意法半導體 (STM) 2002 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the STMicroelectronics 1st quarter, 2002 conference call. All participants are in a listen-only mode.

Later we will conduct a question and answer session. If you have a question, North American participants will press the one followed by the four. If you've dialed the European phone number, press the star followed by the one.

This conference is being recorded, Tuesday, April 23rd, 2002. I would now like to turn the

call over to Miss Lynn Morgan. Go ahead, ma'am.

Thank you, operator.

On behalf of ST's Management and Investor Relations team, I want to thank you all for joining us and welcome you to the call.

I'm here with Pasquale Pistorio, President and CEO. Joining him today is the Corporate Vice President of strategic planning, the CFO. At this point, I'd like to remind everyone that certain of the remarks of today's call are forward-looking and subject to risks and uncertainties as described in the safe harbors expression found in our form issued today.

Now I turn the call over to Pasquale Pistorio.

Thank you, Lynn.

Good morning and good afternoon, ladies and gentlemen. Thank you for joining us to review Q1, 2002 results and discuss this. First, you would agree that Q1, 2002 was a respectable quarter for ST. Net earnings of $1.46 billion went down 6.4% sequentially, when in line with the range of expectations that we shared with you at the time of our Q4, 2001 earnings. And, we had a surprised gross profit, that had volume over sequential decline, the gross margin was 53.4%, or 170 points higher than Q4, 2001. With the sequential increase in gross margin, the resulted from higher utilization rates at both our leading gauge and [INAUDIBLE] -- the remaining 2/3 or so was attributable to yield and efficiencies throughout our manufacturing infrastructure.

I believe it is important to keep in mind that this leverage was achievable during the period when ASPS were at 4% of sequential decline from Q4, 2001 levels. [INAUDIBLE] -- combined with our continued emphasis on controlling spending, enabled us to report earnings over $33 million, or 4 cents per diluted share.

This was not an insignificant accomplishment considering the seasonal and price-driven 100 -- sequential decline in revenues.

[INAUDIBLE] -- infrastructure charge. Profit expenses up to the median and 16 million in net interest expenses. This quarter, we included tables containing the revenue breaking down information in our relation.

Therefore, I would only like to have certain points that have not been worked yet.

The [INAUDIBLE] -- accounted for a record 70.2% of net revenues in Q1. We expected that percentage -- [INAUDIBLE] -- in the second part of the year -- [INAUDIBLE] -- as note made today's earnings -- [INAUDIBLE] posted in the sequential decline. This was primarily attributable to the affect of the alignment of the certain -- [INAUDIBLE] -- customized of the products serving the market. By contrast, telecom revenues could post sequential growth in excess of debt over the quarter.

The significant increases in new uptake in the second part of the quarter, reflecting what we believe to be a signal that the upturn has begun, and is seen by both inventory replenishment and by the markets in the month.

Revenues for customers in the 2002 1st quarter were $640 million, or 47.5% of net revenues.

This includes a contribution from -- [INAUDIBLE] -- with whom we originally signed a strategic customer alliance agreement.

Included as a key customer, Semens Video is a leading manufacturer of equipment and mobile applications. As the financial position in 2002 was similar to debt of year end 2001, during the longer priority, we ended the quarter with a decrease in inventories, which is a percent -- [INAUDIBLE] -- of adjusted in line with the company's objectives. I would like to say a few comments, commenting a few more minutes, commenting on the -- [INAUDIBLE] -- in today's earnings release.

If you know, ST's select approach to oppositions, whether it be IP or more companies.

Fortunately, we have the financial resources to complete the transactions quickly and the patience to wait for the situations that provide us with strategic advantages.

In essence, the microelectronics acquisition combined to boost ST to number one in the DSL market with what we believe it to be over 30% of our share.

We will then -- [ indiscernible ] -- of the broadband access market, beginning from the growing success of business and the eventual wire line in general. Initially, the combination that we signed -- [ indiscernible ] -- in February, comments our strong achievements in wireless with the ability to offer a wider choice of products.

Also, I believe that the just announced agreement between ST and Motorola, for the joint of -- [ indiscernible ] -- down to the -- [ indiscernible ] -- with chrome, is a major statement on the industry's polling resources and leadership position in the developing break from technology.

To register for a question, press the one followed by the four, or from Europe, the star followed by the one.

You will hear a prompt to acknowledge your request. On a speaker phone, lift your handset before entering your request.

