意法半導體 (STM) 2011 Q2 法說會逐字稿

Good morning or good afternoon.

This is the Chorus Call conference operator.

Welcome and thank you for joining the STMicroelectronics Second Quarter and First Half 2011 Earning Results Conference Call.

(Operator Instructions).

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

Tait Sorensen, Director of Investor Relations.

Please go ahead, sir.

Thank you, Dino.

Thank you for joining our second quarter 2011 conference call.

Hosting the call today is Carlo Bozotti, ST's President and Chief Executive Officer.

Joining him on the call are Didier Lamouche, Chief Operating Officer; Carlo Ferro, Chief Financial Officer; Carmelo Papa, Senior Executive Vice President of the Industrial and Multisegment Sector; and Philippe Lambinet, Chief Strategic Officer and Senior Executive Vice President of Home Entertainment and Displays.

This call is being broadcast live over the web and can be accessed through ST's website.

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

This call will include forward-looking statements and involve risk factors that could cause ST's results to differ materially from management's expectations and plans.

We encourage you to review the Safe Harbor statement contained in the press release that was issued with the results last night and also in ST's most recent regulatory filings for a full description of these risk factors.

As a reminder, please limit yourself to one question and a brief followup.

And now, I'd like to turn the call over to Carlo Bozotti, ST's President and CEO.

Carlo?

Thank you, Tait, and first of all I want to thank you for your interest in STMicroelectronics and for joining us on this call today to discuss our second quarter results and our outlook for the third quarter.

Let's begin with a brief overview.

Overall, the second quarter total revenues and gross margins were substantially in line with the outlook we shared with you in April, despite entering the second quarter with few but important headwinds.

Total revenues increased 1.3% sequentially and 1.4% year over year.

Automotive was a key driver for our growth in comparison to the first quarter, as well as year over year.

From a regional perspective, Americas drove the result sequentially and, in comparison to the year-ago second quarter, the Americas and Greater China, South Asia, performed the best.

The situation in Japan, which we saw as a headwind entering the second quarter, is no longer a significant concern.

In fact, due to the changes underway at certain companies, ST is now well positioned to capture market share.

Looking at our wholly-owned businesses, the sequential and year-over-year progress was much stronger, with sequential revenue growth of 3.2% and year-over-year growth of 11%.

In total, net revenues for ACCI, AMM and PDP were $2.22 billion and accounted for 86% of our total sales in the second quarter.

ST's gross margin came in at 38.1%, in the lower half of our range, reflecting unfavorable currency, a less favorable product mix and the impact on manufacturing of a change in demand by a major customer.

Our operating margin, before restructuring attributable to ST, was 9.1% in the second quarter, decreasing from 9.9% in the first quarter, primarily due to higher losses at ST-Ericsson.

However, year-over-year, the 9.1% figure represents an improvement of 140 basis points, coming form higher revenues and stronger profitability of ACCI, AMM and PDP.

With respect to our capital investment, we have gradually completed selected important capacity additions that we are making, particularly for our automotive business, MEMS and wireless products.

These additional additions temporarily raises our capital expenditure level and were part of the reason for the negative cash flow that we had anticipated for this past quarter.

Our CapEx during the first half of 2011 totaled $798 million.

We expect to have a much lower of capital expenditure in the second half.

At the end of June, our net financial position, at $1.1 billion, continues to be strong and is similar to where it was at the end of April and significantly above last year at this time.

We received a $357 million cash payment from Credit Suisse in the second quarter.

While it took some time, litigation with Credit Suisse with respect to certain auction-rate securities has finally ended, making ST whole by recovering an amount slightly higher than the full amount initially invested, plus lost interest and expenses.

Talking about the key facts of the past quarter, I wanted to briefly highlight that in June we began to have some challenges impacting our business and our manufacturing as a result of weaker demand and a much weaker-then-planned outlook for wireless products from one major customer.

This change in demand has and will, in the near term, negatively affect sales in discrete, energy and in the wireless JV, as well as our manufacturing, as I will discuss later.

Additionally, we saw some signs of softening demand in some of our businesses, such as digital consumer and microcontrollers.

Turning now to ST-Ericsson, there are several points I would like to make and they fall into three blocks -- legacy sales, new product traction and the timeline of the anticipated new product ramps.

First, with respect to legacy sales, the situation with the major customer of the legacy products portfolio is making the transition quite challenging, with Q2 sales down 10% sequentially and 34% year over year and first half sales also down 34%.

Taking into account the joint ownership, our wireless operating loss, excluding non-controlling interest, was $102 million in the second quarter.

Second, the quality of ST-Ericsson's product road map, to develop innovative solutions has enabled the company to gain traction with existing customers and to expand its customer base.

So, the focus here is on execution, delivering these new products to customers in the targeted high-growth smart phone and tablet applications they are addressing.

We continue to monitor how design wins will evolve with the existing and new targeted customers.

With respect to the third block, product road maps, ST-Ericsson new product momentum continues in the second quarters as they outlined, however, the initial volumes in the second half of the year for their NovaThor U8500 platform will be lower than initially expected due to reduced demand at certain customers.

So, to conclude, we are firmly committed to support the execution of ST-Ericsson business plan as we continue to believe in the (technical difficulty) recovery of this (inaudible) and positive operating cash flows.

At the same time, being conscious of our responsibility to our shareholders, we will continue to monitor ST-Ericsson's business evolution and we will update you the situation on a regular basis.

Now, let's turn to further details on the second quarter.

ST's sequential revenue growth was driven by better-than-expected results in ACCI, specifically automotive and imaging.

ACCI had another solid quarter, with revenue growing 6% sequentially and 9% year-over-year, quarterly net revenues above $1 billion and a double-digit operating margin.

Our analog MEMS and microcontrollers business came in slightly below our expectations, principally reflecting customer demand changes and the adjustments relates to the supply chain disruption due to the situation in Japan.

Nonetheless, this is an area of significant opportunity for ST, both from a market share and profitability perspective, and we anticipate revenue returning to growth model from this quarter onwards.

On Power Discrete Products, net sales were in line with our expectations.

We did see continued good momentum for power MOS and IGBTs.

However, growth and profitability were negative impacted by lower demand, largely due to a major wireless customer.

This lack of revenues from this customer will continue in the second half and requires us to reduce production significantly in one specific fab, which is largely dedicated to these affected products.

Looking at the first half, ST's net revenues increased 5% in total.

However, net revenues from our wholly-owned businesses increased 17%, reflecting an improved product portfolio and continued strength in automotive, MEMS and microcontrollers and imaging applications.

