意法半導體 (STM) 2014 Q4 法說會逐字稿

Ladies and gentlemen, good morning.

Welcome to the ST Microelectronics fourth quarter and full year 2014 earnings results conference call and live webcast.

I am Moira, the Chorus Call operator.

I would like to remind you that all participants will be in listen-only mode and the conference is being recorded.

(Operator Instructions).

At this time it's my pleasure to hand over to Mr. Tait Sorensen, Group Vice President Investor Relations.

Please go ahead, sir.

Thank you, everyone, for joining our fourth quarter and full year 2014 financial results conference call.

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

Joining Carlo on the call today are Jean-Marc Chery, Chief Operating Officer; Carlo Ferro, Chief Financial Officer; and Georges Penalver, Chief Strategy Officer.

The live webcast and presentation materials 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 that 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 this morning and also in ST's most recent regulatory filings for a full description of these risk factors.

Also, to ensure all participants have an opportunity to ask questions during the Q&A session please limit yourself to one question and a brief follow-up.

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

Carlo?

Thank you, Tait.

Good morning, everybody, and thank you for joining us and for your interest in ST.

Today, I will begin with a summary overview and then Carlo Ferro will review our financial results in detail.

I will then turn to a discussion of our two product segments with Jean-Marc Chery reviewing our embedded processing solutions segment and Georges Penalver discussing our sense and power and automotive segment.

Finally, I will conclude with our 2015 goals.

So let's begin.

In December of 2012 we outlined a new strategic plan for ST based on our aim of being an undisputed leader in sense and power and automotive products and in embedded processing solutions through a more focused and market-driven portfolio.

And it was about moving ST to sustainable profitability with a solid mid-term financial model.

During 2013, our first year of execution, the focus was on making a major transition, the wind-down of ST-Ericsson on time and better than budget and the resizing of our operating expense base.

We well achieved both these objectives.

2014 was the second year of our new strategy implementation.

Overall, I believe it has been a year where ST has made significant steps forward along three main axes -- product and technology leadership, customer expansion and operational and financial performance.

Let's go through them one by one.

Product leadership is about ST focusing on the five areas we see as the most promising; analog MEMS and sensors, automotive, power and smart power, microcontrollers and digital consumer and ASICs products.

We have worked hard to refocus our product portfolio, de-emphasizing certain areas and redeploying our resources.

As a result, we have become a much stronger Company in terms of innovation and in time to market.

New flagship products in 2014 included, among many others, our 32-bit microcontrollers for general purpose and automotive applications, MEMS microphones and motion MEMS, touchscreen controllers, ultra high definition products for set-top box and the low voltage power MOSFET and IGBTs.

We are excited about the opportunities these products bring and I will ask my colleagues to discuss them in greater detail shortly.

Our product leadership is built on a unique strong foundation of proprietary and differentiated leading-edge technologies.

First, with our FD-SOI we have developed technology that makes the benefits expected of the next generation CMOS technology available faster with low power consumption and at a lower cost.

This is a value proposition that resonates with many of our customers and has resulted in a broad design win pipeline for ST.

Second, our Bi-CMOS and RF-SOI technologies allow us to develop solutions for high frequency applications such as in automotive radar, optical communications, wireless base stations and cellular phones.

Third, our embedded flash technology with outstanding low power characteristics is state of the art and one of the reasons for the continuing success of our 32-bit general purpose secure and automotive microcontrollers.

Fourth, our MEMS technology and manufacturing mastery enable us to develop a very successful motion MEMS business.

Now, our efforts are focused on leveraging this know-how into additional MEMS areas such as microphones and pressure sensors where we have had recent successes with major OEMS.

And last but not least, our smart power technology is second to none.

Our BCD technology, we are now on the ninth generation, continues to be a key differentiator in our power, industrial and automotive businesses.

Moreover, we have a number of other technologies such as vertical integrated power, silicon carbide, power MOSFET, IGBT and intelligent power modules, that are at the core of our power product and application strategy.

Turning now to customer expansion, in terms of diversification, the progress is evident.

Our mass market initiatives have been very successful.

Here, we increased the share of distribution to 32% of revenues exiting 2014 versus 27% one year ago.

In fact, our design wins to distribution increased 50% year over year and this is a very positive indicator.

Clearly, our microcontrollers, automotive products, industrial power and discrete products were major contributors to this success and there are a number of opportunities to drive a larger part of our portfolio to many more customers.

For example, many of our products contribute to enabling the Internet of Things.

Turning to our major OEM customers, we were very pleased with the solid performance in automotive, clearly visible with APG growing 8.3% in 2014 thanks to our innovative products.

On the other hand, 2014 remained a year of transition with respect to some of our consumer and smartphone customers.

Here, we anticipate the turnaround to come this year, thanks to the new products and functionalities we introduced to them during 2014.

So let me now turn to our financial performance.

In 2014, ST made solid progress on key performance and financial metrics.

Despite lower revenues we achieved a significant turnaround year over year with operating income improving by $633m, net income improving by $628m and free cash flow improving by $376m.

With respect to our mid-term financial model, we improved our gross margin and operating margins, and moreover we reached our operating expense model more rapidly than expected.

We also strengthened our balance sheet with the issuance of a $1b convertible bond.

So overall it was a year of sound operational and financial execution while maintaining our financial flexibility.

However, we are not where we want to be yet.

It is therefore urgent to make another step forwards in 2015 and we will.

I will now hand the call over to Carlo Ferro to go more in detail on our financial performance.

Carlo?

Good morning, everyone.

Thank you, Carlo.

You mentioned ST financial performance throughout the year 2014 was solid.

We made real progress despite softer-than-expected revenues progression and we met our financial outlook in each quarter of 2014.

In addition, we began to generate a positive net income starting from the second quarter and a positive free cash flow starting from the third quarter of 2014.

So 2014 was a year of progress.

Our net income had a significant positive swing, moving from net loss of $500m to a net income of $128m.

To be fair, we received a $96m pre-tax in [R&D grant] related to the prior year but the swing is still quite remarkable.

Our free cash flow increased to positive $197m from negative $179m.

Our operating margin before restructuring and impairment improved to 4% and 3.2% in the third and fourth quarters of 2014 respectively from negative in 2013.

We will now accelerate our efforts to increase revenue growth in 2015 and to move ST closer to the trajectory we want to be on, at or above $2b revenues per quarter.

The good news is that despite lower revenues we made improvement across the board in all the other key financial metrics during 2014.

Looking at our product portfolio, our three largest groups, automotive, industrial and power discrete and microcontrollers, memory and secure microcontrollers, MMS, represent 70% of our revenues and serve applications that are currently enjoying the largest growth in the industry.

