意法半導體 (STM) 2002 Q4 法說會逐字稿

And I will be your conference facilitator.

At this time I would like to welcome everyone to the STMicroelectronics fourth quarter 2002 earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speaker's remarks, there will be a question-and-answer period.

If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad.

If you would like to withdraw your question, press star, then the number two on your telephone keypad.

Thank you.

Miss Morgen, you may being your conference.

Thank you operator and everyone for your participation.

Our conference call will be hosted by

,

Microelectronics.

Joined around the table here in Paris

Corporate Vice-President

,

have other corporate vice-presidents

group

today, Aldo Romano, Vice-President

,

Corporate Vice-President

, and as

, our

over

, also sitting

.

like to remind everyone

forward-looking comments made on this call

covered by the Safe Harbor Language

.

, moment I would like to turn the call over to

.

.

Thank you Lynn.

Good morning and good afternoon ladies and gentlemen, and thank you for joining us to review 2002 fourth quarter and full-year results and our outlook.

To summarize the Q4, we were able to exceed the top line and bottom line expectations,

and sequential and year-over-year growth in revenues, and in as reported of net income and earnings

.

A view of the scene, before revenues were up 8.6 percent sequentially to 1.79 billion, coming in from

, anticipate

months ago.

product revenue growth was 6.3 percent on a sequential

, was in line with our expectations, while a

in demand for memory products are particularly

accounted for most of the

.

Revenues for

alliances were

, up 12 percent sequentially, represent the 47.7 percent

revenue.

All of our product groups posted sequential revenue

gain, was up seven percent over

.

double-digit and wireless data storage

.

But the

remained flat is the sales gains

, realizing Q4, but should the

2003

.

was up 27 percent over Q3, the double-digit increase across the

or

unit.

But

product sales

sequentially to $199 million representing

1.4 percent of

quarter-to-quarter revenues.

revenues increased modestly on a sequential basis.

The

box

and improve the performance micro-controllers into

were offset by a seasonal falloff in

,

, the poor pricing environment, costing two percent of sequential revenue

.

Or

profits increased sequentially at the same rate as

,

.

Therefore gross margin remains flat at

, which speaks to the difficult pricing environment, in which we were operating, as well as the product mix factors.

All of our key product groups posted operating profits for the quarter.

EPA was the major contributor.

contained the good profitability.

remained the

in the black despite an extremely competitive environment of both consumer products and the

return to profitability by, or the intense price pressure on memory products.

The companies that you

income increases to 13.1 percent

, $209 million.

Net income grew 22.4 percent sequentially, $106.6 million, and earnings per diluted share moved up to zero, $18 from 015 into three and 005 in last year's fourth quarter.

Looking at the fourth quarter, 2002 performance, I believe that while this has been another tough year for the industry and for the company, ST has made important progress in

.

From

perspective, our 2002 revenues over 6.3 billion were virtually flat with those over 2001, which we believe pretty much attracts to the performance of the market as a whole.

Importantly, we expect that one full year industry data are viable, it will show that ST continues to build a share in our serve of the market, and our 2002 performance will keep

within the brackets of the words five largest silicones factor companies.

During this second consecutive year of tough market conditions we continue to invest in the future by increasing our R&D spending in 2002 to 1.02 billion or 16.2 percent of net revenues up 4.5 percent from the 978 million spent in 2001.

By contrast, 2002 SG&A costs increase only one percent from the prior year level.

As we anticipated at this time last year, Q1 2002 is about to be the

over the cycle for ST.

We were able to

perceive our

new performance and profitability throughout the year.

In 2002, ST generated the cash from operations of $1.7 billion and

before acquisition of $648 million.

You may recall that we took several important strategic initiatives in 2002, some of which are already making positive contribution.

Others, which we believe will serve to

positioning here in the markets as well as strengthen our competitiveness, in concert with an industry recovery.

I will love to review all of the 2002 strategic transaction on this call, but I would like to mention a few.

First, the strategic R&D alliance with Motorola

, including

where

product line is starting at our

facility in France, and where we have jointly established our

see most of the

platform.

We are positioned well within microelectronics, which gives us important product leadership in the working and in

access markets, multiple objectives are bringing recovering in the second half of 2003.

In agreement with

for extending

production and manufacturing science, in agreement with

for photo

production, and the most recent, our initiative with Texas Instruments announces in the 2002 fourth quarter to join to develop a common multi-media wireless platform interface.