Based on this result, it is quite clear that we have increased our market share in these areas.

ACCI first half revenues were $2.2 billion, up 13% compared to year-ago period.

ACCI posted a 60% improvement in its operating income.

AMM first half revenues increased by 27% to $1.5 billion and its operating profit has nearly doubled to $325 million.

PDP posted first half revenue growth of 9% and a 32% increase in its operating profitability.

In the aggregate, operating income for our wholly-owned product portfolio was $587 million for the 2011 first half, representing a year-over-year increase of 81%.

It is clear that all of our wholly-owned businesses have been delivering on plan.

With respect to our marketing programs, our progress is significant.

In the first half, revenue from our new 20 key accounts increased 35% compared to the year-ago period.

In the mass market, net revenues were higher by 26% for the same period.

This strong progress is thanks to the advances with are making with our product portfolio and marketing initiatives.

We are strengthening our opportunities for the mid term with important new products and design wins in our targeted growth applications.

For instance, in automotive, we earned a key design win for a dual-clutch transmission controller that will help auto companies to reduce fuel consumption.

In CCI we have collected multiple design wins, including one for Ciena for an ASIC manufactured in 32 nanometer process technology for a metropolitan area network application.

In energy management and saving, we started production of a solar battery charger for mobile phones and other small popular devices based on an innovative technique for collecting the maximum possible energy from solar cells.

Now turning to our outlook for the third quarter, looking at the semiconductor market environment more broadly, we believe that there is -- that there has been some sort of inventory build in the first half, following the Japanese national disaster.

This adjustment to the supply chain, but it seems that the industry to more normal conditions.

However, when we look at the overall economic situation in different countries and regions, we think some caution is appropriate as visibility is reduced.

As I discussed earlier, we did see, in June, a much weaker than planned outlook for wireless from a major customer concerning ST and ST-Ericsson and we have moved, without delay, to lower the production levels for the related products.

This actions would result in wide level -- in a high level of unsaturation at a few of our fabs during the third quarter as we reduce production output.

Overall, we anticipate net revenues to evolve sequentially about negative 5% to positive 2%.

The more material effect falls on our gross margin due to the temporary high level of unsaturation, leading to a gross margin outlook of about 35.5%, plus or minus 1 percentage point.

So, to summarize, both the second quarter and the first half demonstrate the progress ST is making with its wholly-owned businesses.

Our marketing initiatives have broadened our customer base, regional presence and industry diversification and we will continue to focus our efforts in these areas.

As a consequence of the recent change with a major customer and the softening of demand, we face increased challenges over the near term, which we are dealing with aggressively.

Beyond the near term, we remain optimistic as we are confident in the product leadership potential for ST-Ericsson on top of the improving position of our wholly-owned businesses.

Now, my colleagues and I will be happy to take your questions.

Thank you.

(Operator Instructions).

The first question is from Mr.

Gareth Jenkins of UBS.

Please go ahead, sir.

Yes, thanks for taking my question.

I guess just a couple on utilization rates, if I could.

I just wondered what the utilization rates you expect in Q3 versus Q2 and I just wondered, given the change in wireless, whether you feel that you can actually re-point some of the lines of under-utilization, so some of the factories, can you re-point them to some of your other areas that are seeing stronger demand?

And maybe the timing on that?

Thank you.

Yes.

Well, basically has happened in June is a drastic reduction of the outlook from our major customer and we have decided to take a strong move in our fabs to reduce loading and Carlo will comment on this.

Today, the visibility that we have is that we plan to have a correction quickly and we are trying to absorb the negative bubble from Nokia during the course of the third quarter, in one quarter, but it may take two quarters.

I think this is a -- of course, is a significant reduction compared to what we expected and we decided to move aggressively in our fabs.

We definitely (inaudible).

We have a number of important opportunities to replace these products for our major customer with different products in wireless and also in non-wireless applications.

The plan is to do this in one quarter, in Q3.

As a word of caution, it may take two, but we are, of course, determined to do this in the third quarter and in terms of fab utilization, Carlo will give you the exact figures for the third quarter.

Good morning, good afternoon, everybody.

The data point is starting from second quarter with a utilization rates that have been, in average, in the range of an 87%, so already not perfect and we expect in the third quarter utilization rate, in average, to go in the low 80s.

And you may expect, as a blended average, that some of the most concerned fabs will run -- are running this quarter at much lower utilization rate.

Overall, the impact to the gross margin in terms of unused capacity charge is expected to be (inaudible).

The impact that we do anticipate is just below 2 points of negative impact to the gross margin.

Thank you and just to follow up on that, Nokia talked about stabilization at the end of June and into July and I just wondered if you'd seen any signs of that stabilization subsequent -- past the end of the quarter?

Well, of course, our major wireless customer is impacting ST-Ericsson, but is also impacting ST on different products.

I want to make clear we understand about those products.

In fact, there are three.

One block of products is, of course, the wireless products from ST-Ericsson.

The second block of products is certain discrete products that we manufacture in one facility that is also (inaudible) somehow to run this technology.

And then we have the third family that is our imaging.

We see a significant reduction on certain of these products during the course of Q3.

So, on these products we do not see, yet, a stabilization.

Of course, we expect them to go back to more normal conditions during the course of Q4 while on other products, particularly on the wireless products with ST-Ericsson, we are starting to see the same sign of stabilization, also (inaudible).

Did you have a followup, Gareth?

Yes, I guess the followup is just a follow up to that one, which is just do you foresee it's maybe lost market share within some of your key customers or is it just the share weights of their shift down in production numbers themselves?

No, of course, I think in our -- what we have defined here as a wholly-owned business, (inaudible) we believe that it's up by 17%.

I think definitely gaining share.

There is no doubt that we are losing share of wireless, but due to the transition and also to the glitch at our major customer.

I believe there is no doubt that we are gaining share in other areas, given the performance in the first half and also the prospects that we have from the second half.

So overall, we expect that now in the core business we will gain share this year and we expect to significantly improve our operating income, moving from 2010 to 2011 from the core business of ST.

Thank you very much.

Thank you, Gareth.

Dino, we'll take the next question, please.

Next question from Mr.

Kai Korschelt of Deutsche Bank.

Please go ahead, sir.

Yes, good afternoon.

First question, again on the gross margin, I think you said the under-utilization hit is about 200 basis points.

Now even if I adjust for that, it looks like sequentially the gross margin is still down 80 basis points Q3 versus Q2 at the mid point of your guidance.