In addition, they are delivering profitability margins well above the ST consolidated average.

Our fourth group, analog MEMS and sensor, at 15% revenues experienced a year of transition in 2014, pressuring profitability.

We are confident about the (technical difficulty) of this business, as you will hear later on in our sense and power and automotive review.

Our fifth group is the new digital product group which is the combination of DCG and IBP and represented 15% of our revenues in 2014.

Revenues decline reflected first of all the ongoing phase-out of ST-Ericsson legacy products, the market softening and accelerated phase-out of DPG legacy products.

This group is loss-making and, as you know, we made the important decision last year including the discontinuation of our commodity camera module business and the implementation of a $100m cost reduction initiative.

Turning to our results.

Revenues in 2014 were $7.4b.

In the fourth quarter they were $1.83b, well in line with our outlook entering the quarter, even a bit better.

As Carlo indicated, there were several areas of very good forward progress for the full year 2014.

MMS, representing 20% of revenues, grew 10.2%, APG at 25% of revenues grew 8.3% and IPD at 25% of ST's revenues grew by 3.6%.

In AMS, revenues decreased 15.6% while DPG in the current perimeter decreased by 43% including a $548m reduction due to the phase-out of ST-Ericsson products.

We continued to expand our customer base.

In 2014 our (technical difficulty) largest customers represented about one-third of the total revenues and none of them exceeded 10% on an individual basis.

Our large customers are important players in their industries, Bosch and Conti in automotive, Apple, Samsung and Microsoft in wireless, HP, Seagate and Western Digital in computer peripherals, Cisco in networking and Delta in industrial.

We are now in a different, less concentrated, less exposed model compared to 2010 when the larger customers represented about 14% of the total revenue.

But we are having to recover $1.3b of revenues lost with Nokia since then.

Distribution plays a more and more important role in the evolution of our customer base, not only because we can address a very diverse and large number of customers but also because ST can capture higher margin on sales through this channel.

In 2014, revenues from distribution increased about $200m and exiting 2014 they were 32% of total revenues.

Looking forward, we expect total revenues in the first quarter of 2015 to decrease sequentially by about 5% plus or minus 3.5 percentage points.

This evolution is better than our normal seasonality and takes into consideration the fact that this quarter we don't have the one-time licensing we experienced in Q4; in Q1, it occurred the Chinese New Year holidays; and, based on our accounting calendar, we have about 8% less days in Q1 versus Q4.

Moving to our gross margin.

During 2014 we expanded it by 140 basis points, thanks to manufacturing efficiencies as well as favorable currency effect.

Unsaturation charges, largely related to our capacity in digital technologies, have been a drag to our gross margin.

And unfortunately, unused charges will continue to significantly impact the first two quarters of 2015.

In that regard, looking specifically at the first quarter, ST gross margin is expected to be about 33.2% plus or minus 2 points and reflects still high unsaturation charges.

We estimate they will impact the gross margin this quarter by about 120 basis points.

Jean-Marc will shortly expand on all the actions we are taking to improve the loading of our 12-inch capacity.

We continue to make progress towards our mid-term gross margin target of 36% to 38%, driven by the completion of the conversion from 6-inch to 8-inch in our front end fab in Singapore, by the pruning of low margin products, including the phase-out of legacy ST-Ericsson products and the discontinuation of our commodity camera module business, by the improved saturation of the manufacturing capacity and the related manufacturing efficiencies and, importantly, by currency, which I will discuss in detail shortly.

A highlight of our progress has been with net operating expenses.

Here, we were quite pleased into moving in our target range which is, as you know, $550m to $600m per quarter, earlier than planned, as the fourth quarter gross operating expenses were $611m and net of the normalized grants they were $576m.

As we indicated last quarter, we are taking additional measures in our digital business to extract about $100m of operating expenses savings on an annualized basis which will take effect as we move through 2015, particularly in the second half of the year.

Turning now to the balance sheet.

ST has maintained a solid net financial position throughout the macroeconomic and industry turbulences, the difficulties with the joint venture, the cost to exit the ST-Ericsson joint venture.

This has enabled us to make the appropriate level of investment in capital expenditure.

CapEx totaled $496m in 2014, represented 6.7% of total revenues in the year and averaged 6.3% of revenues over the last three years, well within our target level.

Finally free cash flow in the fourth quarter of 2014 has been positive by $200m after $140m positive in the third quarter.

During 2014, we enhanced our liquidity by taking advantage of a very favorable convertible debt financing for the amount of $1b.

At the same time, we protected our equity shareholders from dilution by completing a $20m share repurchase program.

Also today, I'm pleased to note that our convertible securities are trading at attractive levels in the marketplace.

So really a win-win for us.

Finally, let me conclude this financial review with some comments on the currency exposure.

As you know, we have seen a dramatic shift in the euro-dollar rate, which today stands at about 1.13.

We have not seen this level since 2003 and this is a welcome, a very, very welcome change.

While a stronger dollar is certainly a tailwind for ST, please consider that ST hedges its costs.

We use a combination of currency forwards and collar options.

I'm sure you are interested in the projection of effective euro-dollar rate for the next quarter.

Maybe before a note as the Company has evolved its cost structure, revised sensitivity analysis and slightly adjusted the quarterly effect of plus or minus one percentage point of change in the euro-dollar rate and this is the effect on the cost structure before the short-term impact we experience on revenues.

Now the sensitivity model is $4m to $5m on gross profit -- this has not changed -- $3m to $3.5m on the net operating expenses, I mean net of the grants.

So a total impact on the EBIT of plus or minus $7m to $8.5m per quarter per percentage point.

So you will see the benefit of a stronger dollar but it will take a few quarters for the full effect to materialize in our financial due to the existing hedges.

Additionally, please note that 14% of our revenues is billed in Europe, so over time normally prices are adjusted to the US dollar equivalent amount, but due to the sudden shift that recently occurred it will take time to adjust.

On the other side, the good news is that the effective rate for the cost structure is dramatically improving.

Assuming the current rate, we estimate the effective rate for the next quarters to be 1.24 for Q1 2015, 1.19 for Q2, 1.17 for Q3 and 1.15 for Q4.

On this positive note I turn back to Carlo.

Well, thank you, Carlo.

Thank you for your comprehensive review of our financial results.

And now let's turn to our product segments, beginning first with the embedded processing solution segment.

This part will be covered by Jean-Marc.

Jean-Marc?

Thank you, Carlo, and good morning to everybody.

Our embedded processing solution segment is now comprised of two product groups, microcontrollers, memory and secure MCU, and the newly formed digital product group where we combine our former DCG and IBG organizations to create more focus in the business and to better leverage synergies between them.

