意法半導體 (STM) 2010 Q1 法說會逐字稿

Good morning or good afternoon. I'm Dino, the Chorus Call operator for this conference. Welcome to the ST-Ericsson first-quarter 2010 financial results conference call. Please note that for the duration of the presentation, all participants will be in listen-only mode. And the conference is being recorded.

After the presentation, there will be an opportunity to ask questions. (Operator Instructions). At this time I would like to turn the conference over to Ms. Claudia Levo, Senior Vice President, Global Communications. Please go ahead, madam.

Thank you, Dino, and hello to everyone. Thank you for joining our first-quarter 2010 conference call. Hosting the call today is Gilles Delfassy, ST-Ericsson's President and Chief Executive Officer. Also joining him on the call today are Jorgen Lantto, Executive Vice President, Chief Technology Officer and Strategic Planning; Timothy Lucie-Smith, Chief Financial Officer; Fabrizio Rossini, Head of Investor Relations.

This call is being broadcast live over the web, and can be accessed through ST-Ericsson's investor website. A replay will be available shortly after the conclusion of this call through the end of Thursday, April 29.

We will be making forward-looking statements during the call today. These statements are based on our current expectations and certain planning assumptions, which are subject to risks and uncertainties. The actual results may differ materially due to factors mentioned in today's press release, and discussed in this conference call. We encourage you to review the Safe Harbor statement contained in the press release that was issued with the results last night.

The usual reminder, please limit yourself to one question and a brief follow-up question. And now I would like to turn the call over to Gilles Delfassy, our President and CEO. Gilles, please.

Thank you, Claudia. Hello, everyone or good afternoon.

Okay, so now it has been one quarter since my first conference call and roughly a couple of months since I met many of you at the Mobile World Congress in Barcelona. And yes, a lot of things have happened since then. And it has been a rough and difficult quarter, as you've certainly noticed very clearly in our results. I will try to put it all into perspective.

And so allow me to start from where we left each other. In Barcelona, we discussed the new direction and the steps taken to transform the Company in order to pursue profitable growth. You will hear more about this and about our latest developments during this call.

We also discussed what 2010 means for ST-Ericsson. I told you, if you remember, but let me repeat. 2010 is the year when we are transforming and transitioning our portfolio from the old between [coats] of course legacy products to our new generation solutions. And this transition will not happen in one week, and will not happen in one quarter. We know that it will take a lot of effort and lots of work, and that it will have to happen in parallel with the firm execution of our restructuring plans. But we know that we can make it happen, and we are fully engaged in that.

But, as today is the time to comment on our results for the first quarter of this year, let me start with our sales numbers. So our sales declined 18%, which is not good, versus last quarter. And there are three main reasons why this has happened.

The first reason is actually very Company specific, and almost I would say purely mechanical. As our first quarter ended on March 27, because of the way that [beans] are counted here, there were 10 days less, 86 versus 96, than in the previous quarter, and that's [embedding] our revenue reserve by about 10% quarter to quarter.

The second result as well, it's a first quarter, so there is some seasonality since this market typically goes down a little bit. And yes, this quarter for the -- this year probably went down a couple of points; not a lot, actually.

So but let's be clear. The real and the more relevant reason is really the transition of our portfolio, again, from old legacy to new, which I have to say was the key element in our quarterly sales dynamics. Which was not a surprise. We had anticipated this transition would have an impact during this year.

The transition is happening fast. And by the way, it has both positives and negatives. But of course, for the time being, more negatives than positives until we reverse this trend later with the ramp of our new [Hill] products. So our revenue in the quarter were positively driven by EDGE platforms, a lot of traction in particular in Asia; I would even say probably in Korea if you see what I mean. And also by TD-SCDMA volume shipments, where we confirmed our leading position, reaching the 10 million chipsets delivered, the milestone of 10 million chipsets delivered.

But at the same time, we have suffered a lot from the fast decline, especially in certain legacy products that I would qualify as old, modern platforms.

So that's the picture of where we performed in the market during the quarter. That was not pretty. But we know where we have to perform, and we will definitely do so once our transformation plan has been completed. And as I said, we're making progress on this day after day, and I would like to tell you a little bit about it.

So we said that we want to move from an offering focused on entry and feature phones to three main segments -- smartphones, connected devices, and high-value entry handsets. With a portfolio covering modems, application engines, and complete platforms, including software, as well as a focused range of connectivity products. I would say focused but leadership range of connectivity products. This is what we believe our customers want, and we are more encouraged every day by the progress we're making in our discussions with them about our portfolio strategy and evolution.

What's happening basically now in these discussions is that with existing customers, we are becoming broader. We win more and more circuits at existing customers, but we are also addressing new customer audiences.