I mean, I'm just wondering what drives those effects.

Is it mix?

Is it pricing pressure?

If you could, maybe give a bit more color on that.

And then the other question was on consumer.

I mean, you clearly seemed more upbeat on the consumer segment in the second half, particularly with set-top box ramps and display port and the like.

So I'm just wondering what has changed, which areas.

Is it set-top box?

Is it delays in new product ramps?

Is it TV?

If you could just maybe give a bit more color on that, please.

Thank you.

Yes, so here I think Carlo will -- Carlo Ferro will take the first question and Philippe Lambinet.

Your first question, Kai, is about the gross margin dynamic from second quarter to third quarter and, indeed, you are right.

The unsaturation charges are not sufficient to justify the 250 basis point decline to go to the mid point of our guidance.

Another ingredient, which in this case I would expect to be less a surprise, is the exchange rate impact.

The exchange rate has been somehow mitigated in the first half of the year by the hedging.

This quarter the exchange rate plays some 60, 70, 80, this order of magnitude, basis point negative impact to the gross margin dynamic.

So you see that the exchange and underloading themselves at the end make a quarter-to-quarter change in the gross margin.

On the other dynamics, what we expect for the quarter?

We expect some usual or even less-than-usual price dynamic.

We see some improvement in the product mix.

Product mix this quarter is a positive contributor to the margin dynamic and, of course, we expect a lot bigger contribution from efficiency, also taking account that the overall situation of the fab is not helping, also, the overall wafer cost at these facilities.

Yes, this is Philippe Lambinet, taking the question on consumer.

Well, the -- we're still upbeat for the second half of the year in the sense of gaining market share, introducing new products and gaining momentum in a lot of applications, including display port, as you mentioned.

The situation at the moment, Q2 and Q3, is that the market is pretty unfavorable and is decreasing quite a lot versus last year.

That's a temporary inventory correction.

In fact, our sales are decreasing less than the market, so we, even in this tough situation, we believe we are gaining market share with our products and we still see a ramp up of new products happening in the second half of the year.

Now, this said, and, as Carlo said, the market situation is quite poor at the moment with inventory that was created at the end of last year and in Q1 in the marketplace and until that inventory correction is over, we will suffer from quite a low level of sales.

We believe that correction will be over at the end of Q3 and we, therefore, believe that the end of the year will see sales in the consumer markets picking up.

This is not an ST-only problem, this is a market situation and we need to go through that inventory correction before sales start to pick up again.

But, again, we remain confident that the adoption of our new products is going, actually, quite well.

And is the market weakness more TV or set-top box or both?

It's actually both.

Okay, thank you.

Thank you, Kai.

Dino, next question?

The next question from Mr.

Janardan Menon of Liberum Capital.

Please go ahead, sir.

Yes, hi.

Thanks for taking the question.

I was just wondering in your revenue guidance, which is down 1.5% quarter on quarter at the mid point, can you give us a bit of color as to where you see that weakness?

Would it be that you are guiding wireless down and everything else slightly up?

Is that what you're baking into that?

Or would you be guiding some of the core, full-owned business down as well?

Keeping in mind, also, that ST-Ericsson told us that they're looking at a flat sale, but because there are some R&D sales coming down, $14 million in that, they would expect for the SAM portion of it to be up quarter on quarter.

The other thing which, just to clarify, is in the PDP division, can you just give us what percentage of the revenue is coming from the major wireless customer, please?

Okay.

So Carlo Ferro will take all of these and will give the proper indication of the growth or decline drivers for the third quarter, including the weight of our discrete business on our major customer.

Well, on your first question, Janardan, I really thank you.

This is a very good question, since hard to elaborate.

The mid point at minus 1.5, indeed, is a blended average, reflecting different trends by applications.

The most (inaudible) sales decline we are experiencing sequentially is about the imaging business, the camera modules, and there this is driven, mostly, by two wireless customers that represent the large majority of the sales of our imaging business.

Still on the negative sequential trend we have the consumer business, as Philippe has elaborated, driven by market demand.

In computer and communication infrastructure, you are aware of the (inaudible) about the progressive phase-out for [ARM], the system on chip for storage at a given customer, and this is really Q3, the quarter where we see no longer revenues of system on chip for this driver, this customer.

The automotive business after 10 quarters of very sustained growth in a row, is now expecting to substantially flatten in the second half of 2011 and you know that PDP will experience some negative seasonality in the third quarter for automotive, given the summer period at European manufacturers.

And this is covering those areas that contribute negatively to the revenues sequential dynamic.

We have two positives.

We have two positives that are important.

One is in the analog MEMS and microcontrollers.

Here we expect that -- we are expecting growing sales in MEMS and in the analog products.

And the other that you have correctly mentioned is wireless.

Wireless this quarter is anticipated to grow for ST.

And thanks for having this detail.

You eventually don't see it in the ST-Ericsson revenues due to these reported revenues for R&D services that ST-Ericsson reports as revenues.

ST reports it to offset the research and development expenses, giving accounting rules, consolidation rules and this change from second to third quarter is such that at the end, the flat dynamic of revenues for ST-Ericsson is a combination of growing in the sales of the products, but missing this portion of R&D services, while in ST you see only the growing -- in ST revenues, you see only the impact.

To complete the picture on power discrete, power discrete is sequentially expected to be between flat to slight growth, not big -- a bigger contributor of change, quarter to quarter.

And then, having offered a very extensive answer to your first question, you will forgive me for being much shorter on the second question as, obviously, we are in a situation this quarter that the major customer revenues are no longer reported, since sales to Nokia are below 10% and, frankly, how to refrain from reporting it on specific -- on a specific division.

However, what is evident is that for imaging and power and discrete the impact of wireless is the most important driver of the revenues dynamic as we expect for the current quarter.

Thank you very much for a very detailed answer.

Just one small clarification is on the imaging part where it is a bit confusing when you're saying that Q2 was actually quite strong and Q3 it's one of the weaker segments in your revenue outlook.

So what was the reason for the Q2 strength?

Because your wireless customer was already weak in Q2?

Well, (inaudible) we are just reporting.

I think we see an important decline during the course of the third quarter.

I would say it's making the difference in the quarter.

It is a significant decline in the quarter and is concentrated on to these customers while in the course of the second quarter we have experienced, as always, a good, strong growth, but also a good profitability.

And, in fact, this business is more robust and even at lower levels we are confident that we will maintain a good utilization because of the third quarter.

But the top line, the top line decline in the course of the third quarter is material.