Looking at the financial results for the EPS segment, revenues were $2.61b in 2014, down 20% compared to 2013.

This is largely driven by the wind-down of ST-Ericsson.

Excluding this anticipated decrease, EPS revenues were down 4.4% as a result of two opposite dynamics within this segment.

Turning first to MMS, the Group grew 10% in 2014, continuing its strong expansion, thanks to the general purpose 32-bit microcontroller family.

As a reminder, MMS is composed of general purpose and secure microcontrollers as well as EEPROM.

During 2014, we built on our 32-bit leadership with the STM32 general purpose MCU family, growing revenue over 50% year on year.

We expanded the product range with new low power and high performance families such as the industry first microcontroller based on the ARM Cortex M7, while strengthening the surrounding ecosystem with the launch of STM32 open development environment.

We had success across a broad customer base, including important wins in sensor hub applications.

In secure microcontrollers we maintained a solid secure element business while in the banking market we deployed the STPay Program, boosting support for the US switch to ID secure EMV chip payment cards.

For 2015, we expect that MMS will benefit from our investment in product innovation and ecosystem to further expand the STM32 family across a full spectrum of applications, enabling us to expand further our customer base.

In addition, we expect the deployment of new Flash-based dual interface secure MCUs for banking and ID as well as new identity EEPROM products to contribute to our revenue growth.

Let's now turn to DPG.

In addition to the $548m decrease in revenues from the wind-down of legacy ST-Ericsson products, DPG also saw a decline in the area of commodity image sensor products and in the set-top box business due to faster than anticipated decline of our prior generation products.

During 2014, we have made the decision to discontinue our commodity camera module business and to focus on FlightSense proximity and specialized imaging sensors.

Last quarter, we also launched a cost reduction initiative targeting about $100m in annualized savings.

At the same time, we focus on ramping up new families of innovative products.

This includes the Liege family of broadcast set-top box products in 40-nanometer, 32-nanometer ASICs for networking and our FlightSense proximity sensor which went into volume production with a major smartphone maker.

We also continued to focus our efforts on innovation and new products to boost our future revenues.

We introduced ultra-high-definition-P60-enabled 4K2K solutions in our 28-nanometer Cannes and Monaco families and started shipping to lead customers.

In addition, we won a number of important [sockets] with major operators, both for the area of cable and satellite.

We demonstrated full speed DOCSIS3.1 as key technology for cable operators.

Our RF-SOI technology progressed well and we received first design awards in 40-nanometer for networking.

In addition, we were awarded more than 20 new ASICs designs in BiCMOS, RF-SOI and silicon photonics.

During 2015, key products we expect to drive growth include the new product for set-top box and home gateway markets as well as a broad range of ASICs in 32-nanometer CMOS, BiCMOS and silicon photonics technologies.

If we look now into the margin profile of EPS, we significantly decreased its operating loss from $399m in 2013 to $103m in 2014.

The progress came, first, principally from the wind-down of ST-Ericsson; second, from the Nano2017 funding, including of course the catch-up funding, sustaining our effort to develop our differentiated technologies en masse; and third, from the benefits of 2013 cost reduction initiatives.

Our EPS operating margin mid-term target is confirmed at about 5%.

We will drive improvement in 2015 thanks to new product introduction in MMS and DPG, strong improvement in the manufacturing performance and of course the already-announced cost reduction initiatives.

Since I just mentioned strong improvement in manufacturing performance, let me conclude here with our manufacturing strategy.

Our core 12-inch fab is engaged in an important technology diversification strategy to better balance and optimize its capacity loading with a significant payback and much reduced unsaturation cost for the second half of this year.

Indeed, over the past two years we launched a set of actions (inaudible) to better balance them with our current product portfolio and of course to mitigate the short-term under-loading situation.

The exposure to advanced logic has been reduced and embedded flash for microcontroller and automotive has been qualified and starts production.

Therefore, we are now at a time where core 12-inch is under transition and we expect to see progressive improvement as we balance and optimize the loading of the fab.

Well, thank you, Jean-Marc, and now I would like to move to our sense and power and automotive product segment.

I think we are well positioned here from a technology perspective, from a product portfolio perspective and from a customer expansion perspective.

In short, we have many opportunities for growth.

Looking at our results last year, we saw excellent revenue growth in APG, well supported by IPD.

Moreover, we saw very significant improvement in the operating income and operating margin of SP&A on overall flat revenues.

And in AMS, where ST has shown strong leadership, we have the opportunity to return to a positive momentum in 2015.

So let me ask Georges Penalver to join us to review the results and plans for SP&A.

Georges?

Thank you, Carlo, and good morning, everyone.

SP&A represents about 65% of ST revenues with the three product groups.

It is managing four manufacturing sites, including our mega fab in Singapore that we are currently converting from 6-inch to 8-inch.

SP&A revenues were $4.77b in 2014, flat compared to 2013.

APG grew over 8%, broadly based across all applications.

IPD grew also close to 4% despite a softening in the second part of the year reflecting the market conditions.

And AMS revenues were down 16% due to low margin product pruning and product transition.

In AMS, microphones and touchscreen controllers, two recently added product families, both recorded very strong growth, becoming significant contributors to AMs sales during 2014.

The Group also pursued expansion in key customer and application diversification with a leadership position in MEMS for wearable devices, expanding from motion to environmental sensors, with the ramp of MEMS for automotive and the first design win for a combo motion MEMS for active safety.

On a regional basis it recorded strong growth in China where ST MEMS were adopted in over 60 new phone models from 12 companies during 2014.

AMS also launched the Open.

MEMS initiative towards the mass market, providing easy licensing for sensor fusion software.

The Group continued to innovate, introducing new technology such as Piezoelectric for micro actuation where we announced a partnership for a new smartphone autofocus application and, importantly, setting new benchmarks in motion MEMS with a new generation of 6-axis motion sensors with ultra low power and leading noise performance for the consumer market, as well as the industry's smallest 6-axis sensor, qualified for non-safety automotive applications.

Revenues for 2015 are expected to return to growth, boosted by this new generation of 6-axis motion MEMS with key customers and by continuing to ramp up automotive MEMS.

We expect further expansion of the touchscreen and microphone businesses, together with a wider adoption of environmental sensors.

Our STM32 Open Development Environment and Open Software Solution initiatives will help us address mass market and Internet of Things applications with products like our Bluetooth low energy solution.

Let's turn now to IPD, where we recorded solid growth in a number of applications, in LED lighting, digital and analog solutions, motor control ICs, IGBT and intelligent power modules for appliance and industrial applications and Field-Effect Rectifier Diodes to leading mobile phone charger manufacturers.

We also ramped production of high voltage rectifiers and transistors at a leading electric car manufacturer.