So as we said, we are extending the high-value entry market towards the smartphone for all concepts. You may recall that in Barcelona, we had announced and talked actually a lot about our U6715. It's the low-cost, compact and very power efficient Android-ready platform, which will make smartphones affordable for the mass market. And we all know how Android is important in this market.

And we said at the Mobile World Congress that manufacturers would launch the first commercial products based on our 6715 platform in the first half of this year. And actually, I can confirm today that the 6715 is already shipping to Acer as the first customer. And by the way, hopefully to many new customers very soon.

That gives us a firm footing in the low tier of the smartphone market, which is now growing very fast. Actually faster in Europe than in the high tier, according to the latest results. Published, but in China, that growth is actually even more pronounced.

But on the higher end, let's move to higher-end smartphones now, which as I hope you know will be empowered by our U8500 platforms that will start shipping in volume in the first quarter of next year.

In the meantime, we continue to make a lot of major enhancements to our U8500 platform. For example, we have broken through the smartphone performance barrier by introducing and demonstrating a dual core platform with each core capable of running at 1.2 gigahertz. This platform will enable handsets to run several graphically-rich applications simultaneously like high-definition or [city] video and social networking with online map navigation and augmented reality, for example.

It will also dramatically enhance the responsiveness and the experience of the smartphone user interface in key use cases like web browsing, for example.

We all know now that multicore processors are the best way to enable smartphones to deliver PC style computing and graphics performance but at the same time, maintaining the long battery life required as a mobile device.

And that multicore processor is a key trend. We have been the first one, as you know, to announce and to introduce a dual core [test in line] solution. But very importantly as well, we announced during first quarter that we are working with ARM to optimize the Android operating system to take full advantage of the SNP unit, the dual core processor architecture, used by the 8500 platform.

But we're not stopping here. During our call today, I'm going to talk about a couple of updates to our smartphone strategy. First of all, we are using 8500 platform as our foundation. It's the head of a great foundation, and we are extending it into multiple directions, adding new modes and capabilities. For example, no announcement today, but you can expect us to add TD-SCDMA capabilities soon.

But, what we're announcing today is moving to the midrange with a new product called U5500, which will enable much greater choice in the smartphone market and allow our customers to quickly develop handsets with high-level operating systems and high multimedia features, but with multiple price points in their range.

So the U5500 is a 40 nanometer device, has also an SMP dual-core Cortex-A9 processor, featuring more than 2000 DMIPS. It has a multi-core HSPA broadband modem, actually HSPA+ according to the strict definition, because it allows a 14.4 MG down-link speed. It supports high-definition 720p [video] code and decode at 40 frames per second, and it also carries support for up to 12 megapixel cameras with sophisticated pre-and post-image processing, enabling (inaudible) applications for example.

It has [mini] graphics subsystem. And basically, the power consumption is such that when equipped with a standard 1000 [milliums] battery. When smartphones based are using the 5500, can play music for up to 85 hours. I guess it's MP3 music, and provide a talk time of up to 10 hours on its 3G networks on one battery charge, or even remain on standby for up to 34 days when you don't need typically to not use your phone for 34 days, but you do what you want.

So, anyway, and this is not a long-term project. The 5500 actually will start sampling next quarter. So next quarter of this year. So, as with that, with 5500, we now have completed or at least extended the whole range of smartphone products from our flagship high-end platform, 8500, full mainstream mid range, 5500, that we just discussed, two high-value end, 360, 715, enabling the smartphone for all tiers.

But by the way, that's of course only a part of our portfolio update. We spoke a lot about our multimedia capabilities, but we want to touch with you and show our modern expertise, our traditional core expertise, and how we are supporting continuous growth of mobile broadband.

First, HSPA+. You know the 21 megabit per second standout. It is now clear that we have the best available solution in the market today, almost the only available solution because we are ahead of competition by one or two quarters at least. And we have actually, we are happy to report that we have multiple design wins with key customers, tier one included, for modern modules, dongles and also smartphone applications.

But then, if you recall, we also told you in Barcelona about our answer to the next challenge, which is the increasing number of [radio excess] technologies that need to be supported in a cost, size, and power efficient way.

To address this, if you remember, Jorgen Lantto, our CTO, had presented our new multi-modem architecture based on the software defined radio design, which will enable us to combine any available or foreseeable access technology into one common architecture. At first, we will have, in our first device, LTE, HSPA+, HSPA [with] non-CDMA, and also TD-SCDMA and TD-LTE. So as you can see, a big variety of our interfaces.