Thank you very much.

Thank you, Janardan.

Next question, Dino?

Next question from Mr.

Sandeep Deshpande of JPMorgan.

Please go ahead, sir.

Yes, hi.

Thanks for taking my question.

I mean, can I ask one more, I mean, higher level question?

I mean, historically, I mean, ST used to always say that we would try to create a product mix which would do 40% gross margin.

I mean, you've stepped back from saying that recently.

But, I mean, even through this huge semiconductor up-cycle, we did not see ST move towards a 40% gross margin company.

Can you think of doing some changes in the product mix, which will make this happen, given the, I mean, kind of move towards the kind of margins ST has historically aspired to?

That's the first question.

And then the second question I'll ask on the cost structure itself.

I mean, clearly you're taking action at this point on reducing the loading in the fabs.

I mean, are you going to take any other cost actions?

Carlo will take.

So, Sandeep, the first part of your question is about gross profit at 40% and, frankly, we've been making that -- regretting the 10 basis points we have missed in Q4 last year where we were at 39.9.

But apart of that, I see the point about really the intent of bringing the margin structure, really, at higher level than the current level.

And, indeed, the respect, the contribution of a new product is the most important driver.

I believe we have talked about that at the call in April and, indeed, respect there is a wave of new products to come in the area of ACCI, namely in the digital consumer part, and, most importantly, in terms of overall weight in the area of wireless.

And this is, how say, the next set to contribute to a gross margin expansion for the overall ST Group, together with the continued improvement in the area of the analog products and MEMS, whose gross margin is already well above that average target.

And I think that the major opportunity we have for gross margin increase is definitely wireless.

I mean, if you take the -- we do not report gross margin by segment, but if we look at the gross margin situation of the ST fully-owned business and the gross margin of ST-Ericsson, there is a very significant difference between the two different figures and the opportunity that we see with ST-Ericsson, of course, is also replacing the legacy products that are experiencing today poor gross margin results.

I had a question on the cost reduction, also.

On the cost reduction, I can give you some more color on what we do.

Clearly, we don't simply stop loading the fab.

It's one thing, obviously, but we are also taking cost measures like the most affected fab, by the turnaround of our major customer situation, we are shutting down actually and putting people in forced vacation two weeks during the summer and maybe more.

This is affected -- this type of measure is affecting a few of our fabs.

We are also, obviously, on those affected fabs, not renewing the temporary contract and interim contract that workers, origin workers that we are using at those fabs.

Those are the two main measures to immediately tactically save costs.

And more structural measures that we didn't talk too much before, we have decided to accelerate a major program in material cost saving.

I mean by that, migration from gold to copper, as you probably saw the rise of the gold price, okay, which is really impacting our product cost.

The gold is, I think, reached a high level record recently at $1,600.

So we are aggressively leading that conversion to gold.

And we hope -- not we hope, the target is to have the major -- the bulk of our savings this year kicking in Q3 and in Q4.

So they're ahead of us.

So that's basically -- I cannot -- I don't want to give you an exhaustive list of everything we do, but those are the two main tactical and more structural actions that we are undertaking.

Thank you.

Thank you, Sandeep.

Dino, next question, please?

Next question from Mr.

Simon Schafer of Goldman Sachs.

Please go ahead, sir.

Yes, thank you very much.

My first question, actually, was going on back on the imaging business.

I guess I'm just trying to gauge the risks as what we could be looking at in terms of profitability or losses, given the customer concentration.

I think you went through a period when you were quite close to breakeven.

Maybe you could update us as to where that business now is and what the risks may be, given the customer concentration, in terms of profitability?

Thanks.

Yes.

Philippe will take this.

Okay.

Yes, as you know, this business is today concentrated mostly on two major customers.

Now, it's not concentrated on any particular segment at those customers, so, unlike ST-Ericsson, we continue to enjoy some good sales in the mid range and entry level of those customers, as well as the high end.

So we have a much broader mix.

And, in fact, the impact on imaging sales isn't as dramatic as on the legacy products of ST-Ericsson, which are being replaced by platforms.

So at the end of the day, yes, this business is being impacted at the moment, but also enjoys some good diversification from new accounts.

So at the moment, the profitability is two digits and has been stable at two digits for a few quarters now and we continue to see tremendous opportunities for margin improvements and we continue to see a good level of profitability, going forward, even though the level of demand has reduced during the course of Q2.

At the end of Q2, we have seen a demand for Q3 and Q4, which is lower than what we had anticipated before.

So, even with the lower level of demand, the profitability remains absolutely sustainable.

Okay, thank you.

And my follow-up question would be on ST-Ericsson.

Just, maybe Carlo Ferro, maybe you could just give us a reminder of how you, as a parent company, think about potential options to fun this joint venture, just because the operating loss, obviously, still challenging and the financial position still a question, as well.

So maybe just revisit the mechanics as to how the funding will work for that joint venture?

Thank you.

Yes, Simon, we said last quarter that ST and, I believe you heard similarly from our partner, is committed to support this value-generation opportunity at ST-Ericsson.

The form we do is through a parent facility, which is progressively expanded in respect to the additional need of cash funding of ST-Ericsson.

At the end of the second quarter, the size of the facility committed was $500 million, out of which a draw amount has been $445 million.

In the third quarter we expect to expand such facility.

Understood, but, Carlo, I'm sorry, just in terms of mechanics, does that just get backed by your cash balance?

Or what is the funding mechanism?

In this case, this is a very nice question.

It helps to explain that when reading the (inaudible) you find the ST-Ericsson use of cash at 100% of its total amount.

For instance, we have -- ST-Ericsson has reported, I guess publicly, a negative cash flow for the quarter of $267 million.

ST has reported a negative cash flow this quarter of $250 million, taking 100% of the ST-Ericsson use of cash, while the portion of the cash flow which is funded by our partner is not visible in the overall cash flow and the result as an external debt of the ST Group.

This is one of the additional implications of the accounting mechanics to consolidate ST-Ericsson under the (inaudible) methods.

Frankly, we don't want to add for you complexity on reading our number.

The best is to fix the verticals and to turn these big numbers to be positive.

Okay.

Thanks so much.

Thank you, Simon.

Next question, Dino?

Next question from Mr.

Didier Scemama, RBS Capital.

Please go ahead, sir.

Yes, good afternoon.

A couple of questions.

First of all, going back to imaging, I understand your largest customer is going down and it doesn't feel like it's going to go up any time soon, at least the business that ST has got, since they are transitioning to different platforms.

