into the details.

But, clearly, the fact that we have -- and this is the yellow part of the drawing -- a kind of dual-gate, vertical transistor enables to bias the transistor from the top, which is the classical way, but also from the bottom.

And, when you do that, you can, by activating what we call the body bias -- you can boost your transistor in one position, squeezing more gigahertz, or put it in the low-power-consumption mode, which is basically offering you the dual advantage of what some of our competitors call the big.

LITTLE, high speed and, at the same time, low consumption but with the same transistor and, hence, the same core.

We believe this technology delivers, clearly, the response that the mobile industry needs in terms of high performance and in terms of extreme power efficiency.

This is illustrated, and I will finish on this chart, on the next page.

Okay.

The way it works is clearly illustrated here.

You have the FD-SOI transistor with dual, vertical -- double-gate transistor, vertical.

If you bias the back body in the high-performance mode, you are on the left-hand side of the diagram.

Then you extract up to 2.8 gigahertz, like we have demonstrated at CES; hence, very high computing power.

If you power the body in the low-power mode, then you can still run at very decent speed, like 1 gigahertz, but reduce significantly your power consumption.

So, physically, you have a dual quad but, electrically, you have like a quad core.

What does it bring to the user, you will tell me?

It brings simply 30% more power performance or 50% less energy consumption at low-power (inaudible).

What does that bring, 50% less energy consumption?

It simply brings more than five hours battery life over a 24-hour period.

I encourage you for those who will join us at Barcelona to stop on our stand, and you will see extensive demo of this new technology, which is now sampling with some customers.

I will finish here, let's say, my marketing pitch.

I just wanted to show you all the innovation and all the execution in terms of product delivery that we have been able to put on the market in Q4.

It was a very active Q4.

And now I will turn to Carlo to give you some more colors when it comes to numbers.

Good morning, and good afternoon, everybody.

I'm now on page 16.

I would say that, as Didier talked about good execution in product development, we can also talk about the good execution in respect to the financial result.

Indeed, the financial result of the fourth quarter 2012 shows some further improvements, and we closed the year meeting our financial targets in all the quarters.

So let's review the revenues first.

$358 million revenues in the fourth quarter.

They were flat sequentially, in line on what we anticipated with you two months ago.

They reflect the NovaThor platform shipments increasing to 10.7 million kits.

It's a 45% sequential increase.

And this is now our largest segment of revenue generation.

In the year, we shipped 25 (sic - see slide 16) NovaThor kits.

And you see in the chart the significant ramp in the last quarters.

(Inaudible) legacy portion of our sales decrease sequentially by about 20%.

We have to note that the revenues in the fourth quarter also include $43 million from IP licenses.

And, when you compare to the fourth quarter 2011, the reduction is entirely due to the change in the business with our former major customer.

Excluding Nokia, to say the name, revenues have increased by 32% year over year with all other customers.

The outlook for the coming quarter you see in the chart.

We anticipate a very significant, sequential decline in revenues.

On top of the seasonality of the first quarter and the fact that we are not expecting proceeds from licensing as we have experienced in the fourth quarter, the decline is due to the continuous reduction of the legacy products.

From a positive angle, we anticipate to slightly increase sequentially the number of NovaThor platforms shipped on the wave of the high volume for the Galaxy S III mini.

And, also, we have started in volume thin modem shipments with the new flagship phone just announced by a leading handset OEM.

Again, on a year-over-year comparison, reminding that the sales to Nokia were still quite significant in the first two quarters of 2012, our expectation for the coming quarter is double-digit growth, in the teens, year over year, with all the other customers.

I'm now turning to slide number 17 to review the fourth quarter financial results down in the profit and loss statement.

Gross margin remained substantially flat.

Operating expenses -- I mean the R&D and the SG&A expenses -- reduced by $17 million in the quarter as we continued to execute our plan.

And, at the end of the fourth quarter, we have achieved about 66% of the restructuring savings out of, you remember, the $320 million annualized target of our plan.