One moment for the first question. Your first question is from Tim Film, CS First Boston, go ahead.TIM FILM; Yeah, Pasquale, do you have color on your 64 megabit flash product ramp and how are you progressing with the new family of flash devices?

Then a quick follow-up?

You comment that, sure.

I think the 64 mg, we just introduced a ramping up in Q2

and this is to address, mainly, the cell phone market, so, for the time being, it is a small part of our business, but it is moving very, very fast.

And how about the multi-bit cell family that you've -- you've also just recently announced?

Well, this one is going to start up right away.

I want to compliment on it, on the 64, because this is also going to be used in

competition, both A and 64 are going to be introduced for the -- [INAUDIBLE] -- at the same time and will be the same with the other one.

Okay. And just a follow-up, how do you guys see the spark card market over the next few quarters? Thank you very much.

The smarter market.

Next quarter, I think our -- the market is going to be more or less flat or slightly -- [INAUDIBLE] -- and we will start seeing

some higher growth in Q3.

And do you think you're maintaining market share there or maybe lost market share there?

No, we're maintaining our market share there, absolutely.

Okay, thank you again.

Next is from Francois, please go ahead.

I have a question on the consumer business which is important for you, what's the environment there and if so, what's the trend in terms of pricing?

Well, they say it is starting to show some significant improvement and we expect that in Q2 -- [INAUDIBLE] -- doing good in Q1, will eventually be an increase. So, you must decide -- [INAUDIBLE] -- we are profiting from the set top box and the DVD in our overall sales.

So, I mean, you are going to see an acceleration in the 2nd quarter? Or for consumer electronics?

Yes, indeed.

In boxes and dvd. The demand is strong and the intake has been brisk.

I'm not seeing, how is it?

Well, when you have a stronger demand, prices tend to film up.

Okay. Thank you.

Your next question is from Mark Edelston with Morgan Stanley.

Go ahead. Where did he go?

One moment, please.

Operator?

Hello?

Mark edelston, one moment, we are looking.

Well, you can move onto the next question and come back to Mark.

Stewart Adrienne with Morgan Stanley, please go ahead.

Yeah, hi, can you talk about what your expectation for start-up costs in the 2nd calendar quarter actually are and whether it makes a difference to the overall capital spending plans and how the ramp is looking here and what your outlook is for the year and thanks very much.

As far as expectations are concerned, -- [INAUDIBLE] -- we basically end up here and we expect on the next quarter and the current quarter, 1/3 of the value until the 2nd quarter.

1st quarter.

Yeah, 1st quarter.

For the 1st quarter.

Okay.

And that is related, can you expand on what facilities you're ramping and maybe a comment about the phillips st alliance for your 300 millimeter plans.

I'm sorry, the start-up costs relate to which facilities an how does the 200 millimeter ramp look?

At least a single group.

The single that's coming on-line. And also we have the 12 [INAUDIBLE]

crawl that's going to be later in the year.

Next is from Mark Edelston with Morgan Stanley. Please go ahead.

Okay. Can you hear me now?

Yes.

Okay, great.

Thanks a lot and congratulations on the solid results, Pasquale. I had a couple of questions, if I could. One is relating to pricing trends in some of the more commodity-oriented products as well as the lead times you're seeing there. My sense is that we're seeing lead times stretch out on some of your discreet product lines and I wanted an overview what you're seeing within the non-differentiated products for both lead times and pricing.

Well, this is good sign.

We are seeing the commodity prices coming up. Some -- vary abound, and lead time is stretching, stretching and stretching.

This is good sign because --

[INAUDIBLE] -- the bulk of the time and stand up positive.

And then just an an overall view, Pasquale, with 10% growth in Q2, how much of that is replenishment-based demand and how much of that is coming from either gaining share or just seeing growth in some of the end markets in you're supplying?

It is difficult to say.

Certainly there is always -- when there's been a big --.

[INAUDIBLE] -- this is a real demand that is coming from the market. So, that the major component is not the replenishment in the demand.

And we think that to answer the inventory adjustment positive at this time is completed then the end of market would continue.

So, that is any kind of reversal in the general economic outlook, we think we

are in into the new cycle. And Q1 [INAUDIBLE] with said in our price release, indeed, the bottom of the cycle for us.

The market share?

The market share, well, you know, for us the market share is not -- it is not a question mark.

It is affirmative. We have been doing it for the last 14 years and will continue to do it this year.

We keep the gain in the market share in the markets we serve, systematically and we do the same here. Now, when you look at market

share, you can't look at quarterly fluctuation, but on a yearly base, we will gain market share, this is our contingent.