So correct me if I'm wrong, but it doesn't feel like the longevity of the -- the life of this business is, going forwards, particularly attractive.

Secondly, your other customer that was meant to ramp, obviously delayed, but, as far as I understand from other customers -- other suppliers on that platform, is meant to ramp late Q3, Q4.

So do you concern that, and, therefore, should we see an improvement in Q4?

And, if not, why not simply shutting down that business, which seems the most reasonable thing to do, given the outlook for those two particular customers?

And I've got a second followup after that.

If you look at the last 15 years, ST's product road map has been, more or less, decided, to a large degree, to the benefit of Nokia.

In fact, many of your capital allocations when it comes to the flash memory business, the camera modules business, the PSD production business, have been dictated by Nokia.

As Nokia is no longer 10% or more of your revenues, why -- what's going to drive your road map and will you have a more disciplined capital allocation decision in the future to avoid the situation we are in today?

Thank you.

Well, I take the second one and then Philippe Lambinet will comment on the first one.

Well, the history, of course, with Nokia for us is a long history.

And if we look back to just the few last years, I think Nokia did represent two years ago 18% of our revenues, last year 14% of our revenues.

In Q1 we still had 10.5% of our revenues and for the first time, after so many years, in the second quarter, we will not disclose because it's going to be below 10%, is below 10%.

And I think, of course, the major, let's say, initiative that we have in place and that we had in place and that we are aggressively pushing is the diversification of the customer base.

This is particularly important in wireless, but, of course, is important for ST and I have to say that we are now almost back to a very normal situation where, of course, Nokia is a major customer, but there are many customers like Nokia and I think from the risk point of view this something that is to our advantage and what we are trying to do, of course, is to absorb this important negative glitch following the recent profit warning at the end of May.

We are trying to absorb this quickly.

We're trying to absorb this quickly by reducing the loading in Q3, but, of course, replacing the capacity with other products, with other technologies for different customers.

And I think the situation is going to be stabilized for us in one or two quarters, as I said at the beginning, and we will be entering 2012 with a configuration in terms of major customers that will -- with a better equilibrium and with less dependence on a specific major account.

So, again, the major action is on the diversification of the customer base, particularly in wireless.

As far as capital expenditure is concerned, frankly, our programs are not necessarily driven by Nokia.

Take this year, our major effort in the capital investment (inaudible) was in MEMS and we are growing the analog business by 25%, 30% compared to last year and definitely we had to support and particularly in the first half these growth opportunities that are materializing.

Then in my script here I mentioned the fact that we have identified 20 new key accounts to target and they are all important accounts.

Some of those names are glamorous names and in the first half of this year we grew, compared to last year same period, by 35%, which is an important growth.

So, again, capital investment, I think, is really not driven by a single customer.

As I said, this year the money is being spent particularly for MEMS and automotive and power and new products for ST-Ericsson, but not exclusively for the major customer, but for a much wider base of customers.

Now Philippe will comment on imaging again.

Yes.

Imaging delivers an operating margin which is above the average of the Company.

It contributes to loading Crolles in a very nice way and it's in process of diversifying its customer base, so I don't think it's time to talk about shutting down that business line, which is a good business line now.

And it's profitable.

It contributes to manufacturing efficiency and it's nicely -- by the way, it's nicely synergetic with a key growth driver for ST, which is sensors.

So there's more and more, as we explained in New York, applications where there's a mix of sensors, which can be MEMS or can be optical sensors, which contribute to a new lifestyle and believe imaging sensors have their place in that whole picture and we see a lot of applications for optical sensors beyond smart phones, beyond feature phones in consumer and computer and very important applications.

Now, it's almost important to notice that the level of investment, because you mentioned CapEx and our policy and things like that, the level of dedicated process development expenses is extremely minimal and the level of investment related to imaging is almost none.

So this is a business which doesn't force us to invest both in R&D process development or in CapEx to any large extent.

So it really -- it's not on the agenda to discontinue a product line which performs.

And for Q4 as a whole, as a company, do you think you are still in the process of digesting the inventory correction in the industry, as well as what's going on at Nokia or do you think that things are going to get better?

First of all, the visibility that we have today (inaudible) in terms of top-line evolution is good visibility.

We have important growth opportunities.

I think it's covering most of our product lines from IMS to digital consumer, from wireless.

So is an important growth opportunities.

Of course, considering the outlook on Nokia is somehow below what we had thought at the beginning of the year, but still very material.

So we have a positive view and -- which is important, because this is a positive view on the top line and this is driving many things.

And you're right, in terms of inventory adjustment.

As I said, we -- today the plan is to absorb all in Q3.

I mean, this is the plan that we have.

Of course, if additional measures will be necessary to be taken, we will take the measures in Q4, but today the plan is to do this in Q3.

This is what we have done, starting to establish immediately after the profit warning of our major customer.

Today this is our program and so the visibility for Q4 at this moment is good growth on many products and applications, including ST-Ericsson and hopefully no more corrections in the fabs and, on the other hand, if there is necessity to make another correction, we'll take, of course, the actions in Q4.

But today it's not part of our plan.

All right, thank you.

Thank you, Didier.

We'll take the next question, Dino.

Next question from Mr.

Odon de Laporte of Cheuvreux.

Please go ahead, sir.

Yes, hi, good afternoon.

Could you disclose the level of outsourcing, I mean manufacturing outsourcing, to foundries, if any in Q2?

And do you -- I'm surprised you cannot use outsourcing to mitigate, maybe, a lower demand from your key customers.

I would appreciate if you can shed light on this, please.

Thank you.

Yes, Carlo Ferro is taking your question alone.

And to this point, overall I'm glad the leverage of sourcing from foundries in second quarter is in the range of 13%.

If we look at the advanced CMOS technology from Q1 to second quarter, we have reduced by about 10 points the outsourcing.

Last quarter I believe we shared with you about 50% of sourcing from foundry.

In second quarter is 40%.

This portion of outsourcing will continue to go down during the third quarter.

And it was not possible to reduce further to accelerate production in outsourcing?

Of course, of course.

Didier speaking.

Outsourcing, the key driving factor of outsourcing is, of course, to build in some flexibility in our plan.

But, obviously, we cannot react overnight as we have the so-called notion of frozen window, even with our suppliers.

So, as Carlo said, we recognized late in the quarter that we had a certain weakness in our demand.

Of course, we reacted, but, as you can imagine, we first take some time to repatriate products and eventually, possibly, re-qualify some that have not run -- been run in our fabs, so we need to re-verify that the yield is okay.

