意法半導體 (STM) 2015 Q1 法說會逐字稿

Ladies and gentlemen, good morning.

Welcome to the STMicroelectronics first-quarter 2015 earnings results conference call and live webcast.

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 first-quarter 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; Georges Penalver, Chief Strategic Officer; Carmelo Papa, Executive Vice President and General Manager of Industrial and Power Discrete.

This live webcast 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 as a reminder, ST will host its annual Investor and Analyst Day in London on May 12.

So we will hope to see you in London.

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

Carlo?

Thank you, Tait.

And thank you for joining us this morning on our first-quarter earnings conference call.

On the agenda today there is a review of the quarter, including our two products segments, the results and opportunities with the products introduced in 2014 and our new design wins.

We will then turn to our second-quarter outlook.

Let's move to the first-quarter results.

The start of the year reflected the expected seasonal softness, while a couple of other factors that I will comment upon later, affected our revenue performance.

Our gross margin was instead well aligned with our guidance.

And despite seasonal factors, we generated again positive cash flow.

Turning to sales, on a sequential basis, our net revenues decreased 6.8%, slightly better than our historical seasonality.

Revenues totaled $1.71b and were affected by a lower contribution from euro-denominated sales of about $19m, mainly associated with distribution and impacted -- impacting, in particular, our SP&A segment.

Specifically, we came in below our mid-point target because of lower sales of power supply components for PC-related applications.

Looking at our channel mix, about 30% of net revenues came through distribution compared to 32% in the fourth quarter, with the lower percentage largely related to both currency and PC-related demand.

Turning to our gross margin, we delivered well in line with our outlook, coming in at 33.2%.

On a sequential basis this represents a decrease of 60 basis points, on normal beginning-of-the-year pricing changes, partially offset by currency benefits net of hedging.

The gross margin reflected about 110 basis points of unsaturation charges in the first quarter in connection with our manufacturing capacity in digital technology.

At the operating expense level, combined R&D and SG&A were $591m.

On a sequential basis, operating expenses decreased about $20m, reflecting a lower number of days in the quarter as well as favorable currency effects net of hedging.

Therefore, taking into account about $35m of R&D grants, net operating expenses were at the low end of our net operating expense range of $550m to $600m, coming in at $555m.

Restructuring costs during the first quarter were $29m, principally in connection with the EPS cost reduction program and the finalization of the closing of our back-end plant in Longgang in China.

Operating income before impairment and restructuring was $10m compared to $8m in the year-ago quarter.

First-quarter operating margin was 0.6% and reflected the impact of 110 basis points of unused capacity.

The benefit of today's currency environment is still limited on our profitability due to outstanding hedges.

Excluding existing hedging contract, operating margin would have increased by over 300 basis points.

Free cash flow was $41m in the first quarter compared to a negative $51m in the year-ago period, representing a $92m positive swing.

We benefited from a strong increase in net cash from operations.

During the quarter, ST paid a cash dividend totaling $82m.

As you may have noted, at our May 27 annual general meeting, ST Supervisory Board is recommending the approval of a cash dividend of $0.4 per share to be distributed in quarterly installments of $0.10 to shareholders of record in each of the second, third and fourth quarters of 2015 and the first quarter of 2016.

We believe this is a clear sign of confidence in ST's solid capital structure today and moving forward.

Now let's move to a summary of our segment performance.

As a reminder, starting from the first quarter, unused capacity charges are allocated directly to the product segment.

Looking first at SP&A, net revenues were $1.12b.

SP&A operating margin, including unused capacity charges, decreased to 6.4% in the 2015 first quarter from 8.4% in the fourth quarter, reflecting lower revenues and not yet benefiting from favorable currency effects of about 2.9 points due to hedging.

Within SP&A, let me begin with AMS.

Revenues in the first quarter totaled $255m, representing a sequential reduction of 4.3%.

At the same time, our expansion into key customers and product diversification initiatives has started to regain momentum.

This is visible in the latest smartphones and smart watches launched on the market and in the most recent teardowns.

During the first quarter we ramped production at our high-end touchscreen controller and pressure sensor for Samsung's Galaxy S6.

We also delivered our high-performance microphones in high volume to another leading smartphone brand.

Our latest ultra-low-power 6-axis motion sensor was chosen for another Samsung smartphone.

This new motion sensor, which was awarded Product of the Year by Electronic Products and MEMS industry group is gaining traction worldwide with important customers.

In fact, during Q1 we ramped production for a global brand to use it in a wearable application, and we were also chosen by a top Chinese brand for their latest model.

Another important growth opportunity is linked to laptops and tablets, where our MEMS continue to help change human-computer interaction.

In March we announced the adoption of our micro-mirrors and control devices by Intel for their Perceptual Computing initiative.

We have now started production for several end customers.

We also made advances in sensors for the automotive market, ramping production for a number of inertial sensors in car navigation and telematics applications in Korea, Europe and in US.

Turning now to APG, net revenues in the first quarter totaled $434m, essentially stable with the fourth quarter despite an exposure to euro-denominated revenues larger than the Company's average.

During the quarter we continued to build on the strength of our broad-based portfolio, recording wins across our strategic areas of focus.

In car infotainment, we won a significant number of awards for our latest-generation car radio processor with important manufacturers in Korea and in Greater China.

Our Accordo platform is becoming a de facto standard of the car radio market.

We also expanded our presence in audio amplifiers, with additional design wins for our class D car audio amplifier with a top Japanese brand and with the leading Korean maker for the European market.

In 32-bit microcontrollers, we continued to expand our presence at major tier 1s with key wins in Europe and China in the areas of body and powertrain.

We also gained in the mass market where, among other successes, we earned a design win from a market leader in the growing area of e-bike applications.