Among the many innovative best-in-class technology and products brought to the market by IPD last year, I would like to mention our power management chipset for servers, the galvanic isolation technology for industrial applications and our 1200 volt silicon carbide transistors.

The Group also expanded the automotive product portfolio with rectifiers, with IGBT silicon carbide diodes and thyristors.

Revenues for IPD will continue to grow in 2015 through customer-base expansion with important initiatives in distribution and mass market as well as through a wave of new leading products such as advanced low voltage trench MOSFETs for industrial and server applications, intelligent power modules for industrial, AMOLED power supply and power management ICs for smartphones, various components for RF applications and silicon carbide schottky diodes for servers, telecom and automotive.

Turning to the automotive product group, revenues in 2014 were strong, thanks to growth across all customers, including distribution, and across applications.

From a geographical perspective, we expanded our footprint with key OEMs whilst also strengthening our leadership in China in engine management, body and audio applications.

And our independent manufacturing strategy and secure supply chain helped us continue ST's strong momentum in Japan.

APG success leveraged ST technology leadership in power with VIPower in BCD products and expanded the portfolio of 32-bit microcontrollers, doubling shipments as design wins started to ramp.

In the infotainment area, APG introduced industry-leading digital radio, class D audio amplifier and global positioning products.

And in the very promising ADAS vision processor product family, the Group reached production maturity of the third generation and is now developing the fourth generation in FD-SOI.

In 2015, APG will continue to benefit from its broad-based portfolio strength and particularly from active safety products, thanks to growing penetration and new products in that market, as well as from gaining market share in 32-bit microcontrollers and growing in infotainment.

We also expect to further leverage our capability to support full system development to broaden the customer base with distribution.

From an operating margin perspective, SP&A had a year of great progress, reaching a 9.4% operating margin from 5.7% in 2013.

This was driven by improvements across a number of product families.

Entering 2015, the segment is pursuing further progress towards its operating margin target in the range of 10% to 15% by improving its product mix, by continuing expansion in the mass market and distribution and by improving manufacturing efficiency.

Now, before turning the call back to Carlo, let me comment on ST's effort in the mass market.

One of the ways to increase mass market penetration is to expand our customer base by growing the number of channel accounts.

Another key effort is on promoting leading applications and products through initiatives such as the STM32 Open Development Environment, exploiting our success in microcontrollers.

More than 80,000 STM32 Nucleo Development and Expansion boards were shipped in 2014 and in 2015 we will further develop this initiative and in addition, among other actions, expand our online presence with enhanced support capability for mass market customers.

Thank you and now let me give the floor back to Carlo.

Thank you, Georges, and let me just add that our mass market initiative spans across all the product groups and leverages the multiple synergies among them to serve growing applications to many more customers.

And the results were evident already last year, making us a leading player, present in many, many devices such as in the Internet of Things, as you can see on the chart here.

Before closing, let me share a few final comments.

First, allow me to thank all our employees.

It is their talent and determination that have enabled ST to come through the difficult transition in 2013 with the energy and the drive to turn 2014 into a year of good progress in terms of product leadership, operational improvements and financial performance turnaround.

We have developed process technology leadership second to none, introduced many new flagship products across our product portfolio and built on expanded customer base.

We see opportunities to continue to expand in automotive in the mass market where our design wins increased very significantly during 2014 and I am optimistic that this year we will see positive steps forward also with major consumers and smartphone customers.

Our path going forward is clear, return to growth and reach the cost structure that we have outlined in our financial model to continue to achieve year-over-year improvement in our financial performance.

And now my colleagues and I would be happy to take your questions.

Thank you.

(Operator Instructions).

Sandeep Deshpande, JPMorgan.

Thanks for letting me on.

I have a couple of questions if I may.

My first question is regarding analog and MEMS.

You have a major customer there which has had a very good quarter last quarter whereas you seem to be seeing essentially flatlining sales in analog and MEMS.

Can we try to understand the project -- rather revenue trajectory in that business and how that development will continue this year?

And secondly, in the digital -- in your newly merged digital convergence group, the revenues are lower than they were -- than the disappointing second quarter of last year.

So how -- and this was a revenue business which was expected to more than double the revenue so can we understand the project trajectory here as well?

Thank you.

Yes, thank you, Sandeep.

I think we already described during the course of 2014 and even today, 2014 was a year of transition for our AMS business.

And on one side, we had some reduced revenues in the area of our traditional motion MEMS, on the other side, the introduction of new successful products like the microphone MEMS and our new touch solutions.

Moving on in 2015, we want to be successful with major customers, with the new products and with our traditional products.

I think we have all the ingredients to be successful here and clearly we see AMS as an important driver for growth in 2015.

We also want to be successful in our diversification effort.

I have mentioned before that we have won for the first time a very critical MEMS device for safety applications in the automobile.

We want to be successful of course also in the diversification strategy in China in the mass -- in the more fragmented smartphone market.

And we also want to be successful in the Internet of Things.

I think I want to mention here, for instance, our Bluetooth low energy where we had a very important win with a significant customer in the United States on Internet of Things applications.

So, clearly 2014 was a year of transition, many, many new products, many new products.

And this year will be a year of growth and this will be on our traditional products of the past and on many, many new products.

And of course continuing to differentiate and drive the diversification.

If we move into the DPG part, we believe that the cleaning and the pruning of the products is almost completed.

We need to go through some more in the area of what we have announced last year in the camera, in the commodity camera, in the commodity camera modules.

And for all the rest we expect good growth.

We expect growth with our new time of light, the proximity and other applications that we achieve with our time of light technology in the smartphone, but also in the industrial market.

We see good growth with our ASICs particularly in the area of 32-nanometer, this time we have several products here for communication infrastructure applications.

And with all the new set-top-box products, the decline was really on the legacy products, on the previous generation products.

The new family is very successful.

We are expanding on the 40-nanometer that is more for a fragmented base of customers but also in the -- with the new technologies the 4K, with new for us, major operators and customers.

So, clearly, we are hitting the bottom and I think we already described this, but in our model of -- in our model of $2b per quarter the contribution of DPG is around $300m.

So, we will have another final effort to prune on the camera modules but then all is done, it's about new products and starting to grow again.

Thank you.

Thank you, Sandeep, and also we have Carmelo Papa who is our general manager of the IPD Group that is joining us for the Q-and-A session as well.

We'll move to the next question please.

Gareth Jenkins, UBS.

A couple if I could, I just wondered, gentlemen, you obviously laid out the currency movement for this year which is very helpful.

I wonder if you could give a sense of your OpEx guidance that you've given historically under that new currency regime.