Operating loss in the quarter has been $133 million, further reduced by $15 million sequentially and by $154 million in the three quarters since we launched the plan.

When I look at this $154 million improvement in the operating results, all factors have positively contributed.

The expenses reduction -- this is for sure the largest driver, as well as the increase of sales, thanks to the NovaThor platform, margin expansion, and, as said, we have also the effect of the proceeds from licensing, while the impact of the exchange rate has been marginally positive.

The use of cash remained very high.

You see it on the table, $152 million in Q4, even slightly worse than the level of the prior quarter, despite the improvement in EBITDA and $33 million inventory reduction, but reflecting a higher payout for restructuring and the reduced outstanding factor.

Our parents have continued to fund our financial needs under the plan loan.

And, as reported this morning, they have also recapitalized the Company by waiving the full outstanding debt at the end of the year, $1.54 billion overall.

As an accounting note, the Q4 financial statements include a noncash write-off of goodwill and intangible assets, given the uncertainties of future scenarios, $1.06 billion noncash impairment, leaving $12 million as the residual accounting amount of intangible assets.

And then you may refer, please, to the balance sheet attached to our press release for any further detail in this respect.

So we have made another quarter of further progress in the ST-Ericsson financial results.

However, revenues, though meeting our guidance, are still well below the breakeven point.

Operating losses and the use of cash, though lower than plan, remain very high since we have started at the end of Q1 to recovering from six quarters in a row of continuous deterioration of operating losses.

So we start very far, and we are recovering.

Indeed ST-Ericsson started the year with $290 million revenues and $297 million operating losses in the first quarter.

We closed the year with revenues of $358 million, a 23% increase, and $133 million operating losses, a 55% reduction.

In April, we announced a transformation plan aimed at generating $320 million annualized savings by the end of 2013.

66% of the planned savings were achieved by the fourth quarter 2012.

We are on track to reach the full target savings ahead of plan and to exceed it during the current year.

In the nine months since the launch of the plan, we exited or are exiting, if I take in consideration three ongoing initiatives that will be completed soon, 16 sites; so, progress on the site consolidation.

We reduced overall resources -- headcount and some contractors by about 1,600 units, or 26%, with no social or operational turmoil.

We cut SG&A expenses by 35%.

We reduced R&D by 27% with no disruption to the development of our key programs -- of course, increased focus on the key programs.

In three quarters, we have managed expenses down by $109 million, or 29%, from a cost structure in Q1 2012 which was higher than the one at the Company creation.

You may know that in the OpEx bar chart on (inaudible).

Finally, we cut losses by 55% since the first quarter, earlier and more than what was anticipated with you in last May.

Allow me to say that 2012 has been the first year since the creation of the Company that financial plans have been executed in line with or more effectively than announced.

And the target to reduce both losses and the use of cash have been fully met, even exceeded.

Nevertheless, we recognize that losses and the use of cash are still very high and are a very severe burden to the (inaudible).

So thank you for your attention, and let me give back the stage to Didier for his concluding remarks.

Okay.

Let me take you through the last two charts of this presentation.

Chart 18.

And let me summarize on this one again what we have done over the last 12 months.

I think it's fair to say that, after three years of troubled execution, we have now in one year, with a team in place, in 2012, rebuilt the Company that now knows, first, how to execute efficiently in the most dynamic and demanding market and customers today, a company that has shown capability today (inaudible) financial and product commitments quarter after quarter, a company that has finally brought to the market highly competitive technology and products.

It was not only a matter of efficiency; it was a matter of creativity and innovation.

And, again, I want to repeat the three main products that were -- waited since a long time, that are finally available in Q4 -- an LTE, multi-mode, advanced modem; an integrated-solution, high-end ModAp; and, finally, a company which has taken successfully the risk and the bet to be the first to bring to the market the revolutionary, low-power, high-performance technology.

I want to speak about our product, our FD-SOI ModAp.

However -- that's explained on chart 18.

However, I am on page 19 now.