Great, thanks a lot and best of luck, Pasquale.

Once again, ladies and gentlemen, if you have dialed the North American number, press the one followed by the four for questions. On the European number, press the star followed by the one. Your next question comes from Kalpish -- pardon me -- with CB Enterburg, go ahead.

Congratulations, Pasquale and good numbers.

Thank you.

In one of the questions regarding consumer market, you mentioned the acceleration in DVD markets in Q2, what do you contribute that to the end markets trend overall or are you seeing gains in the market share?

And what kinds of trends are you seeing there? Then I have a follow-up.

First of all, it is the end of market demand.

I think the word is adding it to the demand in the area, but in any case, we believe also we are gaining market share.

That our important [INAUDIBLE], we are coming with a new device of solutions -- [INAUDIBLE] -- I think when the market begins to accelerate in terms of capacity, prices come up, but in terms of margin, there is more in the new generation.

The newer geometry in the margin.

In the consumer digital, we expect the 2nd quarter much better growth than the company

as a whole, so much more than the percentage. And we expect improvement in the margin then.

When you talk about the integrated product for DVD's, is it integrating also the front-end central controller or the more integrated quarter product?

Yes, today we have a solution for the -- [INAUDIBLE] -- introducing the features for audio and video, but have the ones that say -- [INAUDIBLE] -- we are working on the solution for the future.

Right.

And -- and on the flatbed -- [INAUDIBLE] -- in your press release you talked about a winning number of designs at leading places like Samsung and others, can you talk about what particular -- is it integrated analog, integrated dual? And what are the pricing trends in space, as well?

And what are the pricing trends in the area?

Well, the market continues more and more in terms of -- [INAUDIBLE] -- starting to be more positive.

And does the HP/Compaq proposed merger change anything for you?

Well, we don't disclose that system.

Thank you very much.

Thank you.

Your next question is from Andrew Griffin with Merrill Lynch. Go ahead.

Hi, there.

I apologize if you've asked these already, I couldn't get on the call in the beginning. Talk about the split of

your communications revenues between wireless and wire lean, please and what the sequential growth of the two areas was?

Okay, if you look at the total telecom, one less is -- [INAUDIBLE] -- of our telecom sales.

It will present more than [INAUDIBLE]%

of our total. So, wireless is a bit off 15%.

And wireless, do you include the flash memory portion going to wireless in the number?

Yes.

Absolutely. Total segment of wireless.

Okay. And once again, apology if you mentioned it, what were the flash memory revenues in the 1st quarter?

The total flash memory, no, we didn't mention it yet.

-- yet.

It was $127 million.

Great.

And then just finally on the consumer, you did the -- the section you referred to digital consumer, what percentage of consumer was that in the 1st quarter?

Did it grow faster than most standard consumer business?

Which part?

The -- the digital consumer?

Yes, yes, yes.

Absolutely.

Yeah.

I'm sorry, maybe I misunderstood.

I'm looking at the overall digital consumer segment.

What was the proportion of the digital consumer out of the reported total consumer

number?

It was a majority.

It is?

Digital consumer is by far the majority.

Okay, great, thank you very much.

Your next question comes from Jean with CN First Boston.

Good afternoon, gentlemen.

I had two questions. The first one is when I look at what you say regarding wireless and computer applications, the strong dynamic is with the clients. At the same time,the last two weeks, we had yields with the same clients, with the outlook on the second half was less bright than before.

And we have that buff on wireless handsets with Nokia and the handset boxes for most of the manufacturers.

So, are you concerned that basically we are seeing a strong dynamic at the moment, where the seventh time end market demand seems pretty flat?

Let's talk cap-X. We have no change in our forecast there on cap-X. It is either $1.2 billion and for 3, the delivered two quarters in front of us to give in guidance.

For the time being, we don't show.

It depends on the market and, of course, we try to be more specific when we announce the 2003 results. About -- about the -- let's say about the telecom and different announcement to be made, you have to, of course, understand that the defense between the progression, which is what we are interested in and the final product [INAUDIBLE] look at the last year, for example, you know that our customers were shipping a lot of product from the stock from -- [INAUDIBLE] -- and therefore our solutions will increase.

So, for us it's going to be an increase in safe, even if the market is going to be flat or decreasing for them.

Sure, but doesn't that suggest that basically -- [INAUDIBLE] -- on the system that momentum is not that good because at some point it is a question of in-market demand.

We didn't seem to be moving at the moment.

Absolutely.