This new architecture, being very flexible, and of course heavily software programmable will allow us to of course do multimode, but also to adapt to late changes in telecommunications standards and also to adapt to specific operator requirements. So a little bit of update about that.

We expect the first data [cost] based on this hardware to take place later this year when the first commercial products, based on the new architecture, are set to become available sometime next year in 2011.

Another topic, TD-LTE is a very important area that we are addressing. And actually there are signs that this market could broaden. It started in China, but it clearly could broaden to other regions beyond China. Not only of course you all know that it has a big future in India probably, but also quite significant in the US. That would enable the production of larger volume of TD-LTE equipment while we believe that we will be a leader.

As you know, China Mobile plans to use TD-LTE in China while also encouraging other operators to support that standard. For example, it is building a test network with Firestone in Taiwan.

And during the first quarter, we have announced our collaboration with China Mobile and TD-LTE development, and we will also soon support a demonstration of TD-LTE at the Shanghai World Expo.

We are also actively participating in other TD-LTE projects, organized by China Mobile, including trial into (inaudible) SMAC testing with infrastructure vendors.

Of course, both our single and multi-modal key platforms are prepared for TD-LTE, and we anticipate commercial TD-LTE devices to be launched next year, in line with the commercial network deployments in China and elsewhere.

As you can see, there are a lot of activities underway to achieve our goals. But let me now turn back to short-term realities, to make a final few comments about our quarterly results. And I need to say our performance in the first quarter has been quite humbling. And therefore is keeping us very focused and determined with our feet firmly on the ground to say the least. But our top priority for 2010 continues to be very clearly the achievement of a competitive cost structure. And we will get there.

So in terms of number, our operating loss in the quarter has been $114 million with a sequential deterioration of $64 million due to several elements. The effect of lower sales of course, and a favorable mix effect and also lower contribution from funding programs than in the previous quarter. If you remember we told you when we presented fourth-quarter results that we had exceptional funding contributions, one-off, to the tune of $16 million if I remember well, that of course, would not be repetitive, so yes, they have not been, and that explains part of the transition. All of that was counterbalanced, but of course only partially by the $16 million of restructuring savings that we recorded in the quarter.

Since I mentioned the restructuring plans, let me talk about it for a second. First of all, let me tell you they are both on track. During the quarter, we have incurred restructuring costs of $27 million, but realized $16 million of savings as I just mentioned. So far, we have realized almost half of the total savings against the $230 million plan that you may remember, while as we already said, there's $115 million restructuring plan, which is due to be completed by the end of this year -- will start to contribute in terms of savings in the second half of this year.

Additionally, as part of our continuous focus to improve our R&D efficiency, we have started extensive programs focused on achieving common tools, common IT infrastructure and common processes across all of our R&D community. During the quarter, for example, we have achieved a very important milestone which is a full integration of our IT systems. It was not painless. I can tell you it never is, but that was a necessary step for the harmonization and the integration into one single environment. We also continued our tight supply chain management and inventory actually has declined by $14 million, (inaudible) $[213] million at the end of the quarter.

Cash -- at the end of the quarter, our net cash was $120 million, which was a sequential decline of $109 million, of course, mainly due to the operating loss and to cash outflows relative to restructuring.

We are now about at the end of my speech, so let me address quickly a question that you probably were I think interested with. How do we see the next (technical difficulty). Well as I already said earlier, the key element here is a portfolio transition, which is not going to happen in one quarter. And with the visibility we have today, we are envisaging for our Company an approximately flat trend quarter on quarter. That was in sales, of course.

Additionally, considering both our expected level of sales and the progression of our restructuring plans, we do not anticipate any improvements in the current level of our operating results to occur until the second half of this year, second half of 2010.

But, to reiterate, we think that we understand what customers want. We are working hard to fulfill their requirements today, and creating anticipation and early acknowledgement for the great products that we will bring to the market next year. High-speed broadband modems, high-performance application engines, and integrated solutions bringing together application processor and modem for the so important smartphone segment. Also, single-chip solutions that will add value to the entry range, but also [seen] in embedded modems, optimized solutions for external modules, or USB downloads for the emerging connected devices market.

So as a summary, the road is hard, long and difficult. We know that a lot needs to be done, but we are strongly convinced that we have selected the right direction, actually the only direction to be the leadership position in this market. Therefore, with all of our focus, determination, and perseverance, we will continue to work quarter after quarter to meet our goals that remain here, achieve a competitive cost structure, transition to our new portfolio, and pursue profitable growth.

With that, I guess we are now ready to take your questions. Thank you.

(Operator Instructions). Tristan Gerra, Robert Baird.