As you know, 2013 is not opening for us under a rosy sky by far, by far.

The recent external developments around us that you have, I'm sure, followed increased in a very important way the level of uncertainty going forward.

And, clearly, this has reduced significantly the length of the runway that we thought initially was available to us for the Company to take off successfully when we entered into 2012.

However, I tell you the whole management team and the team here is remaining focused to execute and deliver the three main products that I mentioned before, among others.

And, finally, we are -- the management is committed to explore all solutions to ensure that our expertise, capabilities will continue to play a leading role in the innovation in the wireless industry.

And, with that, I would say very happy to answer with Carlo to all your -- and Marc to all your questions.

(Operator Instructions).

Didier Scemama, Bank of America Merrill Lynch.

I've got a couple of questions; first, on the sort of balance sheet.

So, your cash burn last quarter was, broadly, about $150 million, and you've got $37 million of gross cash.

So can you just explain how you're going to finance, basically, the cash burn in the first quarter?

That's the first question.

The second question.

Is that a reasonable, sort of ballpark to think about $250 million of revenues for Q1?

And, once we've reached that level, do you still have any legacy platform business -- non-platform business, in fact, related to Nokia?

I've got a quick follow-up.

Thanks.

On the balance sheet, it's easy to answer, Didier.

At the end, we closed the year with zero debt, as the two parents have waived on the existing parent facility.

Simultaneously, they've opened a similar, new parent facility, which is shared 50/50 by the two owners, and it's funded by an amount sufficient enough together with our existing cash to face the cash flow for the first quarter.

Got it.

On your -- I see that your ability to calculate is still accurate from other sources, so I will not challenge your number on the revenue for Q1, if you allow me.

I guess you get my answer.

Yes.

Now the second part of your answer.

I think Carlo mentioned that, if you exclude the influence of our former, major customer -- let's call it Nokia -- from Q1 to Q1, actually, we would be posting a pretty significant growth quarter to quarter -- I'm sorry -- year to year, year over year.

Having said that, it also means that we are very close to have reached the bottom of the bottom regarding revenue with that customer.

Got it.

I think that's clear.

And, then, Carlo, are there any other financing available to ST-Ericsson?

I'm thinking about debt, external financing, (inaudible) equity financing from a third party?

Anything you can share with us?

I'd say that, of course, the funding by accelerated cash conversion cycle, like factoring facilities continue to be an important source of funding for us.

In this respect, we do continue.

In respect to ability of funding with other source of third-party debt, I would characterize this decision and this question more as a part of the strategic options for our shareholders.

So, if you don't mind, I would prefer at the level of ST-Ericsson management not to address the point.

I'm sure that Ericsson and ST may help you to understand on this respect.

Thanks very much.

Sandeep Deshpande, JPMorgan.

Just a quick word on these new integrated chips that you are producing, which are integrating LTE as well.

I mean, you've got some design wins on them.

How do we expect the trajectory of the profitability will drive through this year's P&L, because, based on what ST and Ericsson have already publicly said, will ST-Ericsson become profitable, does that mean, by the third quarter?

Are there other strategic options you are going to have to look at as such?

I appreciate your question on that point, especially because I remember well you were in my analyst presentation in February in Barcelona, and we had a discussion on this.

Right?

-- if you remember.

So there is two ways to answer your question, Sandeep.

The one way is to ignore, let's say, the outside events that are around us and assume we can proceed with the going-concern type of projection.

And, if I take that assumption, we should be able to ship in significant volumes those new products in H2 this year, meaning, obviously --

So you have design wins.

Absolutely.

And that, at the end of the year, would have fueled significantly the transformation of the Company to higher, value-add products.

Now, the second way to answer the question is to look not only at the going concern but at the boundary condition.

And I am afraid today that the boundary conditions are a more limiting factor [that] the going concern itself or the capability of the Company to deliver itself.

And I believe I hold you some level of transparency here, given the nature of your question.

You have well followed the news flow around ST-Ericsson, obviously, in November and December.