We believe that we have been strategically successful in completing these and other transactions with a fragmented industry environment, and that they will yield a significant long-term advantage that we see.

In fact I believe that most analysts are expecting the same

industry to experience the growth all around the 10 percent on average in 2003, with the real momentum taking place in the second half of the year.

Looking at the

prospects for the first quarter of 2003, we see the combined effect of a seasonality and continue the price pressure resulting in revenues of between 162, 1.62 billion and $1.68 billion, which would be solid double-digit increase over the 2002 first quarter.

Now we expect the gross margin of between 36 and 37 percent, but we expect the most product groups to have lower revenues, we do see bright spots inside the box imaging,

and data storage applications.

We see 2003 as a year of progressive improvement.

Barring the major dislocation the world economic picture, we expect it to be able to increase the rates our level of profitability throughout the year moving the gross margin to approach the 40 percent level by Q4.

This will require us to achieve manufacturing efficiencies on several levels.

And we will need to calibrate our production to achieve a more favorable product mix within and improving the market environment.

You can expect us to continue to prudently increase R&D spending.

We have

the 2003 capital expenditure budget that we announced last quarter to approximate $1 billion for the year, over which more than 50 percent will be located through leading gauge products including R&D programs that will be programs and expansion of below 018 micro 18-inch pots.

As many of you know, ST's a strong company comparative industry performance over the last two years was attributed without sacrificing the basic structure of the company.

We believe that this consistency has come to define us if, that has come to define us, we will work toward

as the market recovery unfolds.

During this difficult period, we have fine-tuned also our organization.

In 2002 alone, we had 500 sign in

people in emerging IT counties, including India, China, Eastern Europe, Tunisia and Morocco.

These and other similarly

should give us the competitive start as the market rebounds.

Now ladies and gentlemen, my colleagues and I would be glad to take your questions.

At this time, I would like to remind everyone if you would like to ask a question, press star, then the number one on your telephone keypad.

And we'll pause for just a moment to compile the Q&A roster.

Hello?

Operator?

We are pausing now to compile the roster.

And at this time, your first question comes from

of CSFB.

Good afternoon.

This is

from CSFB.

I have two questions.

The first one is could you give some color on the over income line that was a pretty critical in Q4, it seems back with typical

for any grounds et cetera, and what your guidance there for 2003?

The second one is related to flash.

Could you comment maybe a bit more in details, current pricing conditions in flash, especially on the high-density wireless front, one of your biggest competitors has been talking of price increases in that field?

Do you think at the moment, you are getting closer to that or

?

OK,

will announce the first question and

the second.

The other income expense was, where in the Q4 positive of two digits,

, some R&D income we receive the end of the year, there was traditionally a period in which we can collect this amount.

Now for 2003 projection, the present visibility is line going in the range of one digit, sometimes positive, sometimes negative, but the same

amount during the quarter and during the

.

Any case, we expect this small amount in the positive side.

flash, why on the

.

Latest month we have seen a decline or a reduction, it's a trend in price decrease, still we believe that the price pressure is significant, but on high-end products and low-end products.

This is not, this is not exclusively on the wireless, but as I would say is more general and we expect that this price pressure on the entire range of products will remain for some time to come.

Thank you.

Your next question comes from

of Deutsche Bank.

Yes, hi.

Two questions if I may.

First, one of maintenance.

Could you tell us the depreciation charge for 2002 and your expectations for 2003?

And secondly, could you comment a bit further on your March in guidance, you're forecasting revenues to decline by about seven percent Q-on-Q in Q1, yet you see gross margins somewhat maintained that's 46 to 47 percent.

Is the mix of products changing or is there any other reason why in fact the decline in gross margins may not be as much as the expected decline in revenues?

OK, again

will answer the first question, and

will comment on the second.

OK, the depreciation amortization charges of the 2002 in 1.382 billion and we expect a

investment and the investment

of 2003 basically the same amount or charge.

Thank you.

Now about the margin.

If you remember what we wrote in the press release, there is a picture of mix in Q4.

In fact our differentiated product grew by about 6.6 percent and the delta growth was mainly coming from flash memories.

And probably in Q1, the mix is going to change.

On top of that we'll have probably better efficiency or

for our manufacturing.

We have several cost reduction program ongoing.

So, we should limit the gross margin decrease due to these two reasons.

Thanks

.