Looking at the 8500, is the -- if I heard well, the new timeline is late Q1 of next year? If you could reconfirm that, is that sampling or volume ramp, and also, are you confident there's no further potential manufacturing issues that would impact the timing of that baseband?

Okay, Tristan. Yes, of course, I was talking about high volume production ramp of high-volume smartphones. As you know, we have already sampled 8500s for quite some time. But you know, it's quite frustrating for, I don't know if for you, but certainly for me, it takes a long time now for modern complex platforms with high-level operating systems between the time we are ready and our customers run to production; we are working very hard to reduce that lag leadtime, but that's what we are doing now.

So yes, I can confirm in the first quarter is high-level, high-volume production. And no, I do not see a big risk to that. The platform is essentially ready and will be ready before that time. I guess I -- that answers -- I hope that answers your question.

Yes. And just a quick follow-up. Is it fair to assume that the 5500 you're announcing today is a derivative of the same platform? And what would be the reason then for that product to launch earlier?

Well no, it doesn't -- I'm sorry, maybe I wasn't -- it doesn't earlier; we will sample it next quarter. But it will actually, as I've said, between samples and volume production, some time lags, and it will ramp in volume after 8500. And yes, you are correct, it's a derivative of 8500 at least in terms of multimedia. Its' a fully compatible multimedia. And but yes, just to clarify, it is sampling next quarter, third quarter of 2010, ramping in production. We have not announced it in detail, but a little bit after 8500.

Great. That answers it. Thanks so much.

Didier Scemama, RBS.

Thanks for taking my question. Good afternoon, gentlemen, sorry, ladies and gentlemen. Apologies. Quick couple of questions. First of all, Gilles, thanks very much for giving us some guidance on Q2 revenues and profitability. I was just wondering if you could maybe elaborate a little bit on the second half, if we should continue to expect similar levels of revenue growth or perhaps an improvement. I think Carlo in the ST Micro conference call commented that your profitability should improve materially in the second half, so I was just wondering whether that was going to come from your lowered cost structure or also from the top line. And I've got a follow-up, just a question on the U8500 or 5500. Thank you.

Yes, I would love to give you more detail, but after second quarter, but the people in the room would not let me; I'm sorry. So I'm glad that you got already some insight from my friend Carlo in the other quarter.

Yes, no, again, we cannot -- what we said clearly is that we cannot project an improvement of our sales and imparting income in second quarter. Nothing before the second half. And then we'll have to stick to it, but you know what we are doing in that direction, right? We are giving you complete transparency on our restructuring programs. And you know that the second phase, the $115 million program will start building savings in second half as we mentioned, and also well I guess that's all I can say for now.

What was your follow-up question? The following question on the (multiple speakers)?

Yes, I'm sorry it's a bit of a technical question on manufacturing, but I suspect this U8500 processor is going to use when you manufacture it at CSMC. Can you confirm that?

40 nanometer, you know, you are very technical. We, by the way, we are using -- if that was your question, we have not disclosed which fab we will use for 8500 and 5500. We have actually a variety of sources for these two processes. TSMC is one of them, of course. But we're also using at least two or three of their sources. You know we have expanded our relationship with the key foundries. And of course, we are using ST foundries -- ST fabs as well. So, I guess that's all I can say for the process.

Is that -- are you covering SMM just (multiple speakers)?

Maybe. Okay. Thank you.

Sandeep Deshpande, JPMorgan.

Thanks for taking the question. Just a couple of questions. Firstly, on the revenue ramp-up, given what you are saying about the U8500, and the 5500, is it just TD in China which is going to be compensating on the top line in the second half, which may potentially mean some improvements, which Carlo suggested in the earlier call in the second half? Because otherwise, the U8500 ramps up next year, then the 5500 after that. Or are there any other products which will help the ramp-up as your products transition? And I have one more.

Absolutely. Yes, let me clarify that. That's a great question. Yes, you are correct. 8500, 5500, and into server, I think I've already said this several times are not going to help us this year. They're going to help us tremendously next year. But this year, we do not have any [today]. As I just mentioned, 6715 is ramping, has ramped in (inaudible), which means that we are counting on the volume of that great platform in the second half of this year in China and other regions. We also have, if you remember, I also mentioned our HSPA+ platform. The M570, the 21 megabit, where actually we have several great design wins. I think I mentioned both in modern modules, dongles and smartphones, that are going to ramp in the second half of this year.

We are also ramping a lot of new EDGE products, for example, which are going to contribute and help us in the second half. By the way, in particular, one way to add value is we are now almost ready to ramp our Dual SIM versions of our EDGE products, which as you know, is a key differentiating factor. Some of our customers love that feature. It was quite painful to develop it. We are now very close to shipping it. So, again, that's something that is going to help us in the second half. And then probably forgetting others, but we have several elements that are going to help us this year.