Obviously, it's going to be impacted, so I just wonder whether why not lower your OpEx steer at this stage.

And then just secondly on FD-SOI, I wondered whether you could give a sense of whether you're licensing out that beyond just ST products.

And if so who you've licensed beyond the obvious foundry agreement with Samsung, thank you.

Okay Carlo will take.

Good morning, Gareth.

I guess your first question is about the currency impact.

I -- hopefully in the chart you have now on the website in the presentation we offer you all the detail.

At the end, we have outstanding currency contract, we have an opportunity at that level.

Ultimately, what counts is the effective rate including the current hedging and assuming the currency level remains at the current exchange of 1.13.

So you see that we have some advantage but not so significant in the first quarter at 1.24 respective effective rate and then progressively we will start to take benefit in the cost structure with 1.19 for the second quarter, 1.17 expected for the third and 1.15 for the fourth quarter, so second half will take advantage of that.

I've also mentioned, and this is important that at the end not always the model is the same as depending how sudden the change has been in respect to the revenues impact.

Our revenues are -- 14% of our revenues is billed in euro.

In a normal trend there is some progressive realignment of pricing to the dollar equivalent.

In a sudden trend this takes time and this can affect the being the first of semiconductor industry, customer resilience to price increase is much higher than customer pressure on price readjustments when it goes on the other way.

And this is another reason why we tend to be prudent on the short-term impact given the revenues implications.

To make short on your question for the operating expenses on the current quarter first.

On the current quarter at the end we have a number of positives.

The currency we've mentioned.

We have a short-term calendar, [stuff] may be a bit mitigated by the fact that there is less vacation in Q1 than in Q4.

We have a further step of progression on the restructuring of EPS.

On the other side, last quarter to be candid in OpEx, we have reported about $6m that has been a one-time recovery of patent maintenance costs associated with the sale of some sale of patents by ST-Ericsson and this of course is no longer in Q1.

Then there is some inflationary impact on the labor cost issue also.

At the end, I would expect both gross and net operating expenses to go down sequentially in the range between $10m to $20m in Q1, so they will move the net operating expenses towards the low end of the range in a quarter which has the advantage of a shorter quarter.

Then going forward, going forward the only thing we can add is at the end of the day we continue to execute our plan and we will take benefit of the currency impact on the expenses and clear direction from Carlo in this respect is that any penny of savings in the currency environment will translate into operating income for the Company.

Your last question was about the licensing in the fourth quarter?

Yes, more on FD-SOI actually, just in terms of licensing out beyond rather than the one-off in Q4.

Yes, I would say that at the end the Q4 has marked another opportunity in respect to our licensing strategy.

There is, I would say, nothing of particular relevance to report on this respect.

And to help you on the modeling, please consider it mostly a one-time effect.

Francois Meunier, Morgan Stanley.

Yes, thanks for taking my question.

A question about the utilization charge you're still having on your gross margin.

I don't know, Carlo, if you could give us maybe the level of sales you need to achieve to have zero impact on gross margin from those lower utilization charges in the factories.

First, I have to say sometimes as (inaudible) not necessarily the answer could be meaningful in respect to the question at the end.

The problem we are currently facing in terms of saturation is spotted on a limited number of technologies and effects.

Unfortunately, perhaps those that are the most expensive in terms of fixed costs.

So at the end of the day it's not so much related to the overall revenues of the Company, it's related mostly to the loading of our 300mm fab.

And in this respect, at the end, there is an evolution associated with revenues in the DPG area that we have been talking.

But the reason is more important and Jean-Marc has, I believe, explained it before, there is an opportunity with growing revenues in new product, and new technologies that are now qualified in core 300mm for embedded and non-volatile memories by a group like MMS and APG.

So at the end of the day, the step we have to do is to increase the loading of core 300, this is going to take a few more quarters.

All the actions are in place.

We may expect and you should expect please still some significant [revenues], lower than Q4 but still significant in this current quarter and in the second quarter.

It's a bit early now for talking about Q3 but Q3 for sure will be much less than that and we will update quarter after quarter.

Okay, I understand, it's very clear.

Thank you.

Thank you, Francois, next question.

Andrew Gardiner, Barclays.

Good morning, thank you for taking my question.

Perhaps following on from that last one, if we go back to your mid-term targets you'd set out.

Clearly $2b in quarterly revenue and you mentioned again, Carlo, that of that $300m is from DPG.

Previously you had been aiming at that for the second half of 2015 but have recently acknowledged that's going to be a bit of a challenge.

I'm just wondering if you can give us any sense as to how the pipeline is building and how close you might be able to get to that level in the second half of 2015 or whether it really is more of a 2016 target at this point.

Thank you.

Well, of course, as you said there is a degree of challenges in getting to this level of sales during the course of this year.

But we are all focused.

And I would like to make a comment here, trying to position in terms of customers and markets rather than products.

We had last year I believe a great performance in the area of mass market and this has worked out very well particularly in America and in Europe and a solid performance in the automotive.

Some significant product pruning in the area of AMS and now, as I said before the remaining product pruning is on the digital camera modules from DPG and the remaining tail that is still going down of ST-Ericsson.

But then you are done and we expect that this product pruning is completed by Q3 this year.

And then there is -- but of course this has been driven by us.

And then there is a fourth portion where I believe last year was not good, and this was on -- particularly in the area of consumer customers and in general in the smartphones.

We expect to have, thanks to all the new products that we have introduced last year, a very significant improvement in general in the area of consumer customers and smartphone customers with all our new products and technologies.

So what we want to do this year of course is to complete the product pruning, this is driven by us.

And I expect that for us this will become the fastest starting from Q3 this year, so we'll not talk any longer about wireless or camera modules, or anything that is about the past.

And we want to continue this year to be successful in the area of mass market.

We have launched in Munich at the Electronic Show our new system based on the STM 32 nuclear board with a number -- increasing number of expansion boards with many other peripheral products to be used together with our micro-controllers.

So we want to expand the customer base in distribution, this is an important priority.

To continue with our solid progress in the automotive with the automotive customers and to turnaround what was the weak spot last year, in the area of consumer and the smartphone customers.

The products are there, I think we have successful new products, wider range and this is valid for the set-top box, this is very valid for all our sensors, the touch, etc.

So we expect this to be an important ingredient to our growth this year.

We need also to mention that there will be some negative effect in terms of the euro-dollar rate, but of course more than compensated by all the benefits that we have in terms of cost and expenses.

So, it's challenging but we want to drive this strongly.

We know what is the area of focus and what we need to do in terms of turnaround as I said.

And we are very motivated, as Carlo said, we will not leave any penny on the table that is coming from the advantage of the euro-dollar rate and very motivated to clean what we need to clean still and to go back to growth.