It is too early to be more specific there, but we are less optimistic.

Thank you.

Your next question comes from Manish Grail.

Yes, I wanted to follow-up to the last question.

What kind of visibility do you have for demand for the second half? What kind of revenue growth do you expect?

And can you comment on the full year deposition number?

The full year from the market?

No, for ST in particular for second half of the year. What do you expect beyond the 2nd quarter?

Between $1.3 million, $1.4 million depends on the investment rate during the year.

And can you please comment on the sequential growth in revenues for the second half

of this year? How to think about it?

First of all it depends on the market. One thing we know, we are convinced; that ST is much more competitive than the -- [INAUDIBLE] -- this is based on the natural [INAUDIBLE], the new products we have on the pipeline and we have already signed in the customers and the effectiveness of the manufacturing machine.

So, one thing that we are firmly since convinced is that we will keep gaining market share -- I think that we have [INAUDIBLE] bottom over the cycle beyond us.

The speed of the solution will depend on the general economic environment.

So, can be accelerating or can be reducing, but in general I feel optimistic about the market in the second half and

for the speed, we will know the pace of the market.

Do you expect similar double-digit type of sequential growth?

Well, this is something we will guide you when we announce the 2nd quarter.

All right. Thank you.

Your next question is from Marissa Boulder with SG. Please go ahead.

Yes, good afternoon. I would like to have a comment on utilization ratios, first and second, given the margin improvements, we were able to achieve in Q1, do you have an idea of where the ratio would need to be in order to reach a level more in line with the previous gross margin levels that you reach in the past, and namely about to 40%?

We have -- [INAUDIBLE] -- a nice improvement in the gross margin in Q1 around Q4.

We are announcing another 200, 300 basis points improvement, but in the Q1 versus Q1. And while we keep this -- improving the machine, keep improving the efficiencies, keep improving the products. And timely, with the market coming up to a full recovery, there is an operation that we will go back to the level of the 38th -- [INAUDIBLE] -- when the market is in the same condition, we will reach a new peak in the gross margin.

[INAUDIBLE] -- the aggressive -- [INAUDIBLE] on capacity accumulation rate, in fact, the 1st quarter, we have the rate of about 65% as an average, but this move from about 50% in January up to 75% in March, so, you can see that improving quite rapidly.

What we are expecting for the 2nd quarter is something about 80% utilization rate.

[INAUDIBLE] -- about 85 to 90%. Association you see, it is moving very, very rapidly.

Thank you very much.

Your next is from Tracy Guchie with Prudential Security.

Hi, this is Tracy for Hans Mosesmann at Prudential. Can you comment a little bit on other -- in your sales into the solo handset market, other than the increased density requirements for flash memory, what other components do you expect will benefit from the uptake of 2.5 g and 3 g handsets?

And if you can talk a little bit about your market share goals in terms of the flash memory market? Thanks.

Well it will come essentially -- [INAUDIBLE] -- one will be, of course, for the bluetooth.

Another one will be for some units in management. And the last one coming from the chipset, which will be approaching 2002, but we start in 2003, but we bring additional -- [INAUDIBLE] -- your rights, the product that we are introducing quarter-to-quarter beyond the density and slow on the -- [INAUDIBLE] -- of course, at the end, the video camera which, of course, is a strategic program and we are working.

Did we answer your question?

Yes, and if you could just comment on your market share goals for flash memory?

Well, flash.

Well, this is good!

Well, let me make a point, which is in 1998, I think we had a little more than 3.5% of market share.

We ended our year with the attrition of [INAUDIBLE]% market share at the end of the year in Q4.

This will continue. I think we have now have a three in the works. Which I don't care, it is not ranking, we're looking at the share in serving customers.

So, we would continue to increase aggressively at least at the same pace of a market share.

Great, thanks so much.

As a reminder, ladies and gentlemen, to register for a question, in North America, press the one followed by the four. If you dialed the European number, the star followed by the one on your touch-tone phone. Your next question is from Pria with Asset Capital. Go ahead.

Hi, just a question regarding your positioning in -- in the consumer division in DVD's, just to get an idea of how, I guess, new products ramping there and maybe potential market share on this quarter versus last quarter.

What I can tell you on the market share, we didn't really know, but I want to say this quarter is going on increase have significantly, probably more than 50%.

More than 50% on Q2?

On Q, -- Q1.

On Q1. Okay.

And how is pricing?

Well, pricing, as Pasquale said, it is true for all the markets, when the market is booming, prices have a tendency to stabilize.