Clearly, the most visible decision was the decision by ST to exit.

I don't want to come back on that; then, of course, the communication by our other shareholder, Ericsson, to not acquire the majority stake December 20.

But, also, I'm sure you're aware of the IP litigation between one of our shareholders and our main customer, which is actually inducing a critical collateral impact with ST-Ericsson, which is what I call a severe boundary condition.

The, looking forward, we feel now, since recently, a significant inflection in our relationship with this important customer.

And then we are highly cautious about the impact that this could have on short- and midterm sales development, especially with this customer.

But, clearly, the impact could be very significant.

I think I've made my point clear.

Okay.

Thank you, Didier.

Simon Shafer, Goldman Sachs.

If I just leave the ownership situation aside, when you think about the business and the opportunities it has, as I say, aside from the ownership structure and, also, Samsung as a customer, do you think the business is now appropriately sized from a cost perspective?

I know you said you're two-thirds through the restructuring program.

But do you think you need to do substantially further on, just from an operating point of view, from here on?

That would be helpful.

At the end, I see the question in terms of savings.

We have already generated a significant portion of the target savings of our plan.

And, in terms of operating income, we are still making $133 million operating losses.

So I see your question, Simon.

First of all, at the end, we have reached 66% of the $320 million annualized savings, so there is still another good about $30 million per quarter to go.

And this, of course, is on [his] way of execution.

We said in April that would have been completed by the end of 2013.

It will be completed earlier.

Additionally, we are taking additional measures.

And on your question whether there is still room for cost reductions, at the end, evidently, the revenue stream delay on materializing towards the breakeven point, we are also taking, and we have said, additional measures that are taken.

Some others could be taken.

And, of course, also, in respect to the execution of these measures, we are managing the Company on his full (inaudible).

But you may expect that some of these decisions on the resources and their focus are very much tied to the final strategic decision about the Company and the issue of the Company businesses.

Got it.

Thanks, Carlo.

And my second question, just as a follow-on.

I think I get the point about this what you call the boundary condition and the relationship between your shareholder and also one of your customers.

But, I guess, from a timing point of view, when one of your parents has clearly voiced the intent to exit by Q3 of this year -- so that's roughly, let's call it, nine months away.

But isn't a resolution really needed much further in order to keep that boundary condition, I guess, from becoming much more severe as it relates to your relationship with your biggest customer now?

That would be helpful.

I'm not sure I understood your question.

Can you rephrase?

Well, my question is -- when one of your shareholders has basically told us and everyone that they intend to exit by Q3, that's nine months away.

But the boundary condition that you referred to, which is this challenging, complex situation between your shareholder, Ericsson and, then, Samsung, doesn't that mean that you'll actually need to come to some sort of resolution much sooner than nine months from now in order to keep Samsung as a happy customer in the way that you're supplying them today and the way that you can supply them with a credible roadmap?

Well, I'm a bit embarrassed to answer your question.

But let me answer it in a different way.

If I would say no, I think I would not portray clearly what I have in mind.

Fair enough.

Thank you.

Andrew Gardiner, Barclays.

Just in relation to your customers, you've obviously highlighted the issue with Samsung, which is sort of a separate one.

But perhaps with HTC and some of the others, since further question has been drawn regarding your ownership concern and the going concern, how are the customers reacting?

What are they asking you to sort of ensure the product roadmap and your ability to deliver product on time later this year?

Just any further insight to give some confidence around that would be helpful.

Obviously, and this is valid for any company, when a company is known to have restructuring of its shareholding structure, obviously, and especially when this company is not self-funding, it's obvious that, on the long term, the first question customers ask is on the long-term supply commitment first and, also, product, long term -- I would say midterm, two years' product roadmap.

So that's the first set of questions we have, more coming from, I would say, the ST announcement, clearly.

The second set of questions we have comes from the other customer we mentioned before, which is much more short term than this one, of course.

Obviously, we are not here on a technical debate.

We are not here on the roadmap debate.

We are not here on the long-term financial stability debate.