Thank you for that.

Perhaps just quickly as a follow-up, it sounds though you -- if I can phrase it a different way, you sound very confident in terms of the customer engagement and the contract.

It's just perhaps a question of end market volume where the uncertainty lies.

Is that fair?

Absolutely, it's clearly the case I think we sometimes, not this time in my script but in three quarters ago we made an example of a very important [basic] for us that we are on time.

The execution in terms of R&D has been working well but there is postponement.

This is material but it will happen.

All the evidence and this is a very important program that we have and I think it's also the number of new products that we have introduced last year that is giving us confidence.

But as you said we also have some risks in terms of customer and customer [on top] on some of these new products.

Understood, thank you.

Thank you.

Thank you, Andrew.

Next question please.

Amit Harchandani, Citigroup.

Good morning, gentlemen.

Amit Harchandani from Citigroup.

Thanks for taking my question, a couple if I could.

Firstly, my first question is on the broader bookings and backlog trends that you have seen during the quarter.

If you could shed some more light on what you have seen across the various segments, how it trended during the quarter.

And what are the other potential dynamics underpinning this above this new guidance that you have for Q1.

And just a perspective on the broader demand environment as you look forward to the next 12 months.

Maybe that's the first one and I have a follow-up.

So I will cover maybe bookings and then, Carlo, you cover Q1 guidance.

In Q4 we have experienced significant improvement of the bookings conditions when comparing to Q3.

It's not yet the level that we had in Q2 last year, but definitely it was a material improvement of the bookings during the course of last quarter when we compare to Q3.

It was across the range of the products.

I think it was for both sense and power and automotive, but also in the area of microcontrollers and in general in EPS.

Geographically, of course, we see America very, very strong.

But again I think bookings compared to Q3 improved on a global base and this is giving us of course some encouragement in the fact that for instance -- and now it's turning to Carlo, the guidance that we have been giving for the first quarter is based on our historical result is better than seasonal in fact with a billing per day that is higher than in Q4.

Carlo?

Carlo, maybe I start from this point and you may have your own track record of statistics, In our statistics, at the end normally Q1 is weaker with respect to Q4 by about 7%.

Another way of addressing the question is at the end we have the cut off on December 31, this makes Q4 longer, Q1 shorter and when you compare the two you take the combination of the two and this makes an 8% difference in the number of days.

So if you run a math expecting a sequential decline of revenues at midpoint at 5% associated with a shorter number of days by 8% at the end makes a quarter which is in the shipments per day higher than the prior quarter somehow, significantly higher.

So if the revenues are moving in the expected direction in this respect then how to characterize the guidance.

At the end, we have had maybe some group that had a particularly weaker Q4 for some reason like automotive.

And for automotive for instance in Q1 despite seasonality we do expect some revenues in the positive sign -- with the positive sign.

And we expect no major changes for the AMS Group which is another indication at the end that -- on what Carlo said earlier about the trend in AMS, which is against the average of the Company and is against the seasonality and then eventually in the area of EPS perhaps DPG had in Q4 some one-time and we will see the effect in the Q1.

And by the way let me take the opportunity to specify that this license that has contributed to the fourth-quarter revenues did not came as a surprise in respect to our initial guidance.

It was in the forecast, yes.

Great.

And maybe as a follow-up just if I could go back to the automotive division.

If you could just talk a little bit more, we have heard a lot of positive commentary around demand on the automotive side and you too seem to have enjoying a lot of strength over there at least over the past 12 months.

Could you maybe give a brief comment on how do you see the various areas within automotive shaping up as you look towards the next 12 months?

And whether you think you will make gains versus competition?

Thank you.

Well, first of all this is -- we have not -- I have not mentioned this today but it is in our press release, I'm sure you have read.

We had a little glitch, a manufacturing glitch and I think in Q4 we have left on the table about $10m of billing that of course is a temporary delay.

So we are catching up.

For the rest I think our core business remains very solid.

Everything that we see coming from our, for instance, German customers is pretty solid, same in the United States.

We see some softening in Japan and if we look -- if we talk about China some areas in China that is softer -- which is more the infotainment part of the -- more of the automotive business.

So I think for us of course the car is very much centered around the performance of our German customers.

I think there is a solid demand.

As I said US is performing well and some softening in Japan.

But we also have many new products here and this I mentioned before in the text, there is -- there is the expansion of our 32 bit microcontrollers business.

Last year we doubled this business with our 32 bit microcontrollers for automotive and we want to make another important step -- important step this year.

Thank you.

Thank you.

Thank you, Amit.

Next question please.

Adithya Metuku, Bank of America.

Yes, good morning, most of my questions have actually been answered, just a couple.

If you could -- just one to be honest -- if you could just give us your views on CapEx for next year that would be great.

Yes, but it is at this stage and with the usual caveat on the modularity of CapEx depending of depend, we see for the year a level of CapEx in the range of $600m for the full year.

It is expected to be a year of growth, it's a year of investment for expanding capacity to support growth and also to support the technology changes in an important fab as we have already talked.

And this is justifiably the level of CapEx higher than the prior year and still very well within our financial model.

And of course we will see the evolution of the business.

We were talking about $2b before, so it depends a lot on the way the business will move.

Yes, sure.

Thank you, Adithya.

Next question please.

Stephane Houri, Natixis.

Yes, good morning actually I've got one very quick question and a follow-up.

The first question would be to understand, I'm sorry I'm going to make you repeat why the impact of the dollar is lower.

You were talking of a range from -- of $8m to $10m the latter quarter for each percentage change.

Now you're talking of a lower range.

Can you just remind me why is there this lowering?

Well, not too much in detail, because in the past it was $9m per quarter and it was about 50-50 -- 50% on the gross margin and 50% on the expenses.

I think in the gross margin we have not changed.

I think what we have given today is in the range between $4m to $5m, right Carlo?

Yes.

And the expenses in the meantime we managed to become a little bit smaller with our -- in our -- particularly of course with the exit on ST-Ericsson, etc.

And this is the root cause of this.

I think that the average that we have -- that we are giving today that you can read on the table that we have left to you -- I think the average is $7.75m per point per quarter.

And this is really very much related to the expenses and the fact that we have in these quarters and years we have reduced our base of expenses.

Is that right, Carlo?

Absolutely, Carlo, maybe what I omitted Stephane to highlight when presenting before this is on the chart you have now on the website is that the euro exposure has a big decline to 46% of the total cost.

And this is thanks to the initiative of cost reduction of course.

But then as you can expect as a result of a mathematical effect that at a lower euro-dollar rate, the cost structure balance changes.