In terms of a follow-up on the market share issues, one -- regarding Sony Ericsson and where there has been some share loss, is it the same 6700, 6715 and new 8500 products which will help that -- you regain that share? Will it be this year or later? And within your key customer, Nokia, will any delays of the Symbian 4 or Symbian 3 will result in delays on your shipment of your product even if your product is ready, for instance? Thank you.

It's very hard to comment on the customer by customer basis, especially at that precision level. Let me just tell you that on Sony Ericsson, we have lost share; it's obvious we recognize it because it's public that some of their new phones have been using a competitor's product because we were not ready when they had to make the decision two years ago. And there will be -- and again we are working very hard with our friend, our friends at Sony Ericsson to get back to the new platform. And I think we are making a lot of progress. Again, and we are, and to answer the second part of your question, again, let me reiterate we are very confident that we are going to ramp 8500 when I told you we would. So, that's the best I can say now.

Thank you.

And I think -- of course I took into consideration everything which is happening on the readiness of high-level reporting system variance and flavors and [ready assist] when I said that.

Thank you.

Simon Schafer, Goldman Sachs.

Thanks so much. I was wondering maybe you could elaborate a little bit what percentage of the business now is still what you have described as somewhat legacy related. I guess I'm just trying to understand how quickly that legacy base run rate is really falling away, and how quickly then the new stuff can pick up the slack. So any sort of guidance as to what percentage of the mix that was constituting in Q1 would be helpful.

I cannot give you a precise percentage. Let me tell you it's the vast majority of our business in Q1, which is still legacy products, absolutely. Again, I think we mentioned to you about all of the new [hero] products and none of them was shipping in first quarter. So it's pretty clear.

Right. And when would you expect some sort of crossover then between what you've described as legacy product and some of the new platforms that you've outlined? Is that really mid-'11 when you the 8500 becomes more meaningful?

You know, that transition is always hard to predict because there are two timings that you have to cross. The timing down of the ramp-down and the timing up of the ramp up. And I don't think I can give you a precise answer on that. Again we are in transition today. I know that the bulk of our business next year will for sure be based on our hero products, but will also bring better profitability as well because they are newer and bring more value and so on. But when the crossover happens, I just tell you, I don't think I can tell you precisely. But I would love to make it as soon as possible.

Understood. And my second question would be just on the cost side, you did mention obviously that the cost savings program is coming through. I understand that the second phase cost savings, somewhat more weighted onto the second half. But why is it in a flat revenue environment into Q2, given that clearly there are some costs which are coming out of the system and you are seeing some sort of currency tailwind from the second quarter that profitability isn't coming up.

And I guess in conjunction with that question, does that rule out the previous expectation that you may be able to get to break even towards the end of the year?

Tim will help me here.

Yes. Sure. I mean, I think what we're saying is we're not seeing a significant change in level of profitability in the second quarter. So, we're not ruling out, obviously, the variability that can be from one quarter to the other in terms of cost savings. Obviously, we will have cost savings coming in in the second quarter. And this is partly due to the headcount that has already left the Company in the first quarter, and during the course of the first quarter so on top of the savings we have also coming in from Q2. But we can say that we see a ramp-up in those savings from Q3 onwards.

I'm not sure I understand that given that costs are coming out of the system and revenues are flat, and you're seeing a currency tailwind; why wouldn't profitability improve?

Obviously if revenues are flat and our margins are flat, and the only change we have in our OpEx is that we have some cost savings coming through into Q2, you would be absolutely right. From a mathematical perspective, we should see some improvement. What we are saying is, we're saying we don't see a substantial improvement. In Q2, we don't see a substantial improvement until the second half because of the fact that those savings are not the most significant element that we can see to give what we could say is a substantial improvement.

There's obviously variability from quarter to quarter also on margins.

And what are the implications in terms of your previous aim to make this a breakeven business towards the end of the year then?

Well I think the most important thing to say around breakeven is that we have not given guidance as to when precisely will we reach the breakeven point. (multiple speakers)

Okay. Thank you.

We are describing all the actions we are taking to make that happen. I don't think we can -- we have predicted when it would.

Allan Mishan, Brigantine Advisors.

First, a clarification. The 10 million TD chipsets that you mentioned, did you ship that during the quarter or is that what was shipped to date through the quarter? And then a question, your major competitor, Qualcomm, has indicated over the last couple of quarters that they are seeing some price reductions in the market, both at the chip level and at the unit level. Are you also seeing that level of competition? And what do you expect for pricing for basebands and chipsets going forward? Thank you.