Okay, thank you.

Your next question is from Steve Cornell with Capital Group. Please go ahead.

Yes, you reached number two position in the world this year, last year, rather, in your semiconductor business.

When do you expect to reach number one?

The number one position is occupied by god and semiconductor!

This is -- we should not name the name -- [INAUDIBLE] -- what is evident looking at the rating?

You have one company out of the reach for everybody, for anybody, this is Intel, of course.

I wanted to congratulate you, I think that's wonderful. Secondly, can you just tell me, what, in your view, happened to move you up so rapidly in terms of the products you gained share in, and in particular against your competitors? Can you put a little color into how you made such a rapid move up?

Well, I think our little secret, always in the business, we have a combination of -- [INAUDIBLE] -- number one, your technology.

Number two, your customers and number three, your structure. So, we keep insisting in R&D aggressively in good times and bad times and leverage the technology with Motorola and this is also -- [INAUDIBLE -- second, our customers, not totally, because we have products, but because we work closely with our [INAUDIBLE] form a strategic partnership and have the right solution and they know the right solution, huh?

We can have good days here, but they know the right solution.

And timely, the structure. Finally, I believe the structure is not -- [INAUDIBLE] -- manufacturing, the way we have been systematic about -- [INAUDIBLE] the mix of our plants, including the one in Singapore and the one in Europe and the states. So, technology, products, and customers and cost of structure.

Need then to be very selective. We are -- we don't want to do everything. We focus on the -- [INAUDIBLE] -- we focus on the integrity, those are the missions to be number one.

Of course, our competitors may not agree, but we keep pushing. So, we said that our priorities with -- were in telecom, less than -- [INAUDIBLE] -- and overall we are now circling the top five, able to define the better there. In Europe, we are number two, some say number two, number three, but we are more convinced.

[INAUDIBLE] Consumer digital we are number one and smart card we are number one or number two. Then, the power of our products, general, including discreet and intelligent power, where we are in the top-ranking positions.

Then, with the analog award and finally the memory and the analog we are number one, before I forget. But this is a combination of standard dialogue and we are number one.

And finally, the number -- [INAUDIBLE] -- we're number two.

In flash alone, we're number three, for the moment.

[INAUDIBLE] -- this is just the beginning.

Right.

Could I just follow-up? Your competitors in DVD make a lot of noise about China, in particular, customers like Shinko and Apex, and claim to be gaining share there. Can you talk about your focus on the chinese market for DVD's, if that's important to you?

In the chinese market at all, including Taiwan; one of our focus on Japan. So, today both Japan, Taiwan and chinese we will get the different possibility. Now, we need to be careful because, of course, we are mentioning the small part -- [INAUDIBLE] -- 2%.

Great.

China? China is very fast-growing and big market. For us, it is not something new. We have been in China for several, several years, manufacturing businesses -- [INAUDIBLE] -- we have opened up the centers, the science center, marketing in all areas and we are pushing it because this market is a great potential. So, full on China from our part.

Okay.

And then timing, what was the -- I didn't remember or hear your answer to the multi-bit cell flash question?

What's the timing on introducing that?

This is introduced at the same time which is a global ditch, 1.8 on the micron and -- [INAUDIBLE] -- at the same time.

When?

Now.

Increasing it now?

Yes, now.

Okay, thank you.

Next question comes from Steve Wolf with Commerce Securities. Please go ahead.

My question has been answered. Thank you very much.

Next is from Ben Lynch with Deutsche Banc. Go ahead.

Yeah, two questions.

First one is -- I found in the press statement very intriguing that you said, in fact, that in-demand pickup was part of when you're expecting a good Q2.

This is really to probe a little bit more detail on the previous question. If we look by sort of segment, a handset, you know, Nokia's statements last week, Ericsson's statements yesterday for wireless infrastructure were, you know, community getting worse and worse there.

Overall, wire line equipment demands should be down whatever, say 10-15% this year.

People are expecting automotive unit and consumption to be down this year. In the set or box market, companies like pace, downgrading forecasts.

You know, it's very hard to, you know, have all that seem consistent with you saying, you know, in-demand pickup is part of the strength that you're seeing.

Can you maybe help me, you know, understand your perspective on this and also

how SG, you know, really ensures visibility on end command to the customers. That's my first question, please.

Well, as you know, a good portion of your sellers is with the strategy of partners and even bigger with the -- [INAUDIBLE] -- including strategy partners.

65% of our services down to the top 30.