I would not make -- and the other important point is given now the attention and the focus we want to have with you in respect to the net operating expenses to monitor quarterly our ability to stay in the target $550m to $600m on net operating expenses, net of the grants, I thought it was appropriate to give you the sensitivity net of the grants as well and as you know the grants are in euro.

But that's the reason, it's mechanical.

Frankly, I would not expect if there's a major change.

The key point also we wanted to pass which is important is that while in a normal and smooth evolution of the exchange rate, we believe that the impact on revenues could be absorbed in a couple of quarters.

With this sudden change in the direction against customer resilience on pricing adjustments of course may take a bit longer.

Understood, very clear.

Now, the other question was about the notification to IBM of the intention to end the participation to the IBM alliance.

Could you come back on the reasons of this choice?

And if it has a consequence I would say to your implication, to your involvement in the FD-SOI development process at 10-nanometer as you had suggested in Q3?

Okay, so Jean-Marc, I will answer the question.

So, our agreement with IBM provide us a right to end the participation in this alliance under certain conditions.

And we made the decision during the quarter to exercise that right.

But of course I cannot comment more because the terms of the agreement are confidential.

Nevertheless, okay, I would like to say we will continue to work closely with IBM and the other members of the alliance on ongoing projects until we leave the alliance.

And today we are in discussion with IBM to plan for a smooth wind-down of our participation in this alliance.

Now, about technology, if you remember in the fourth quarter of 2014, ST has reviewed the application to our process technology following the announcement by IBM and Global Foundries.

Although our technology review remains ongoing and we anticipate our process technology roadmap especially in digital will continue to focus on our differentiated and standalone like CMOS, FD-SOI, so 2014 FD-SOI embedded non-volatile memory for micro-controller and specialized camera sensor, our Flight of Sense and by CMOS and Photonics.

And we are, let's say, convinced that it will enable innovative solution providing consistent payback over several market waves.

So this decision is independent of our technology roadmap and we confirm, okay, we focus on this specialized technology.

And does this have an implication on the R&D spending level over the full Group, for the full Group?

It is part of the model that is given and of course we cannot comment on details.

But this is part of the model and I think we cannot provide more and more information here.

Okay, thank you.

Thank you.

Thank you, Stephane.

Next question please.

Guenther Hollfelder, Baader.

Thank you, two questions.

First one, any guidance or indicators for restructuring charges in 2015 what to model in?

And the second one a follow-up on the IBM question.

You said continue to focus on differentiating technologies.

Are there any advanced CMOS technologies you used in the past from the alliance maybe which in future there could be potential to outsource these technologies to foundries, maybe also with a positive impact on capital intensity and R&D?

Thanks.

No, I think today we outsource of course a part of our CMOS.

Clearly, if it would be possible to in-source this quickly, we would have done, because we had still a material loading cost in Q4.

I think there is today -- I think today if we look at the CMOS our outsourcing is more than 20%, now something like this and there will be -- there is and there will be an effort to outsource a part of our CMOS.

I think we have announced for instance an agreement with Samsung on the 28-nanometer FD-SOI and Samsung could play a very important role in this respect for manufacturing these products.

And of course this is also an opportunity, as you said, for us to mitigate our capital investment.

If we now go to the other point, Carlo?

The short answer on the restructuring, Guenther, I'd recommend to model about $30m to $40m restructuring charges to the P&L to go for the next three quarters of the year, mostly concentrated in the second and the third.

Great, thank you.

Thank you, Guenther.

Next question.

Dan Gardiner, Arete.

Good morning, gentlemen, thanks for taking the call.

I wanted a couple of questions if I may, firstly on distribution.

The revenue there looks to be up 8%, 9% year over year; looks to be mostly in line with market growth.

Can you tell me, are you driving increased range of existing products amongst distributors?

Or are you broadening the range of distributors?

Do you think that there's further potential for that distribution channel to grow in 2015?

And what sort of order of magnitude would that be?

Yes, well, it is true it may be aligned, but consider that we had also some material product pruning and this of course is impacting particularly distribution.

So if we exclude this part I think our performance was very material.

I also believe that in distribution I think we had a faster increase of the point of sales compared to the billing that we report and you are referring to.

Yes, this is an area where we want to push more.

We want to push more and maybe I underline what are the key initiatives.

The first one is our target accounts and this we are doing with our distributors.

We have 1,600 customers that are target accounts that we want to focus on, supporting our distributors to develop these customers.

The second target is really the number of channel accounts.

So we are talking about many, many accounts here, thousands and thousands of accounts.

And it's important that we have the opportunity to expand the number of these customers.

I think we are also making a major effort with the new -- a new generation of online -- ST online during the course of this year.

This is another effort that is instrumental to what we do in distribution.

As I said before, in Munich we have launched this new system of development board, centered around our SDN 32 with the nuclear boards -- with a nuclear board and a number of expansion boards or shield boards.

So these are boards including many other products from sensors to power to, for instance, connectivity products.

And it is a kind of a Lego approach, all the software is compatible and our customers starting from the nuclear board for the microcontrollers they can plug in the other boards and develop their applications in a way that is very, very, very effective.

I think also our product portfolio I think is more and more intended to what we want to do in the mass market.

So indeed this is a very, very important priority for ST.

And there is nothing special that we want to do in terms of channel or changing our channel.

I think we are working with the leader today and they are major American and Asian companies and we will (background noise) work with these companies.

Okay, thanks.

And can you talk a bit about APG.

I was interested in your comments around a softening Japan infotainment market.

And if you look at your fourth quarter numbers shows a significant slowdown in terms of year-over-year trends.

Is that related to -- and also that seems to be underperforming the rest of the infotainment guys, Maxim and TI and so forth.

Can you tell me if there's something specific at your customers, or is there market share loss, or is this currency related?

And do you expect that to recover in the first quarter?

Yes, well, as I mentioned before in DPG, in APG we had a manufacturing problem in Q4 that has impacted our sales by about $10m.

And in there we grew 8% -- I believe 8.3%.

I think it's a solid growth likely better than the market despite this little glitch in Q4.

The -- what we see a marketing -- a market softening is -- today is in two areas that are specific, and also may be a little bit less material for us thanks to the fact that our core business is really centered around the major German industry.

So the first one is in general in Japan.

This is what I said before.

And the second is part of the business in China, where we are number one in the automotive, and this part is the infotainment in China.

So this is the situation.

I think in Q1 we expect to grow in APG despite a significant shorter quarter.

And I think what we see that we have a lot of robust demand in this business.

So we are confident that will be another year of good growth and good financial performance.

Okay.

Thank you.

Thank you.

Thank you, Dan.

Next question, Moira?

Achal Sultania, Credit Suisse.

Thanks.

Just a quick one on APG long term.