Your next question comes from

of Merrill Lynch.

Hi there.

I had a question on your operating expenses, SG&A and R&D.

They both increased as a percentage of sales despite the top line increase.

I presume this would be to do with the euro cost base being translated into dollars, but I wondered if you could confirm that and also whether we'll see the same thing going on in the first quarter given the continued dollar weakness?

OK, the question is about R&D expenses right?

Yes.

And SG&A.

Yes, why they rose faster than the last revenue line.

Well, I think that the company's been demonstrating always our ability to be very controlled in SG&A costs.

At the level of

, I think we are among the best, if not the best in industry for company of our size.

So this is one thing that we will continue to do.

In terms of R&D on the contrary, we want to be very focused, but we will keep increasing expenditures, so I think we can expect that during the first quarter in 2003, no change in the past of R&D expenditure, while for SG&A rules keep maintaining a tough control.

The euro has been appreciating significantly.

Of course, if we look at this first quarter over the year comparative to last quarter or even

with the first quarter over 2002, the euro has been appreciating significantly and since we have a very large cost of base in Europe, this is going to impact in the short-term somehow our P&L.

But I think this is way of life.

Now in the short-term you cannot do very much adjustment, but in the medium term we can shift parts of acquiring products, because most of our materials come from the area of

and therefore, we will lever to manage in such a way to balance this impact.

So the impact will be important, but as a management deal, management tool, management issue is not something that we are going to let impacting our P&L in a significant way, but to go after some quarter.

Thanks, if I could ask a follow-up as well, on your revenues from Japan, which have been very strong, seen very strong growth in the last two quarters, but they feel 11 percent in Q4.

I just wondered what it was particularly that drove this sequential change?

Japan, well Japan has been not particularly strong in the sense that it represents all the, about five or six percent over top of revenues, so even a little variation can mean, can seem important, but not is not significant issue.

We keep increasing the penetration waiver in many key customers.

This included some very top important to consumer account, so like Pioneer, or automotive account, like

and in general we are doing a very good enrolled in the consumer area, but still Japan represents a relatively small portion of our total revenues. unid: I wonder if there'd been a falloff in particularly some of your new socket wins with set-top box manufacturers in Japan, DVD type, sorry, not set-top box.

I will ask

to comment.

Yes, we continue to gain circuits in Japan in DVD.

We have had, last year a good business with

.

This year is complimented with good business with Pioneer.

Now when you look at the statistics of our shipments, some of that is shipped to Japan and some of that is shipped to all the countries in Asia-Pac.

So our growth in the more Japanese companies is reflected both in the Japanese dealings and the Asia-Pacific dealings.

Thank you very much.

Your next question comes from

of

.

Yes, this morning I ask a question regarding the current trend in business by product group for the first quarter.

Could you also comment on prices across the boards and perhaps taking a longer view in the second and the third quarter, where do you see some significant changes taking place?

Well let me comment in general.

Of course in our industry, you have on one side the demand and the other sides

play.

The overcapacity remains during the first half we will see a tough competitive environment, and by the way, in a touch competitive environment, and by the way in a tough competitive environment, companies with a stronger fundamental different sheet

people

than the companies that are weaker in terms of productivity, in terms of gaining market share.

So it's tough

, but for the companies that are stronger, the competitive is even positive, more positive.

With the year progressing, we expect the economic recovery accelerating and therefore the demand accelerating, while in the other end, the company invested in

quite low for the last two years will continue to below this year should end up making the balance between the demand and supply and so expect that normal environment of relatively balanced will occur in the second half of the year and this will low price to continue to decline, but along the traditional

occur, because the price will never go up instead

.

They keep declining.

The

move when they decline much faster than the learning curve, which has been the case up to now.

So I think that in the second half, we'll receive

.

If I may ask a follow-up, Motorola yesterday was mentioned that inventories enhanced it had reached around eight weeks.

Have you seen, on your side, any build up in chips of inventory for handsets, and have you seen more price pressure in the specific segments moving into the first quarter?

OK, Aldo will comment.

Price pressure is always present and we have nothing to mention,

system working

I think like

was present in maybe 29.

So next quarter will not change price.

Concerning the inventory, due to also to the way we are working with our key customer, and only mention the fact that there is no inventory on the semi-conductor in our customer factories, because the system that we have implemented does not allow this inventory to

, let's say this way.

This however, does not exclude the

some

,

.