The first customers we work in a close rim and -- [INAUDIBLE] -- on the supply chain management -- [INAUDIBLE] -- so, this gives us access to be the most popular in the short and second time.

So, it is a good mechanism or management for visibility and improving costs.

The other end is the fact that we have a few more, so, back over one, but, indeed, visibility is improving.

Now, the question you're tossing is a real question that, we have a complete answer. Which is the presence of demand that started them all by inventory replenishment like -- [INAUDIBLE] -- over last year?

Some [INAUDIBLE] would be that.

We don't believe it is only that. We believe that when you're comparing it to the industry and the market applications,

those are proceeded as lower than earlier anticipated. The numbers are certainly lower than last year.

I mean the only one where it's not actually -- the only ones where it's not -- people aren't guiding for lower than last year are set top boxes, but I'd argue about that, the pricing pressure is very strong this year, and also handsets, but, you know, wireless infrastructure, which is clearly a new segment for you, wire line investment, automotive, you know, these are all expected to be down unitwise over last year and if you talk about revenue wise, probably even more, so, you know, I -- I'd love to be able to feel confident that there is really in-demand pickup.

I will share with your our feelings.

In the wireless industry without inventories and we've explained before answering your question, if the corporate industry should -- [INAUDIBLE] -- this year they would be in line with the rest of the year.

The set producing it, would be this year's even more because they will see it shipped out of inventory.

Association we will see, for us, a lot of [INAUDIBLE] demand growing in wireless. Wire line, there is a revival in the products.

[INAUDIBLE], they're growing in the market. In the computer, we have not delivered -- we are very marginal, but if you look at the computer peripherals, printers are up and we're seeing a strong demand.

The storage, rather in growing units with a new application of the kind to increase much and finally, automotive is a system that's up because of more shipping to every car that shipped out of the industry.

This should be supporting our confidence and there is a final point, huh?

We keep gaining market share and we really believe that -- that the top for the industry

environment is the more we have, a different chip in behavior from companies that are stronger than companies that are weaker.

Okay, good.

Thank you. And a quick follow-up question. Could you maybe project the portion of your flash volumes

coming from MLC devices, you know, let's say in six months, 12 months, whatever time frame you think is most relevant, please?

From what?

Coming from what?

Wholesale level sale flash?

So, it's '03, '04, more realistic.

I don't know. We will know next.

Okay, thank you.

Your next question is from Michael Wholesale with HZB. Go ahead.

I got one question and this, are you still maintaining your overall outlook for the semiconductor industry of minus 2% for 2002? And the second question could be: You're seeing the memory products group decline by about 17% quarter-over-quarter.

Are you still profitable in

this area,flash and multi-memory? Thanks.

Okay,.

[INAUDIBLE] -- chief economist is working giving his models for the prime year.

We will update our forecast in the later part of the quarter. This quarter.

17th of may. But our guess right now is that it will change upwards because of the data we have, the visibility we have, not dramatic, but will change upwards from a minus now to a plus in summer.

But again we will officialize this sometime at the end of

may.

Okay. Thanks.

Once again, ladies and gentlemen, to register for a question in North America, press the one, followed by the four. If you have dialed the European number, press the star followed by the one on your telephone. John Chris, go ahead.

Yes, actually, this is Remy Thomas. Can you hear me?

Yes.REMY THOMAS; I have three questions, if I may. First of all, in the press release you talked about the large clients in wireless chipsets to explain the revenue decline of 19% sequentially.

Can you confirm that so far it's related to a change in the supply in chain management system and can you tell us if that's one of the reasons why your mobil for the 2nd quarter sequentially has a non-recurrency for the factor? Second, we're a bit worried last week to theory Nokia was lowering revenue guidance and yet maintaining guidance which we assume was related to more pricing pressure on the main suppliers of chips.

Can you confirm whether or not you've been impacted by this?

And third, rumors that the DSL chipset market is building up in venture again.

Can you comment on that?

About your first question, yes, we had some of our customers in the wireless, or telecom, some are going entry and this has been worked out -- completely worked out during Q1.

It was due to two things.

One, there was some change in the supply chain management that you mentioned and probably some optimal which was a revised a little bit down.

Therefore, the total -- the combination of those two factors is a result as we mentioned in the press release.

Now, about the price of a price structure, of course, we are not disclosing anything unrelated to the customers, but, you know, we've the kind of customers we share most of them from the last customer and we have some strategic alliance, we had some contract with them.

And usually it's a contract of six months to one year.

Association there was a revision of when we renegotiated the contract. The end of last year.