Can you just give us some sense of have you seen a significant improvement in the semi content that goes in automotive for 2014?

If you were to look back last few years, we've seen 2%, 3% content growth.

And has that pace significantly increased in 2014 and how should we think about this trend more longer term if you look out two, three years out?

Yes, I think there is a continuous process and improvement here.

Of course, there are important drivers and important new drivers.

One important driver that I would like to mention is about the so-called others, that is the advanced safety, everything that is there to assist the driver in the driving, and even the autonomous driving.

This is an area where ST is very strong.

We have partnerships here.

As I said before, we have our third generation of products and are developing the fourth generation of products that is in FD-SOI, by the way.

So this is one area where we see very, very important trend evolution and growth.

Another area, of course, is the electrification of the car.

And here this is about [smart new] products, but very importantly also about many power discrete products, both rectifiers but also IGBT products and so this is another trend.

I would like also to mention the fact, of course, that electronic is more and more pervasive also in the low-end car.

And this is also very, very important to us.

We want to cover all.

There are very few things that we are not doing in the automotive.

I mentioned before, last quarter, we won our first major MEMS for a safety application.

This is a big program.

It's a big win.

It's a very complex device.

Of course, it's a custom device for a major customer.

And this would be significant business in the future.

It will take some time because times in automotive are a little bit longer.

So we cover pretty much everything in the car, with the exception of two things.

We do not have the 3G modem and we do not -- we will not have that.

And what we do not have is the -- is for the very high end, the major application processor for car infotainment.

For the rest, we cover all, from LED lighting to RF radio solutions, powertrain, MEMS, discrete products for the electrification, the most advanced products for safety applications.

So it's very broad.

And of course we are very encouraged by the pervasiveness and the increase of semiconductor content in these applications.

Thank you.

Thank you.

Thank you.

At this point we'll take two more questions, please.

Gianmarco Bonacina, Equita.

Yes.

Good morning.

Basically I see that in the Q4 your pro-forma phase for the new digital group is about $260m, if I add imaging and the old DCG.

Can you tell us, please, how much of this $260m is represented by the legacy Ericsson and by the commodity camera business, which are going to discontinue, and if these sales, we can expect basically to be close to zero by the end of 2016?

Thank you.

Yes.

I think this is -- if we look at this $260m of business, and you mention the remaining part of ST-Ericsson and the activity related to the modem and the camera modules, I think overall is about $50m.

Okay?

And now $50m is a lot, but please consider that the margin is very, very low and is not really contributing to the gross margin of the Company.

Typically there is almost no contribution.

And we expect to clean it up and, as I said before, to start finally very clean and focused by Q3 this year.

This is what we want to do and complete this phase.

And of course we want to replace this business and then grow with many, many new products in the area of ASICs, in the area of the time-of-flight sensors, in the area of the new set-top box solutions and grow from there.

Thank you.

Thank you, Gianmarco.

Next question, please.

Johannes Schaller, Deutsche Bank.

Yes.

Hi, there.

Thanks for taking my question.

You mentioned some good momentum in some of your silicon carbide products earlier.

Could you just maybe talk a little bit more broadly about silicon carbide and also gallium nitride, just how you look at this market, if those are better-margin products for you than, say, traditional IGBTs?

And then also if the demand situation for both is strong in your view and how that will develop.

And then also quick follow-up on China automotive.

The weakness you're seeing there, could you just be a bit more specific?

Is this factory fit or aftermarket?

And is it right to assume that this is mostly with the local brands?

Thank you.

Yes.

Carmelo, we have not introduced, but Carmelo Papa that is managing IPDs is here with us.

And, well, first of all, we are very pleased about our power MOS and IGBT business.

And I think we can do better in terms of top-line evolution but is a very important contributor, very good products with an excellent level in terms of excellent financial performance level.

So Carmelo, why not comment on the silicon carbide and the gallium nitride and what we are doing there, gallium nitride?

Yes.

The first thing that I would like to say, that silicon carbide, we are now in the third generation of 600- and 650-volt diodes.

We are the first generation of the 1200-volt diodes.

And we are at the first product, the only one on the market now, dealing with 200 degrees of temperature, junction temperature.

It's the only one on the market.

That is make very important inroads.

I'm talking -- I'm referring to power mostly.

This is the first one on the market, guaranteed at 200 degrees of junction temperature.

This will enlarge enormously the range of application that we can cover today with MOSFET, high-voltage and also IGBT because it can work at very high frequency and it improves enormously the efficiency of high-frequency converters and the likes.

So we have all the weapons that the market requires to be competitive.

And we are producing at the 6 inch, which is, don't be amazed, this is -- we are not here, this is true power.

We are talking 100 of amperes and 100 of volts.

So working today, the state of the art is between 4 and 6 inch.

You will never reach the 12 inch.

So we are moving it into 6 inch to be in the forefront of the market.

And the first preliminary feedback we have, in particular for the MOSFET which is new to the market, from some major customers and some from small customers [being adopted] are excellent.

So I hope that with these and with the full range of low-voltage MOSFET that are adding to the high voltage a new range of [field] IGBT, I think we have got all the ingredients, including the manufacturing capability we have with 8 inch in Singapore to be competitive this year.

So I expect that our market share this year will grow.

So we are happy about the silicon carbide.

It's doing well.

It's -- I think it's -- we are very strong.

We are in production with rectifiers and we have now this 1200-volt MOSFET.

It's a great device.

And we are also very, very structured and mature in manufacturing.

That was well structured and mature in manufacturing that was one of -- is one of the challenge in this business.

So we believe it's becoming more and more a real industrial program, and of course the benefits are evident.

If I can add one more point, there will be new applications for power that traditional technologies cannot afford today, those of the [frequency] and everything.

Also in terms of cost reduction we are making some major, major steps here.

So it's going to pay off.

So on the automotive, yes, you're right.

I think this is really more the aftermarket, the fragmented market in China in car infotainment.

But maybe we spend too much time here.

We are still very pleased about the backlog that we have in the automotive.

It's a very solid backlog even for Q1.

We had this little glitch in manufacturing in Q4.

We left on the table $10m.

And now we want to grow in Q1.

We see solid demand, particularly from US, from Germany.

Some softening in areas that are a little bit less important for us, like Japan.

And so overall it's good.

Is -- we see a good trend.

That's very helpful.

Thank you, gentlemen.

Thank you.

Thank you, Johannes.

At this point we'll go ahead and close the conference call.

Thank you for your participation.

And please note ST's next event will be at the Mobile World Congress on March 3 and we'll send out details shortly.

Thank you very much.

Ladies and gentlemen, the conference is now over.

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

You may now disconnect your lines.

Goodbye.