But personally I am not aware of any

inventory built up during the last quarter.

Price of the bigger important shipment that

product and

.

So the

decline we will have in the first quarter is only due to lower consumption, as always is happening in Q1 of every year.

Thank you very much.

And at this time, I would like to remind everyone if you would like to ask a question during this time, please press star and the number one on your telephone keypad and we'll pause again for just one moment to compile the Q&A roster.

of

.

Good afternoon or good evening gentlemen.

Quick question, can you give me a sense of your ability to penetrate wireless, outside of the one that we all think of, the big one that's your neighbor to the north, and I'm specifically thinking maybe of some of the ones who've been aggressively gaining market share here over the last year?

Aldo?

The question is how we are gaining share outside our key accounts.

OK.

Here I think in this the moment of the share,

key Nokia customer is likely declining in

, in

, in

in terms of not yet compressed with the rest of the world, but just because we are increasing in some of our other accounts.

For example,

, we are shipping in Motorola, some

, and the, we had the good grow in

, by the way, where our market share is extremely high, so high that is difficult to do more.

So overall, this is what is happening.

However, I think there is also a more presence of other components in Nokia and outside Nokia, therefore, overall what they said for

maybe is not effective the company, for example our shipments in memories certainly increased and they leave the work to

to comment on memories.

Well of course is important, I think we are responding to the customer base, we're responding both at the European customers, but also the world customers.

We have most of the leaders in cell phones.

Of course we have a few more targets and the priority here is to win some of this new targets, but our presence is already very important at several of the leaders in the cell phone market.

And this of course, on a wide range of products from very low hand phones to the more complex

phones recently announced.

By the way the agreement with IT on the come and open the multi-media platform interface opens the door for enlarging the customer bases in

country, and I think this is something of good for the future.

I can make a comment in general on our presence on wireless.

I think this year the

of 2002 saw an increase our revenues, driven by higher, our level of

for memories.

Or more in terms of number and more heavy component.

The year 2003 will see bigger presence due, also due to our camera shipments at the start of the recently, maybe

wants to comment, and my expectation for the end of this year and the

before the year 2004, is that our multi-media professional that will be announced in the first quarter, this first quarter will give a significant contribution.

That's why we have a, you see a positive

in the medium term also.

Thank you very much.

I appreciate it.

Your next question comes from

of

.

Hi, I just have a question on your, on the wire lines.

I think in the morning you made a comment that wireless revenues excluding flash grew more than 15 percent.

I was just wondering, your main customers on wire line Alcatel was reported quite a strong growth in the fourth quarter, would wire line revenues have grown in the same kind of range as wireless or would it have been a weaker trend?

It was a weaker trend, particularly because of the growth in the wireless was extremely strong, if you noticed the grow for our

was almost 20 percent on a sequential basis, so this is nearly impossible to be

, also in the present

in the wire line.

I share your comment on one customer, but overall the situation of the wire line is extremely depressed

.

By the way, this does not count too much anymore on our

revenues.

And one of your U.S. competitors in the DVD market went on

yesterday was suggesting that, you know, the company like

in Taiwan are taking a lot of market share, because of, because a lot of the DVD's are increasingly low-end DVD's, which have been shipping out and they're taking market share there.

Do you see any impact of that on your DVD performance, or do you think you're able to defend your market share in that segment?

I'm not surprised by the announcement of this American company, because what we see as our main competitor are not so much American companies, but are

in Taiwan, which have gained share, but have gained share in the low-end Chinese DVD, the market that closed last year in the hands of another American oh Chinese company.

So I think last year we had

and

sharing the number one position.

Now we're seeing

and

sharing the number one position and some of us are suffering.

Overall the DVD market continues to grow.

Of course, led by the strong price decrease, but we see of course the Chinese taking larger share of the DVD market, but we have also Japanese, Korean customers and still some western companies manufacturing DVD where we keep a strong market share.

And can I add one piece of information concerning DVD.

If everybody clearly, when we

DVD is thinking to the

is provided by my friend

, here.

But there is one part of this DVD, is have called DVD receivers.

It's really delivering also the power state of this, around the system.

And the growth, there's a big growth, this part, last year they were five million sets of DVD receiver out of the 50.

And next year, next year I mean the 2003, the forecast is to double this to 10 million.

What is, I'm mentioning it because this sets,

five plus one, let's say six audio power states.