We are really on the relationship problem.

And relationship is a short-term issue.

I think that's the way I would like to answer your question.

Okay.

Thanks very much.

Also, just quickly, on the OpEx cuts that you've highlighted in the presentation, Carlo, you sort of highlighted that it was 75% -- the OpEx base is 75% of what it was in the first quarter of 2009.

Can you give us an idea of how much of that is with a pure ST-Ericsson restructuring and cost savings and how much is it that you have shifted back to ST?

I'd say that is easy to address your question in terms of headcount reduction, which is a good proxy then on the dollar savings.

And I'm saying that, in this case, it's easy to refer to numbers that I'm sure are already public.

So, I've mentioned that the headcount reduction since the announcement of the plan has been 1,600 people on our side.

And it has been announced that the headcount transferred to ST in July was in the range of 600 or 700 people.

So you can easily proportionate that, considering that also some of these resources are still working on some of our projects, and we carry the cost.

So, if you look at this proportion, you may consider sort of 60/40, two-thirds/one-third ratio on your question.

Thank you, Carlo.

(Operator Instructions).

Gareth Jenkins, UBS.

I have a few completely unrelated, if I could.

One, I just wondered if you could talk to TD-SCDMA market share and what's going on in that market going forward.

Two, on the eQuad product, I just wondered if you could talk about the cost advantage, pricing of FD-SOI using a Cortex-A9 against some of your competitors using slightly higher-spec processors.

So what price-downs and cost savings do you garner by using FD-SOI?

And then, finally, I just wondered if you could talk to the employee splits within the group -- so how many employees you have and how are they split between apps processor development and modem and connective.

Thank you.

On the TD-SCDMA, you asked about our market share.

We have been shipping our first-generation TD-SCDMA product for three years in China.

Those sales are now very little.

We have implemented TD-SCDMA in our multi-mode modem and 7400/7450.

It is a feature that will come not as a first -- in the first pack of features, which are available now and will ship in the second half of this year.

But the feature will be complete in the end of second quarter this year.

So you will see the TD-SCDMA feature added to our phones and modems on the market in the first half of next year.

So that's on the TD-SCDMA.

You know that our modem is actually one of the few or maybe the only multi-mode modem that does FDD-LTE and HSPA, which are the features that will come first.

And then TD-LTE, as well as TD-SCDMA, that are two modes that now go together for the China modem market.

And, again, these features will be released in June, and you'll see them in phones in the first half of next year.

Thank you.

Maybe your second question, Gareth, was on the cost advantage of FD-SOI.

Actually, not to give you too much of our secret -- actually, we have introduced 28-nanometer FD-SOI as an entry point.

But the sweet spot we are targeting was actually the 20-nanometer generation, which is called now because there is an inflation on that, also 14-nanometer, because this is the node at which we believe [bulk] run out of steam.

So either you see on bulk and you have big problems to deliver, or, like other competitors, you switch to thin flex.

And we believe think flexible is highly costly technology -- high-cost technology not proven yet.

You need to have high price, high margin in order to be able to sustain that.

And that's where the sweet spot of FD-SOI is because it's basically reusing all the planar technology that we have been using for years and years.

So, basically, it's a cost advantage.

Today, we should be similar to the bulk technology, and we should derive a significant cost advantage for the next generation.

I don't know if I answered your question.

Thank you.

Yes.

The third question is about the headcount allocation of the business and the size of the headcount.

The overall resources, including headcount and including about 500 contractors, was about 4,750 units at the end of last year; so, 4,250 employees, 500 external contractors.

Of course, you may consider that the allocation is not immediate, as some of the activities are shared among the different businesses.

But I would say on a quite educated allocation considering with the modem business all the development for modem IP about 40% of these resources is working for modem.

For what we call the ModAp, the integrated system on chip, they are about 35% of the total.

You have another about 10% in connectivity, entry, and ASIC business.

And we have about 15% in the sales and marketing and the support functions, including planning and quality and the operation of each of the businesses.

That's very helpful.