And second, we have also to comply with our own partner contract that we have in place.

So that's why this takes a little bit of time to do.

But that's exactly what we do and this is demonstrated by the numbers that Carlo gave you.

Okay, thank you very much.

Thank you, Odon.

Dino, next question?

Next question from Mr.

Francois Meunier of Morgan Stanley.

Please go ahead, sir.

Hey, it's Francois from Morgan Stanley.

Thanks for taking my call.

Actually one question and I think tomorrow with Didier in London will concentrate mostly on that.

Thank you for the warning.

Yes, I know.

It's actually a big debate for the industry.

So, I mean, some people say that inventories are not too high.

I think what you're doing today is actually a good action, which is saying we've got inventories, which are too high, we are shutting the factories in part during the summer, which has a short-term impact on gross margins, but at least we are taking inventories down in case there is a problem later this year.

And I think that's a very smart move.

Now --

You are ready to take a job at ST, I think.

That's exactly what we do.

Okay.

Let's talk about this later.

The -- so, Didier, how long and what's your best guess in terms of timing?

Because if I look at ST in the past it usually takes between two quarters, maybe three, to clean up inventories when you are close to 100 days and I think that's where you are.

Is there any way to clean inventories faster?

Will it take, again, two quarters or more?

Will it be shorter?

What's your best guess?

Well, in our case, as Carlo mentioned before, we have two major phenomena to counteract.

First is, of course, inventory correction, but also to adjust to the new outlook of our -- of Nokia, of our main customer.

And the goal -- so that's a double pain, I would say.

However, we have taken really drastic action in a few of our fabs and the goal is, really, to try to execute, to swallow that, in one quarter, maybe two, maybe two.

So that's the internal goal is one.

It might extend to two.

This is the -- this is a window we are allowing ourselves to move into.

With the visibility that we have today, in terms of top-line evolution that, as I said before, is a positive evolution moving from Q3 to Q4 and with the actions that we are taking in Q3 in terms of loading, without any additional special actions to be taken in Q4 we will end the year with a stock turn at full cost that is above 4, right?

However, in case it's needed, we have a comprehensive plan to take another step in the course of the fourth quarter.

So, given the -- would it make sense, actually, to take an inventory write-down at some point just to make things go faster or do you -- you will still use the chips?

No, no.

We will use the chips, of course.

Yes, there is no reason to do that.

It's a question of volume, not obsolescence.

No, no, no.

The chips are good.

I mean, there is no risk of obsolescence at all.

I mean, these are good products.

It's just -- let's make an example.

Is -- we're even talking about discrete products, so it's really is products that are very good products, simple products.

There is absolutely no reason.

It's just an adjustment to inventory.

We are taking the adjustment in Q3 and we have a plan to go on to Q4-- is a material growth moving from Q3 to Q4.

We have to reduce the loading in Q3.

The plan today is to go back to a normal loading in Q4.

With this vision, we will end Q4 with spot turn at full cost that is above 4 times and, of course, we also have a contingency plan in case there is a more serious problem in the market.

We would be in the condition to take another adjustment during the course of Q4 and, of course, that is a very good period of the year to take it.

Okay.

Thank you very much and future more, Didier.

Okay, Joe.

Thank you, Francois.

Next question, please?

Next question from Mr.

Tristan Gerra of Robert Baird.

Please go ahead, sir.

Hi, thanks for taking the question.

Is it fair to say that the utilization rate decline in Q3 will continue to negatively impact gross impact in Q4, even if you achieve a more reasonable inventory level internally?

Well, Carlo will take this.

Yes, partially.

Of course, the most severe effect of underloading are the charges for unused capacity that are recognized in the quarter as incurred and it is fully embedded in the guidance for the third quarter gross margin.

Then, it's obvious that the quarter after you do not exactly restart on margin where they are, since you started with a wafer cost that overall is not optimal.

I believe we have several opportunities in 2009, no, to talk about this dynamic of the business model.

However, again, the recovery of the efficiency is much, much quicker than what Francois said earlier.

It is something that could be, I'll say, a temporary pain on the fourth quarter gross margin eventually.

Okay.

And then a quick followup.

The initial visibility that you have into Q4 seems to be positive.

Is it fair to say that your book-to-bill has picked up in this stage of the quarter?

Could you comment on that?

I think that we have some drivers that are -- some of the businesses we are in are very strong.

I would like to mention some of them.

I think, in general, we see a very strong momentum on MEMS.

I mean, in -- for a number of reasons, particularly related to the (inaudible) we did not grow sequentially in MEMS.

I'm talking sequentially, but, of course, year over year is a phenomenal growth.

But we expect now to go back in Q3 and Q4, to grow back to strong growth.

I mean, this is one area.

In general, I would say that another area is the power MOS, the IGBT.

We see important opportunities to grow in the second half.

As Philippe mentioned before, there are certain new products that will start hitting the market at the end of this year on digital consumer.

Today we have better visibility on certain new products from ST-Ericsson that will be sold during the course of Q4 and, therefore, we count on, of course, of the revenues.

So, there are drivers that where we have customer engagement, forecasts from customers, all those, et cetera, that is giving us the confidence to see a significant material step moving from Q3 revenues to Q4 revenues.

Okay.

That's useful.

And then a quick last question.

How should we look at the set-top box business longer term, next year?

Should we assume a continued year-over-year decline?

If not, what are the catalysts and what -- is there any area that could be exciting in that business for next year?

Philippe taking the question.

No, actually, we believe next year the market should come back to a normal pattern.

We had absolutely abnormal growth last year.

This year we have inventory correction.

Normally, next year should be a good year.

Also, keep in mind next year there is the Olympic Games and the European football championship, soccer championship.

So these are usually factors that drive a good consumption of consumer products.

So, we believe next year should be a pretty good year.

We also have a good portfolio evolution towards higher-value products and we are quite successful pushing those products.

Now, this is for next year.

Longer term, we see an evolution towards even higher-end systems, home servers, which we believe is very interesting, home servers and gateways, which we think is very interesting for the digital consumer business moving on to even higher-value products.

So we may not call it set-top box any more five years down the road, but it's still a home video box, let's say, and that's where the business is going to go in the long term.

Short term, which means Q4 and next year, we think the market will recover and we think we have a good portfolio to address the market where it goes in the short term.

Great, thank you.

Thank you, Tristan.

Dino, next question?

Next question from Mr.

Jerome Ramel of Exane BNP Paribas.

Please go ahead, sir.