So 30 million channels has been sold the last year, and the ST has 75 percent market share in this specific segment, which is supposed to double in the year 2003, even if there is only five million, but there are six

, so it's not

business to follow.

Thanks.

This one, last question from me, which ST seems to be pretty much the only source of good data point on the set top box market.

I mean you're saying that you grew your set top box revenues into the fourth quarter and you're likely to grow it again into the first quarter.

Whereas virtually every other, you know, data point, which is set top box manufactures or

supplies, are not seeing anything positive of that on that area.

Given that your market share in that segment is probably all the 60 percent already, how long can this good news last and when will you start sort of trending in line with the set top box segment itself, rather than in a market share gaining situation?

Well what you said is music to

, what you say is music to my ears.

And even more with the six amplifiers

.

And no, seriously in set top box, the total market has been, I believe slightly growing or flat this year.

And ST has gained share, recently in set top box and I believe last year in, oh, 2001 we were around 55 percent share and now we are about 60 percent share.

What we see is that, if you look by your operator, now the largest operator is the none operator set top box, is the

that our fold retail to receive a

channels.

And last year this accounted, we believe, for about eight million set top boxes, and we shipped 80 percent of those.

And this market continues to grow strongly and this is one of the reasons we are growing in Q1 this year again.

Second, if we look by operator, we see that, now that the

between

and direct TV is over, we

be done, both operators will stop to be more aggressive in marketing and we see a little

and there.

Also in cable, is the top U.S. cable market is not good, there are some operators which have changed suppliers and clearly we are benefited of this shift.

So overall, we keep gain share in 2002.

Looking forward to 2003, we believe that 2003 set top box market will continue to increase some unit growth, and also some increase contain.

We start to see more HD high definition boxes in cable, more boxes with CDR, which mean multiple tuners, higher

on content, so overall we see not a boom, but some growth in 2003 for

market.

Thanks a lot.

Your next question comes from

of

.

Hello?

Yes, hi.

This question might have been asked earlier, but just wanted to get better clarity into the pickup, improvement in gross margin for the end of the year of the 40 percent target that you put out there, in terms of what will enable that?

Yes, well, there would be several factors contributing.

Number one, volume.

We expect to have a year where the demand will grow, the market will grow 11 percent, and our expectation for

year, we expect it to continue to grow faster than the market, therefore, the acceleration of volume will be

in optimizing the

.

Number two, we are planning very strong cost of action programs and there will be a significant increase also in the way

that will come out of the Asian

.

But there is a lot of programs to improve manufacturing

across our

.

Number three, the depreciation level will be lower in percentage of sellers, because we would maintain capital investment below the depreciation where sales will grow, therefore the relative factor would be better, and finally, we expect also some improvement in the pricing environment.

So all those things should lead to us moving towards the 40 percent gross margin quarter to quarter.

What will be the change in depreciation this year?

Well I think

before the same level of last year, in the range of one billion, 380, but again, if the seller's

higher in terms of the relative percentage, this is lower.

Right, OK.

Great.

Thanks a lot.

Thank you.

Your next question comes from

of Goldman Sachs.

Good afternoon it's

actually calling on behalf of

.

Just a couple of housekeeping questions really.

Number one, could you just provide with the split within consumer and micro controller with

in Q4?

And secondly, in regards to your

Q1 guidance, of what I believe is about 10 to 15 percent sequentially, could you give us a breakdown between wireless and wire line?

Thank you.

I don't think we go and disclose the sales within a group.

I can say that there was no

of structure, set top box remains our first market and Q4 is traditionally a seasonal low quarter for DVD like Q1, and this was the same as every year.

Wire micros, in micro controllers, it represents similar share of the total with micros,

a good year in 2002, and micro group slightly more than the average, and we both begin share in micros, gain slightly share within the total

sales.

If I well understood you asked that which is

between wireless and wire line, both in Q4 and Q1, roughly in the region of 80 percent, wireless and 20 percent wire line, including access.

And for the next quarter this share will not dramatically change.

Great.

Thank you.

Your next question comes from

of Morgan Stanley.

Hi.

Just a couple of quick questions.

Just looking at start-up costs, are you able to quantify what they are, were doing the fourth quarter of 2002, and also comment as to why the effective tax rate was so low, and I have a follow-up question.

Thank you.

OK, in the other income expense we have echoed of also the start-up costs.