Thank you.

Eoin Lambe, Liberum Capital.

A quick follow-up question on one of the earlier comments that you made.

(technical difficulties).

I was just wondering whether IPR would be an issues in terms of your sale to any prospective buyer because you mentioned, for instance, that you have an IPR issue coming in the way between one of your shareholders and one of your customers.

Would similar IPR issues come in the way of your potential sale to any interest buyer which could present sale -- or at least an easy sale as being one of the resolutions to your future?

I'm sorry, but I cannot comment on that, Eoin.

This is really a shareholders' matter, and I must defer to them in order to answer your question.

I'm really sorry.

I mean, this is the only question we could not answer.

It's too bad it's the last one.

Hopefully, you have one more.

If you have one more, I would be happy to make you happy.

Okay.

Just on the end demand side, you said your Q1 dropped -- a very significant drop is coming through from legacy products.

If you were just to look at the non-legacy part of your business, how would you characterize the market at this point in time?

Would you say it's a reasonably healthy smartphone and tablet market that you see -- I suppose, mainly, smartphone market that you see out there?

First, on the numbers, I think I repeat.

If you exclude the customer we mentioned before, we should see year to year a pretty significant increase in revenue, double-digit, actually, I think.

That's what we said.

Right, Carlo?

In the teens.

So that's fairly solid.

And that's essentially on new products -- really new products, totally new products that we are bringing to the market.

And, regarding the market, I mean, Marc, maybe you want to comment how you see the market.

Are you here, Marc?

Yes.

We see continued growth in our platform shipments.

As you know, we are actually today at the rate on one of the volumes we have of 1.2 phones per second.

And that is increased from last quarter.

So that's what we see.

Now, again, it's early in the quarter, but, certainly, from our shipments, we see continued momentum from -- going up from the Q4 volumes.

Okay.

Thank you very much.

[Aditya Mituko], Bank of America Merrill Lynch.

I was just wondering if you could comment on how [thin-set at 14]-nanometers would compare to 14-nanometer FD-SOI in terms of performance and power.

Did you say how thin-set 14-nanometer would compare?

-- compared to FD-SOI at 14 nanometers in terms of performance and power.

14 -- for the next generation.

It's difficult to have truly, real measurements and information at 14-nanometer thin-set.

It's very, very difficult.

What I can tell you -- what we suspect is, at the moment, the performance should be equivalent, and the power consumption should also be.

What will be very, very different -- very different -- technically, it should be the same at this generation.

What will be very different from our own analysis is, first, the access to supply chain because the thin-set availability is very, very low today and the cost.

The cost is very high.

So that's what we see today.

Okay.

Brilliant.

Thanks very much.

(Operator Instructions).

Didier Scemama, Bank of America Merrill Lynch.

I just wanted to go back to the point you were making about the sort of sour relationship between Ericsson and Samsung.

I mean, at which point do you have visibility on how bad that relationship has become and how much it impacts the business?

Well, the relationship we measure daily.

We measure daily.

I don't want to comment too much on that.

But I can tell you that we have seen a sharp evolution.

And the way we measure is, clearly, on the (technical difficulties) to engage in future projects.

That's how we measure that.

That's how we measure that daily.

I don't think I want to comment more than that.

That's clear.

Thank you.

Thank you, Selena.

Are there any further questions?

There are no more questions at this time.

Okay.

Thank you very much for a very lively conference call.

Thank you for your very, very deep and pertinent questions.

We appreciate it.

Allow me to not repeat what we said.

I think we passed a message.

You passed your message.

The only thing I can do is to invite all of you, if you're available, to stop on our stand in a month from now at Barcelona.

We will have very cool demos.

You will see that we have real product with -- real devices with the product we mentioned on the charts and that those products are real.

And you will be able to measure the customer interest that is derived by those products.

Thank you very much.

Ladies and gentlemen, the conference is now over.

Thank you for choosing Chorus Call, and thank you for participating in the conference.

You may now disconnect your lines.

Goodbye.