We have a large customer. But now we are working with this contract and the third question, I don't remember.

It was related to the rumors that the DSL chipset market is building up in venture again?

Well, no.

No, we have no evidence of that.

And one thing to mention more to the price pressure. You know, the price pressure is way -- [INAUDIBLE] -- and we maintain the margin is not by avoiding price pressure, but increasing the chip you [might] give more volume added to the customers, more volume added, the more you lower accretive costs.

This is the way, moving up in the degree of value. INAUDIBLE] -- for both the decline, the price and the existing functions.

Well, just to actually follow-up on this, in the absence of a major success with GPRS handsets or college jean phones, what will be the main drivers of the improvement in the value-added per GSM chipset?

I think from -- [INAUDIBLE] -- new customers in the wireless business, and there, the -- [INAUDIBLE] -- but we start with the [INAUDIBLE] to be part of the business in 2003.

We are going to start in this year.

Yes, we are going to start in this year with the media chipset by Q3.

Thank you very much. Congratulations for the quarter.

Thank you. Thank you.

Next is from Bertrand with XN. Go ahead.

Good afternoon.

46% if I remember correctly. 47% was to be acquired and 65 about to the top 30.

Okay, thank you.

I have a question about your double -- [INAUDIBLE] -- you are expecting for Q2? Maybe to understand better,

you can give us figures and concern about what you are expecting in term of growth regarding the new design win because it could be an answer to the question that I asked before.

Well, I don't know in the quarter, but, you know, when you speak of the differentiated products, you have a rate of new products which is very high, in every single year, more than 40% of our sales are coming from defining new products which is two years before the current year.

So, and this is a continuous process, because you have the factors -- so, it is a big rate of renovation, it is accelerating and moving more in the 60%.

Okay. Can you -- can you talk about the depreciation you're expecting for the Q2?

Yeah, in the Q2.

Q2 would be in the range of $340 million.

340.

340.

Is that figure, if we see your guidance for the growth margin, the growth margin before the depreciation could be in the

range of 58%? Am I right?

With 58%, that means you are accepting let's say the biggest quarter in 2000/2001, you are in the highest range of your growth margin before the -- so do, we have to expect a new improvement in that -- in that figure?

Quarter after quarter?

Well, it's quite a ways, this is a good way to put in.

We have already said that -- that we expect improvement through the year.

Okay.

Can you give us some explanation about your joint

venture research?

Which one?

Hitachi?

Exactly.

Well, it is a one-shot.

It's an ongoing operation joined with the architecture we licensed with everybody and

is an early case -- [INAUDIBLE] -- we have not yet had a license.

Okay, can you tell us which proportion are in the high-density products and the differentiated products?

Okay, we're looking.

[INAUDIBLE]

more than 16 meg of the total, about 60%.

About 60%. 6-0.

Yeah?

And on the differentiated product?

On the differentiated product is about the same.

The same?

About 60%. So, 60%.

Okay.

And last question, maybe, can you tell us why the walking computer is at such an

improvement in Q1?

Working capital.

A nice improvement in the working control, why we need to be spending a little bit more in the stable, while it increases due to the increase of the last month of the quarter.

Okay, thank you.

Glen go ahead. Glen Deutsche, your line is now open, please go ahead?

Can you move on?

Yes, next is from Intercontinental Security.

Good afternoon.

Just one question on one of the sectors and the strong price pressure, can you give

us a -- some indication on it?

Well, it is a state of business.

It is a long-term of business that driving force is quality. The driving force is reliability, over the course of the sector of the appeal, but when you get in it, it is stable.

Okay, thank you.

Your next question comes from Noah Freeman with Brookside Capital. Go ahead.

I was wondering if you could specifically go into pricing on the DVDM-peg 2 decoder market and the flat panel display market, thank you very much.

On the DVD and on the set top box.

I'm sorry, DVD and flat panel displays.

I'm sorry.

DVD and flat panel displays.

Those are the products we're just introducing. It is difficult to see a trend there.

I answered.

I'm sorry. Dvd, we are seeing a stabilization of a price there. This market is booming and as

I mentioned earlier when you are in such a market condition, usually the [pleases] have a tendency to stabilize or to go a little bit up, but today they are stabilizing.

Are you planning competing [with share with eez] on price or how do you plan to gain share in the market, DVD market?

Innovation, bringing more value up, bringing new products -- [INAUDIBLE] -- final geometries of integration.

Specifically, what functions are you planning on adding? What's left that hasn't been added at this point to the DVD chips? That's it for me, thank you?