Yes, of course. Yes, to the first question, no, the 10 million -- I wish that we had slipped it into the crossover; no, it's cumulative. It's the total we shipped since we started to ship second quarter of last year. So we broke that milestone sometime during first quarter, the 10 million milestone.

On your second question, again, I will of course that's a question that I've got several times. I will give you the same answer I give, which is that we are not coming -- I recognize that I heard a lot of people claiming that Qualcomm is seeing some margin pressure and some cost pressure on their chipset. And the fact is, we are not coming from the same level as them. They started a little bit higher than us to say the least.

So no, to give you my answer, it is still an extremely competitive market with extreme pressure of course on prices. But we do not see discontinuing that trend. It's -- I would almost say it is our business as usual. We don't see a big change in the price pressure this quarter compared to last or even with the visibility we have anything soon.

Okay. And then a question on the product positioning. If I have my history correct, when you first launched the program for the 8500 that was specifically targeted first for Nokia, and that was going to be your entry there. Is the 5500 also going to be first targeted for Nokia or will you use that at other customers, and how does that waterfall down? Thanks.

Yes, well, first of all, let me take the opportunity to say something which I think is in the transition slide that I showed you in Barcelona and I think has appeared here as well.

In our history, we have been really a three-customer company. I mean basically, a combination of three organizations, each bringing one customer, and serving that customer with [client] solutions, almost custom solutions in some cases.

Actually, I'm really -- we are really all trying to change that. We don't think our future is to develop point solutions for a small number of customers that represent all of our activity. We now want to develop generic platform solutions that address any customer in the world. And actually 8500 it is absolutely true, we do not deny it. [I adopted] with a stronger pool and cooperation with Nokia that is now absolutely, totally a worldwide generic platform that is covering every customer.

Maybe the best proof of it is that actually, I think I mentioned that in Barcelona, but just in case, I will repeat it, we are going to introduce 8500 with Symbian of course, but also with Linux Android at the same time. So, clearly we are not talking about -- because to the best of my knowledge, Nokia doesn't have Android phones in their cooking or maybe I don't know of them.

So that shows that it's not a custom platform for Nokia by any means. And 5500, by the same token, actually we started Linux, clearly. that can give you an idea of what markets we are cross serving here.

Thank you.

Vlad Shteynberg, Realm Partners.

Hi, a couple of questions. First of all, in terms of the revenue decline this quarter, can you tell us if the loss -- the rate of loss of legacy modem business, that rate that came in, was that unanticipated? And can you give us more color on that?

Yes. Clearly the drop was -- let me be very honest with you, the drop was unanticipated. Maybe the magnitude was a little more than what we thought, and that has been a bad surprise here, to be very candid.

Okay. And, so, when you were talking about revenue increase potential in the second half, what does that assume about continuous market share loss in the legacy modem area?

Well, first of all, I don't remember saying that we're going to have revenue [included] in second half. Maybe my memory is failing me here. But what I said is that we are anticipating improvement in operating income before second half.

But anyway, the fact is yes, we are anticipating -- we have now a very conservative scenario for these legacy modem platforms or at least we believe so. Now, we can always be wrong. We have that technology unfortunately, but we believe that we are prudent here now.

Right. I'm making a conclusion about the second half from your statement that the decline in revenues is short term. So, that kind of implies that there is some sort of rebound at the second half of the year. But I'll leave it at that.

The other question I had, the other two questions I had, first of all, on the R&D restructuring, is that incremental to the two restructuring programs that you have currently planned? And if so, can you quantify anything for us there? And then secondly, how are you doing in terms of your cash needs?

Okay, on the -- you got me on the R&D question because on the restructuring, we talked with that, we talked about these two programs. The $230 million and the $115 million restructuring. I'm sorry, can you help me with your question? What did you mean exactly?

Did you mention the R&D efficiency programs?

Oh, on the efficiency. Oh, yes, no, I'm sorry. Yes of course that's on top of the restructuring of course.

The R&D efficiency, what we mean here is just to do more things with -- we have restructuring which is to realign the size of our R&D to where we think it needs to be for us to succeed in the marketplace and have great products, but not more than that. And on the efficiencies, basically to use that basis of R&D resources and do more things with the same number of people, so.

On the cash needs, we've talked to -- we've showed you our net cash position at the end of the quarter. We of course, as we mentioned, we have started to work on several financing options that are open to us. We believe customers are using short-term bridge loans from parents.

At this time we believe that this will be okay for us, sufficient for us to go through that phase. If that was your question, we are not anticipating the need of additional equity injections by our shareholders so far.

Okay, thanks.

Let's move to the next question.

Andrew Gardiner, Barclays Capital.