There some amount

, which is related to cost to, say

line and next year we

number increasingly a little bit, but not very much.

The second question is tax rate.

Q4 we benefit from

with tax authority, one in Germany, the other one Asia and this big benefit for the quarter after the tax rate decrease a little.

The projection of the

we say this morning

based on traditional trend of 17, 18

, probably

next year.

Thank you, and just looking at what one of your competitors said last night, they expect the print-to-market to grow, printers

to grow during the first quarter of '03.

Are you able to comment first of all, on the overall health of the print market at the moment and your expectations for printers during the first calendar quarter?

Thank you.

, I have to remember that our third quarter was just exceptional.

It was exceptional, because with the growth you remember 15, 20 percent or so, something of this order, 20 percent maybe.

And this was due to the fact that our customer were requesting us this price for their Q4 needs.

OK, which we shipped happily in the third quarter, and in the fourth quarter, the only thing I have to mess with is to follow in the traditional part of

.

Now the big

in Q4 of printer are parts are related to

, we are normally shipping Q3.

So in this moment, we are just in this seasonal part.

For certainly the medium term instead and, including say 2003, I see good positive gains that we are obtaining in terms of new

that we have received by our key customer.

So there is nothing exceptional, nothing strange to mention in our printer business.

Thank you very much.

Your next question comes from

of

.

Hello.

Good afternoon, it's

from

.

I have two questions.

One regarding your customer mix, can you tell us what top three or top five, as a percentage of sales is?

And secondly, on the capital spending and technology

for 2003, can you comment on the

millimeter production roadmap and on the 19

progress that's being made?

Thank you.

OK, as you know we do not disclose customer numbers, except Nokia, because by SEC regulation we are requested to report what ever is more than 10 percent of our sales.

So, for sure I can tell you that Nokia is our by far number one customer, and in fact is the only one exceeding 10 percent.

Then we have a few other customers that are approaching five percent of the sales, but

five percent.

So I can say that we have many good customers in the top 30 and out of those 12 are

, but more than this I cannot comment on each customer.

You know the big names that are in our top 30, this is

knowledge, so in the telecom, you have the Nokia, you have Alcatel, you have

.

In the area of computer peripherals, HP for the printer, Seagate with some digital.

In the area of the

, I mentioned the strategic partner.

In the area of

,

,

.

In the area of

and video,

customer, we have

by

.

So those are the strategic partner for the company that accept to be disclosed, plus we have a lot of other customers with top 30, including the big names like

, just to mention two big names that are in the portfolio.

So I think that this is what we can say about our customers.

In terms of capital spending, as I mentioned already, we will, we are planning to spend $1 billion.

More than half of this one billion will go for leading edge projects.

What are the leading edge projects?

Well, first of all, our

cooperation with the Phillips and Motorola in the 12-inch project in

.

And by the way, remember, that I report that the quarter we spend in

, we spend one-third each, Motorola, Phillips and us; therefore you must simplify the leading-edge capital spending to

partners that we bring, because in

we have equal contribution at one-third each.

So this is certainly one leading

and a major important program.

There, we have already fixed our 19

for

platform.

We are

into the product line, and we should start saving

in a few months of the product line, at 19

and then we'll

down the road

64

and 64

.

On top of this, the second priority project is

program integrated.

We're also we are expanding our

capability and product line for the 90

, which we expect it to start sampling some time in the middle of this year.

So the

before the

performance logic, include sampling the 19

this year and going into volume next year, to whatever some advance

64

for this year.

For the flash technology

include adding the samples over the flash sometime in the end of the second quarter or early third quarter, and for the 19

and starting

of the 64

technology

.

As far as the other 12-inch project, you know that we are building 12-inch plant in

, in the south of Italy.

This is in the construction stage and of course we will speed up or slow down according to the market demand.

Moreover, we have now

capabilities that are ready to be put into action in our

plan and

capabilities for flash in our Singapore plant.

So we have both technology

and the manufacturing capability to back up those.

OK, thank you very much.

Miss Morgen, we have time for two more questions.

And your next question comes from

of

.

Yes, good afternoon.

A couple of questions first, the pricing, can you be a little bit more precise how strong the pricing pressure has been, maybe in percentage of all product range, maybe result flash?

And maybe highlight a little bit who has been more effective or less effective.