Thank you.

Good afternoon.

I'd just like to understand if you could share with us what the installed capacity in Crolles 300 millimeter and you mentioned that you have plenty of new product to replace the fading out of the system on chip for the hard-disk drive at Seagate.

Obviously, the CMOS sensor could be structurally done or, if I do the math, potentially $300 million or $400 million of revenues could disappear.

So, what are the new products which are going to replace that?

And what are the products which could fill Crolles 300 millimeter?

Carlo, start with the capacity, right?

Right.

The capacity, depending on the mix is between 3,200 to 3,500 wafer starts per week, depending how we use it, Jerome.

Now the support of Seagate is 100% out.

So Seagate was not manufactured internally.

The Seagate SOC was not manufactured internally.

It was completely outsourced.

And then, of course, I mean, there are main blocks of products that and I focus on the VLSI activities in Crolles and in Rousset at this time.

And here we are (inaudible) lots of products.

Indeed, we have tremendous opportunities in everything that is embedded flash.

Embedded flash for microcontrollers, for secure microcontrollers, for automatic microcontrollers.

So this is a big block we see.

First of all, we have a history of performance during the last two years that is really great and with our 32-bit ARM processor and we see more opportunities, so this is an important block for us.

Then there is the so-called advanced analog and advanced analog, of course, is for the new products of ST-Ericsson, like the power management, the value frequency, but also the advanced analog is that we run at 12 inch or 8 inch but is advanced CMOS with analog features is also the companion chip of our MEMS and these are A to D, D to A kind of products that are in the same package as the micro machinery package to perform the overall MEMS function.

So this is a second important -- a second important block in terms of new products.

And then, of course, there is a third major block here, again now we're talking about the more traditional advanced CMOS kinds of products and to reach some of the new products here we have the thin modem from ST-Ericsson, of course in the future the LTE modem.

We have the NovaThor kind of solution.

We have all the set-top box products.

For instance, today we still have some legacy products that is completely outsourced and then, we have, of course, the digital TV solutions.

We have products for computer peripherals, the digital color printers that is a very successful business for us or digital ASICs for communication infrastructure.

So there is a long list of products in digital CMOS and advanced CMOS.

And the visibility that we have is a very significant portion of this will be outsourced, because we will not have -- we do not have enough capacity internally to run all of this.

On the other hand, thanks to the effort that we are doing on the technology development, we believe will have some significant advantage starting from the 28 nanometers using our fully depleted SOI technology that is giving a boost to the performance of the application processors, keeping a very, very low level of power consumption.

So, you see there's a lot of new products covering embedded, a number of high-memory solutions to microcontrollers, general power curve, secure microcontrollers, automotive.

There's all the advanced analog CMOS for MEMS and power management and radio frequency and the advanced CMOS for a long list of products.

Okay.

Thank you very much.

Thank you, Jerome.

Next question, please?

Next question from Mr.

Peter Testa of One Investments.

Please go ahead, sir.

Yes.

I was hoping to help -- you could help us understand the power of the underlying trends versus the inventory correction piece.

I mean, given that you're close to 100 days of inventory and you're aiming to get, say, closer to 90 days of inventory, obviously that would be very challenging to happen in one quarter, but it would suggest that your underlying trends sequentially are somewhat better that you're indicating.

And I was hoping you would help us understand what the underlying trend was, separated out from the inventory correction?

And the extent, if you looked at certain end markets outside of the mobile phone industry, the extent to which markets are performing better, which end customer industries, please?

Well, in terms of end-market trends, first of all, let's talk about cellular phone market.

I mean, we are exposed to our major customer in Europe, but we have ample opportunities with many other customers here.

Some of them are very successful customers and, of course, we have a good visibility of what is happening at these customers and we believe this is a positive trend.

One word on automotive.

Automotive this year, on automotive products, we will grow between 25% and 30%.

It's a significant growth because this is following 2010 where also the growth was significant.

And the feedback that we have from the customers of our customers -- we talk directly to the car makers -- is not bad at all.

I think we see some slowing down of the growth in China, but, in general, talking to our -- to the car makers we have positive feedback in terms of prospects for the second half.

And we are -- what we see is a flattening of our business.

There is some adjustment is at the level of the equipment makers, but the underlying, the automotive market, talking to the car makers, the view is not bad and so it's truly positive.

The weakness that we see, we already mentioned, is really on the consumer market, at this point.

It's really on the (technical difficulty) and the set-top box.

So this is a little bit a lack of drivers this year.

But this is an area of weakness for sure.

And then I think at certain distributors there was a move during the course of the second quarter to increase inventory, also, to face the challenges of the Japanese disaster and this is particularly in Asia and we see the need to have a correction of inventory position.

This is more the mass market.

However, again, talking to these customers they believe that this will be a correction concentrated in a quarter or so and then --

So, I'm -- of course, all of this is in a frame with a macroeconomic environment that is not great as you know better than us.

And we all need, somehow, to be -- to work with some caution here.

But I tell you what is the visibility that we have.

I mean, while there's no black and white, (inaudible) the cell phone customers, digital consumer is weak.

The fundamentals on automotive, we believe, is pretty strong.

We see the mass market in Asia some adjustment and maybe there are some (inaudible) to face the disaster in Japan and so with this we'll cover all.

Maybe to ask it slightly more explicitly, you're guiding minus 5 to plus 2 sequential revenue.

A good chunk of that is inventory reduction, maybe even all of the minus 5 could be seen as inventory reduction, given the inventory day reduction that you are seeking to achieve.

You've also described some segments which in themselves are not having their best moment.

What is coming through to restrain the sequential development to minus 5 to plus 2, given how much inventory reduction you're engaging in.

What are the big positive drivers to offset some of these factors in the third quarter?

Yes, I think maybe Carlo can mention the main drivers for the third quarter and again underline what are the opportunities that we see in the third quarter.

Yes, back to the outlook, to the prior question, we have in our quarter the contribution of several areas of revenue expansion.

One is the analog MEMS microcontrollers.

In this area MEMS and analog are growing in phase sequentially.

Then, as mentioned, wireless.

Wireless on the fundamental space of product will grow this quarter if compared to the prior quarter and to a lesser extent, also, the power discrete is expected to be between flat to slight growth.

Then Carlo elaborated about the situation of our automotive where at the end our third quarter is more characterized by seasonal impact for the summer season in Europe and then we have said areas like imaging and computer and consumer, sorry, that are affected by fundamental demand these days and in computer it's very specifically related to a specific product with the specific customers and with the seasonal (inaudible) area we have made (inaudible).