Good afternoon. Thank you very much. I was just wondering, now that we've been sort of seeing your results in this format for the last year now since you started reporting around this time in 2009, whether you can give us any more clarity around gross margin and OpEx levels? Clearly, you haven't disclosed the full detail, but perhaps any change in terms of the direction, quarter on quarter here in terms of gross margin and OpEx would be helpful as well.

This time, you know I love transparency, but at this time, there is no plan. You know we cannot do anything we want. But at this time, we have no plan to give you access to more detailed financial data. Maybe in the future, but no plan to announce at this time. Sorry.

Can we move to the next question unless you have a follow-up question.

Anil Doradla, William Baird & Co.

Thanks for taking my question. In your opening remarks, you commented about the feature phone smartphone market and the high-end market. Can you give us some sense of how you look at that smartphone segmentation in terms of volumes and growth over the next couple of years? And just a follow-up question after that.

Well, you know we try to refrain to make market predictions because we -- but first of all, we are not very good at it, and second of all, there are people who are paid, and that's their way of making their bread and paying their bills. So, we don't want to push them out of a job.

So no, spare me, because honestly you know this market as well or better as I do, so my vision is probably -- it's for sure no better than yours, probably [your]. I can just tell you the obvious, which is yes, feature phone is disappearing very quickly. Smartphone is developed, it is growing very rapidly and going into tiers. And that's why we are aggressively pursuing a strategy to have a great solution for the various tiers of the smartphone market. And we continued to play an entry, where we have been playing traditionally.

We believe that this market will again -- we cannot give you a number because again, I don't have it, but we believe that that will still continue to be a great market, especially in that higher value part of the entry market, which is the one we are targeting, for example with our single-chip EDGE solutions, with dual SIM capability. (multiple speakers) best I can do.

And maybe a follow-up question out there, is if I look at your wideband CDMA marketplace, can you comment about where you are or where you think you guys are? And where could you be, say, a couple of years from now or where do you plan to be?

Well, we have spent a lot of [thought] in 3G clearly. And our share today is not what we want. Let's be -- you can do the math as well as I can do it. We have some traditional 3G customers where -- we discussed them earlier where, which their volume is shrinking and our share of them is not going up. So of course our share in 3G is not the one we want.

We believe that, to your question, in a couple of years from now, we will be almost -- the vast majority of our business will be 3G for sure. And we believe that we will have a much, much, much -- our ambitions for sure is to have a significantly bigger share than what we have today on tier 1 and tier 2 customers. So, I guess that's how I would answer you.

And on the U5500 platform, do you envision this purely in the smartphone feature market, or do you expect it to transition to other form factors?

Like, do you have a -- because I can't understand. 8500 going to, for example, tablets and so on. But why 55 -- what other form factors do you have in mind, may I ask?

No, I was wondering whether that could even extend into the tablets and other form factors, or that would be limited to really the kind of mobile device form factor?

I guess both, but certainly in my opinion, 5500 is probably more targeted at the handset form factor. And 8500 could do either smartphone or newer, bigger display form factors, would be my guess.

Thank you very much.

Let's move to the next question.

Andrew Griffin, Bank of America.

Good afternoon. A question, something we hear from the handset companies is this big disconnect between hardware and software design cycles, and obviously that's becoming much more important in the smartphone era. Looking at you guys and compared to your competitors, how are you helping your customers solve that engineering challenge?

You want to -- we have -- actually, we have Marc Cetto, who is running our smartphone area, the division in ST-Ericsson which is mostly [volume] focused on smartphone solutions, not completely but almost. Do you want to address that, Marc?

Yes. Good afternoon. This is Marc Cetto. It's a vast question and we could have a lot of discussion on this. But basically yes, hardware design cycles are two years or more, and software could be six months or less, especially when we talk about the new open -- more open models like in some of the Linux solution.

So, how are we helping? Of course we are integrating more. The way we are protected on this platform is to conform to much softer cycles of releases six months or less. And yes, we are doing it. So it means for us that we are doing more in terms of pre-integration and validation and field certification or field trials on all our platforms on a granularity of three to six months.

If you have a smartphone customer who is using your silicon for both high end and mid range, how much overlap can there be in the engineering effort?

Well that's the whole point of what we announced today. It's -- the 8500 was a starting point of a software compatible multimedia roadmap. And clearly, this is -- you hit exactly on one of the key parts of our value proposition is the 5500 is a very tight derivative from the 8500. It's just lower speck devices. It will enable lower speck devices, but the software we use is going to be maximized. So, yes.

Got it. Thanks very much.

Next question, please.

Jerome Ramel, Exane BNP Paribas.