Well, on the DVD encoder that we're seeing, we're introducing a new integration of 59 -- [INAUDIBLE] --and importing new DVD and of course, introducing the DVD with right or ram capability.

All right.

And the last thing, when is your dvd chip going to come out and the stand-alone chip

and the integrated chip coming out? Thank you, that's it for me.

I don't know what to tell you.

I think we have to get back to you on that one.

Great, thank you very much.

We have no confirmation, maybe you can call back investor relations and we will find out the answer.

Great. Thank you very much.

Your next question is from Ingo with Julius Bear. Go ahead.

Yes, good afternoon.

I would have a question on the trend that you see in your Everett selling price, before you said at the beginning of the speech that you experienced a 4% decrease in asp from Q4 to Q1.

The way I see, that was clearly a softening compared to the prior quarter. And also, give a guidance, if you look ahead for the 2nd quarter, you -- three months ago you said you would be expecting a 7% [INAUDIBLE] decrease in Q1 and in Q2.

How's that going forward now?

We see we're getting more situated.

And we mentioned several customs as prices go up March 1st. So, for Q2, we believe price decline will decelerate.

So, for the 4.[INAUDIBLE] over the climb in Q1 to Q4 will be significantly less than in Q2.

But we don't know the weeks we will ship.

Okay.

Then also, at the beginning of the call you talked about a sequential development that you expect in your Telco

operations, just to clarify, I'm not sure if I heard correctly, do you expect a 10% increase on revenues quarter on quarter?

Yes, the [INAUDIBLE] dis-- that's what we expect, within the 10%.

Okay, great, thank you.

David [INAUDIBLE] wu -- david wu, go ahead.

Yes, can you talk about what percentage of the chipsets that are going out out of the handset customers have GPS now, and what percentage do you expect it to go out by the end of this calendar?

And a question on analog chips, how, I guess, who is number one, have we decided yet?

Last year? And how's the business doing in general?

In analog?

Well, the direction of the GPS, we would say -- [INAUDIBLE] -- and then by 2003.

[Isobar], as I mentioned before, with more competence, there is more future in the form of this and this is part of a -- [INAUDIBLE] -- expect from that form.

And we view that by Q3, Q4 with the instrument for you.

Did you have an analog question?

Yes, I do.

I guess there's a debate about who's the largest analog company last year?

I don't know whether it has been settled, but how's the outlook for the analog business right now?

For the analog business?

Well, if you look at down the road, I would say which is -- [INAUDIBLE] -- we expect there would be growth in the printers, there would be growth for the business.

So, is it going better for the business?

When we talk about that, we're not talking about stand-alone on the product. It includes everything.

Yes, we talk about it all on the differentiated portion, which have mix in the function.

I see.

Mix, I see. What percentage do you believe the GSM chipset you'd be shipping Q4 will be GPRS

type?

Most.

Most? Over half?

Not completely by the end of the year, but we will have the -- [INAUDIBLE] -- by Q4, yes.

Well, 50% by q4?

It's difficult to make an assumption here.

Okay. Thank you.

Operator, I think that we have time for one more question.

All right, your final question is from Russ Mold with UBS Warburg. Go ahead.

Thank you very much.

Just one very brief question. One of your complexities this afternoon has announced that they have actually taken a small capital gain on the right back of ventures through the profit loss account this quarter.

Can you make it clear that you haven't been doing that yourselves?

Thank you very much.

We have nothing of such plans, at all.

Thank you very much.

We don't plan that.

Thank you. That's very kind.

Thank you.

Operator, I think we're going to reformat a time at the moment. Maybe Pasquale can make a closing comment and then any additional questions can be directed to the investor relations department both in the u.S. And europe. Pasquale?

Thank you again, ladies and gentlemen, to be here with us.

I think it is relevant on the point of this quarter that I would insist from the date that we have accomplished -- from the system that we have in Q1 marks at the bottom of the cycle.

We are entering a phase of upwards for the market and ST is positioned to gain the market share as we have done in the past.

The company has been capable to maintain a perfect ability and the perfect level to each and all the quarters in the past cycle and this is a testimony over the constrained portfolio, the effect is on manufacturing machine and the strength of our customer base.

Those conditions would increase our understanding with the customer restructuring and -- [INAUDIBLE] -- should be capable into our performing the markets in the coming quarters and we believe this is the case.

Thank you for being here with us.

Thank you.

Ladies and gentlemen, this does conclude your presentation.