So you see, again, as you said rightly that the mid point is an average, somehow hiding some growth areas that are the MEMS analog, the ST-Ericsson business for revenues from product, to some extent in the PDP the power MOS and I (inaudible).

Okay.

Great.

Well, thank you very much.

Thank you, Peter.

Next question, Dino?

Next question from Mr.

Glen Yeung of Citi.

Please go ahead, sir.

Hi.

This is Delos for Glen.

Thanks for taking my question.

I just wanted to touch again on the automotive market.

It was a source of strength during the quarter, but it sounds like expectations have kind of come in a bit.

Can you talk a little bit about what your customers are struggling with in terms of finding components?

Are there shortages of oversupply of any particular ones?

And what products of yours are you seeing strength in?

No, I mean, it seems that very initially what we saw is clearly a stress and a tension in the microcontroller world, as far as automotive is concerned.

That's obvious and for obvious reasons, as you probably know, right, driven by one single supplier in Japan.

And it seems that the situation has resolved now as we are entering in the third quarter.

Let me also mention that, as we were hoping and it was a bet that we took three months ago, we were hoping to gain market share in that space and we actually did.

We signed a few significant contracts with big customers, but unfortunately, we will see most of the revenue kicking in late this year and, most probably, next year in that space.

I don't know if I answered your question.

Yes, thank you.

Thank you, Delos.

Next question, Dino?

Next question, Mr.

Cody Acree of Williams Financial.

Please go ahead, sir.

Hi, guys.

On the consumer side, you pointed really to just an inventory correction, not necessarily a weakness in demand.

And we've heard a lot of different takes on that during this earning season.

Can you talk about what gives you confidence that that's not an end-demand-driven (inaudible) could continue on May the 1st?

Well, the biggest part of our business in digital consumer is set-top box and we talk to the operators.

So we talk to the customers of our customers and that gives confidence that the demand is still there.

There is a need for new boxes, new products and they're introducing new services.

So we see that once the inventory correction is over, the demand should pick up again.

On TV, of course, our market share is much lower, so the impact on ST is not as important.

But we also see that with the significant sport events of next year the demand should be pretty strong.

And then just secondly, on NovaThor, the reduced demand outlook that you're seeing, outside of Nokia, what else is going on at ST-Ericsson that would see reduced demand for NovaThor?

Well, of course, this is more specific and maybe it would be more appropriate to talk to ST-Ericsson, but, as I said, in general we see good traction on these products at several customers.

NovaThor, the 8500, but also for the so-called thin modem for the -- it's, I think, a 21-megabit per second modem and we see, as I said, good traction at several customers.

And a wave of new phone models, mostly on Android.

From these customers there is an (inaudible) the NovaThor of the thin modem.

I would not comment on reduced visibility on other customers.

What we see is more opportunities, frankly.

I mean, then any ramp up has challenges, but we see a wave of (inaudible) and, of course, we are keen and anxious to see if these opportunities transform in revenues quickly.

But I would say that we do not have any -- really any bad news here from the other customers.

There is a significant reduction at a significant customer and -- compared to what we had in mind, but in terms of diffusion and design wins, particularly in the Android world, I would say this is pretty positive.

Thanks, guys.

Thank you.

Thank you, Cody.

We'll take one more question, please.

Final question for the day is from Mr.

Niels de Zwart of ING.

Please go ahead, sir.

Good afternoon, gentlemen.

My question would firstly be slightly going back to the inventory correction.

You mentioned you, of course, see a need to reduce inventories related to Nokia and also in the consumer space.

Are there any others you see needs to reduce inventories, either at yourselves or within the chain?

And my final question would be on your operating expenses.

Could you maybe help us a bit on what you're expecting for R&D and SG&A going into Q3 and maybe Q4?

Yes, so Carlo Ferro will take the second one.

And I did mention, in fact, a third element on top of Nokia and digital consumer.

It's some correction at certain distributors in Asia where we saw, probably due to the reaction to the national -- to the natural disaster in Japan we saw some -- probably some speculative orders and, of course, they need to correct that.

So those are the three things that we did mention during the conversation today.

I would not say anything else.

This is what we see today.

There is nothing else to mention in terms of inventory corrections.

I think that's it.

I mean, these are the main points.

On the operating expenses, the sequential dynamic, maybe to answer the question I have to go back to the prior point I have made about the R&D services that ST-Ericsson for 2011 sold externally.

And while you see the impact in revenues at ST-Ericsson, they go to offset R&D expenses in the ST console.

As anticipated, these will not continue on the third quarter.

So there is an amount and this amount is about $40 million of R&D expenses offset that ST-Ericsson benefits from in Q2 and will not be the case in the third quarter.

Apart of these effects, I will say net of these impacts, the ST operating expenses will stay substantially flat or will be -- you'll see a slight reduction in Q3, talking overall about SG&A and R&D.

Okay.

To be clear, you're guiding that your R&D expenses line could go up by a bit less than the $40 million, which was the revenue foregone by ST-Ericsson in Q3?

Yes, my point is, I'm talking overall SG&A and R&D expenses for the ST console and they can go up by $40 million or slightly less than that, thanks to (inaudible).

Okay, thank you.

Thank you very much.

Thank you.

Thank you, Niels.

I think at this point we'll go ahead and conclude the call.

And, Carlo, if you'd like to make a closing comment?

Well, I think, as I said, at the end of May, then, of course, we have been working on this during the month of June, we had this bad news coming from our major customer, so we have been taking aggressive action in production to concentrate as much as possible this readjustment during the course of the third quarter.

This is mostly impacting the outlook and the expectation that we had on the ST-Ericsson and certain families like imaging, also, in ST and discrete, but it's mostly ST-Ericsson.

But the rest of the business, I think, is doing -- overall is a good year.

In the first half we grew 17% and this is definitely higher than the market growth.

We expect to grow faster than the market overall during the course of 2011 and also we expect to improve in terms of operating and on the core business of ST from the transition on ST-Ericsson moving from 2010 to 2011 significantly.

One other comment here.

We are observing that grief of our major customer.

This is material for ST.

We are doing this aggressively and I am sure we will do -- we will be doing this rapidly and successfully and I am pleased to see the result in terms of this function of the customer base (inaudible).

Of course, this grief of our major customer has an impact, but we are confident that we will be able to compensate with more customers in the near future.

Thank you very much.

Ladies and gentlemen, the conference is now over.

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

You may now disconnect your lines.

'Bye.