Second question regarding utilization, people

in Q4, what do we expect for the current quarter, and since you

dollar effect

at all, can you give us a little bit more detail, you mentioned already you have

effects on the cost side, but can you give us a little bit more in

how strong the current effects have been in Q4 and what you are seeing for the current year, especially if the euro stays at the level is it today?

OK, I will comment on the currency and Lynn will comment on the rest.

Well, in Q4, the euro appreciation was significant only in December.

So the impact on the total quarter was very modest, because October, November, the euro was still in line basically with Q3, and stopped appreciating significantly during December, so the impact was quite

.

In Q1, on the contrary, the euro will most significant impact, because there is now an exchange of one or $7 for one euro, which is an average of below $1 for one euro during Q4, therefore, it is a significant change.

Well this can have some impact on our P&L, but is in any case within the manageable things that we don't even consider something that is out of our control.

There will be some impact, but particularly on the cost of labor on Europe, which is

of course in Europe.

But also we can have a different pattern of our

materials.

They mostly come from dollar zone and would even more come from the dollar zone so that we can balance.

So if there will be, and there will be some impact in Q1, it will not be the one that we will get, how do you say, dramatically impacted and with the quarter progressing, and in the third quarter, we will adjust our operations so that the impact is manageable situation.

In other words, is an important impact, but is within our management capability, nothing that we will consider a dramatic impact.

Except for no impact on the gross margin, because

.

OK, you know, the price increases, of

in our industry as Aldo Romano was mentioning before.

And you know, of course, when we are in the tough market condition, usually the standout product are more effective on price decrease than differentiated products.

And this is the case of the case now.

In fact we have more price pressure on discreet product, on the standout products, on some

and we have differentiated products where we have medium term of, medium term agreement, and we have a price increase are more forecastable, it doesn't mean we don't have a price increase, but they are more forecastable, because usually they are included in contracts.

But you know, again, we see the way of life.

What we are seeing today is probably that the rate of decrease is decreasing.

Already in the first half yes?

Sorry, we have figured

.

Always in the first two quarters, the rate of decrease is decreasing, I think

is good.

OK, and utilization?

Our

?

Yes.

In fact was pretty good in Q4, close to 85 percent, slight increase compared to Q3 and you know, we don't see any big changes during Q1.

OK, thanks a lot.

Your final question comes from

of

.

Hi, actually I got two questions left.

The first one is a follow-up question on to the other product group, the minus 35 million, did I get you right that you're forecasting a slight increase in the first quarter of your losses in this other group?

And the second question would be on the flash business, can you give breakdown of your product mix in flash?

For example, like what's the share right now of the 64 megabit and also maybe a comment on when you're expecting volumes in 128 megabit trips?

if you can please comment on the other product group and

,

?

Definitely, the other product group means the portion on

traditional

important.

And this mainly

of

here and there and

and the, we have some in the operating income of

.

We have some costs

located like

start-up costs and some

in the expenses.

Well on flash

, we think is stable along this year and probably next year, so

.

As far as flash concerned, we have approximately one-half of our revenues on 32 and 64 megabit flash.

Please consider that we

support applications where we need one megabit flash,

we have very much present in the storage applications where we are

introducing new megabit flash.

That's grand, I mean it's beautiful business, right so, as far as

128 megabit products will be voluming to two, and of course this will be bought for wireless, but also for

products in other applications.

OK, thanks.

Operator?

Yes, ma'am, and at this time there are no further questions.

Are there any closing remarks?

Yes, I think Mr.

would like to make a few closing remarks.

Thank you.

Summarizing we believe that Q4 ST proves once more our ability to outperform the market, particular in financial terms.

Our cash generation, which starts in a very strong position, our balance sheet, our profitability was much better than the industry average, the strategic alliances we concluded in 2002 are positioned us well for the future.

Coming into 2003, we reconfirm our visibility of a strong competitive environment during the first half due to continued excess capacity, but 2003, will be a year of a progressive improvement for the market and for the company.

And I believe that when we put together our very strong customer base of strategic alliance, when we put together our system on chief capability with the convergence now that we in the year of a convergence, and our manufacturing machine and the flexibility we can respond together with our longer term established capacity to control overhead and to spend of our balance sheet, we believe that once more we are very well positioned to outperform the market in 2003 both on a financial term and also in the ability to gain market share in the market we serve.

Thank you.

Thank you operator.

We'll end the call now.

Thank you and this does conclude today's STMicroelectronics fourth quarter 2002 earnings conference call.

You may now disconnect.