Good afternoon. Two quick questions. In your data on your connectivity side and your new 45 nanometer chipset? And second question, would you share with us the weight of your largest customers?

Okay. Quickly, the update on our [GPS] solutions, 2900, we have finalizing the manufacturing ready position of that device. We are preparing for ramp; it's not ramping yet. We believe it will run early next year, very early next year actually. At about in -- at the same time as 8500 probably. And we have several design wins.

We are counting a lot on 2900 to help us regain share and connectivity. Because again, that's one of these typical examples of our overall situation, which is a legacy of old products a little -- of getting older and older and not getting a lot of traction, but great new products, almost -- on the verge of ramping, that hopefully will bring us back to best in class and front row of the bus moving forward.

And could I learn the weight of your largest customers? Are you willing to share it with us or --?

In connectivity or overall?

No, no, no, overall sales.

Overall? Of course we can give you the five top customers in alphabetical order, which is what we always do; and they are LGE, Nokia, Samsung, Sharp and Sony Ericsson.

Okay, but no number.

No. But I think that's a good start.

Okay, thank you.

We have time for another couple of questions, so let's move to the next one.

David [Mulholland], UBS.

Thank you for the time. Just one quick question in trying to look at the restructuring in a different way. Could you maybe just give us some guidance on sort of what revenue level you would need to break even with -- once all the cost savings are taken into account?

Again, I don't think that we are getting into giving this level of detail. Again, that dynamic has multiple dimensions. It's revenue, it's margin, it's a lot of things. It's OpEx, and I guess we tried to -- we do not try to get deeper into this, so far at least.

Okay, thanks.

Maybe one last?

We'll say yes. Let's move to the last question. It's Friday.

Janardan Menon, Liberum Capital.

I just wanted to go a little bit deeper into your sales outlook. You commented that you hadn't really confirmed that your sales will grow into the second half of the year. Does it appear to be possible that when legacy products start weakening very fast into the second half, you could be flat or even down in sales the half on half?

And also when you go into the first half of 2011, do you have any confidence that your legacy products will no longer be a drag on your earnings on the negative side, and that when the U8500 and other products ramp at your major customers, you will be able to see a reasonably strong top-line ramp coming into the first half of next year?

Yes, to the first part of your question, we do not -- again, when we planned for the rest of the year, and when we gave you the outlook that we did, we took into account what we believe is a very secure and very prudent scenario in terms of behavior of our businesses.

So no, I don't think that -- the scenario that you are painting, which is that legacy products could basically collapse, and then that would be a catastrophic scenario.

With what we know, we don't believe this has a probability of happening. We have modeled the year, again, the most prudently we could, and we think that the outlook we gave you is in line with that view.

And then, your follow-up was on next year. Can you repeat it?

Yes. Just the same thing; would you expect that the legacy drag would largely play out by the end of this year? Or would you still have sort of a drag coming through from that in the first half of next year, which could limit the growth that you will see from in your product ramp?

Well, again, hard to tell, but you know in a lot of cases, actually, the new products are replacing, not in all cases, but in a lot of cases, the new products are replacing the legacy products, you know. So these are synchronized, basically.

So no, we think that the dynamics of innovation of our product portfolio is -- we think that we understand it and with what we perceive today, what you are talking about is probably not a big risk in our mind.

And just the last follow-up on that. Even if you are not willing to give us the information, do you have visibility right now as to how many models among your top customers you will ramping in a product like the U8500 next year? Or would you need another few months before you can get more definite information on that sort of thing?

No, we start now, you know with an extremely long system; I'm not a very patient person, so in my mind it takes ages between the time a product -- the chip is available, the platform is available, the software is ready, and still when the platform is identified, the phone is identified, and still it takes eons between. So no, we start to have a very good visibility now in terms of number of phones, characteristics of phones, names of phones even in some cases. So no, we start to have a pretty good view of that. I wish they would ramp this year and not next, but that unfortunately is not in my power.

Okay. Thank you very much.

Okay; do you want to conclude?

Okay, so well again, thank you very much for your patience and your attention, especially on a Friday afternoon. Our results, we are -- need to say, of course you will anticipate that. We are not very happy -- we are not happy at all with our results. We know that we cannot operate at that level. That's clearly not the level at which we want to operate.

But again, we think that we have a path that will be difficult, but that we think we can make happen of getting -- emerging and in terms of sales and profitability and getting to the position in this market that we ambition.

And well, we keep you updated on our progress on that long and winding road. And thank you for your attention in the meantime. Have a great weekend.

Ladies and gentlemen, the conference is now concluded and you may disconnect your telephones. Thank you for joining us today. Have a pleasant day. Good bye.