In active safety, we earned additional sockets for the next-generation advanced driver assistance system with a major European carmaker.

And in smart power, we recorded a major design win with the European market leader in a power-steering-related application using our proprietary BCD9 technology.

Turning to our industrial and power discrete group, net revenues totaled $430m.

Sales decreased by 6.8% on a sequential basis, largely due to sales to power supply components for PC applications as well as exposure to euro-denominated revenues.

During the quarter, we recorded a number of achievements across our focus areas.

In energy management for portable equipment, we ramped production of an AMOLED power supply chiefly for Samsung's S6 and we continued to gain traction with RF integrated passive devices for smartphones and Internet of Things applications with leading global brands.

In power transistors, we have one of the broadest product portfolios of the industry.

Here we gained several design wins.

To name a few, we were awarded low-voltage power MOS in a power supply for game console applications.

We landed a win for high-voltage IGBTs for an induction-heating application with major Chinese customers.

And we won a design for high-voltage MOSFET in ultra-high-definition display applications.

In power conversion, ST revealed, together with Flextronics, the world's first plug-in charging platform for mobile devices with zero no-load power based on our multi-mode power management controller.

We also captured wins for high-voltage power converters from several mass market customers in Greater China.

Turning now to EPS, revenues were $581m and continued to reflect mixed dynamics.

On the one hand, MMS revenues decreased 3.7% on a sequential basis, better than the Company average.

On the other hand, EPS revenues in total decreased 12% on a sequential basis, mainly due to the decrease of ST-Ericsson legacy products and lower DPG sales for consumer and imaging products.

EPS had a negative operating margin of 11.1%, including unused capacity charges, improving from negative 13.1% in the year-ago quarter, mainly due to lower operating expenses and higher R&D funding.

And of course, EPS is not benefiting yet from favorable currency effects of about 3.8 points due to hedging.

Despite the new product introduction in DPG, the decline of legacy products, including entry-level set-top box, camera modules and former ST-Ericsson products continue to outpace the ramp of new product revenues in the first quarter.

During the quarter, we made progress in ramping new families of innovative products.

And among these we began delivering the latest ultra-high-definition p60 quad-core Cannes and Monaco-family systems-on-chip ICs to a European customer.

We are working to reduce cost, largely in DPG.

In that regard we made progress during the first quarter.

We also transferred over 90 employees in Asia to a leading software company and partners of ours.

And, as expected, we will exit from the IBM technology development alliance at the end of this second quarter.

Turning to MMS, the group had a solid quarter, with net revenues of $374m, posting a sequential decrease of 3.7% and growing 8% year over year, building on the strong performance already achieved in 2014.

In general, our microcontrollers -- sorry, in the general-purpose microcontrollers, the richness of our product portfolio is a pillar in the overall product and market leadership and the driver of our year-over-year growth in this area.

Today we offer over 600 STM32 part numbers.

In the first quarter we further extended our product range with the STM32 L4, which allows designers to get higher performance and larger memory without trading the power consumption.

We also recorded important STM32 wins with major customers.

For example, one for a wireless accessory for tablets for a global brand, one in Samsung Galaxy S6 as a sensor app, and two in a high-end fitness band for another important mobile and wearable player.

We also made important steps in secure microcontrollers.

We joined forces with the Austrian company AMS to large breakthrough reference design for secure contactless nearfield communication transactions and mobile payments in the smallest forms and wearable devices.

And we capture a nearfield communication tag design in a next-generation headset of a major audio equipment OEM.

Looking at our product portfolio moving forward, key products driving growth for the second quarter include filters and protection devices, as well as power discrete from IPD; touchscreen controllers and fixed-axis motion MEMS from AMS; microcontrollers from APG; STM32 microcontrollers and the secure elements from MMS.

On the other hand, a large-volume socket within DPG has been very recently postponed, reducing our expected revenues for this product in the second quarter and in the next quarters.

In the second quarter we expect to increase our revenues by about 3.5% sequentially, with most of our product groups contributing.

This outlook incorporates and estimated top-line currency impact of about $16m.

Gross margin is anticipated to increase by about 60 basis points to 33.8%, including existing hedging contracts significantly mitigating the positive impact from currency.

Our firm objective in 2015 continues to be to achieve a very significant year-over-year improvement in our operating performance.

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

(Operator Instructions).

Sandeep Deshpande, JPMorgan.

Yes.

Hi.

Thank you for letting me on.

I have a couple of questions.

My first question is regarding analog and MEMs.

We have seen the analog and MEMS revenue in the quarter, again versus the previous quarter, was down sequentially.

Would you be saying that now, from here, based on your guidance and based on the wins you've had that this has bottomed out and the business revenue should improve from here?

Secondly, my question is on the digital product group.

Carlo Bozotti, you mentioned that there was some design win which was postponed again.

Or was this one of the ones which was postponed in the second half of last year or is this something new that we are seeing at this point?

And overall my question is how will we see the currency impact gross margin by the end of the year based on what you have on your hedges?

Of course, the currency impacts operating expenses different -- in a slightly different manner.

Thank you.

Well, (background noise) in these three questions on this, sorry.

I will take the first one.

Yes, indeed, we delivered on our AMS groups where we have our low-power activity and our MEMS activity -- excuse me, low-power analog activity and MEMS activity.

We believe that with the new product introductions and the wave of design wins, Q1 is now the bottom and we shall restart growth moving from Q1 to Q2, both sequentially but also year over year.

There is a number of products that are contributing to this.

In general, the new family of gyroscope is a pretty high-performance family.

And we have started to see important traction with several customers.

So this is one.

Another area is our touchscreen.

This is also a pretty successful product in customers.

And in general our new microphone activity is pretty successful.

So the combination of the new product introduction and also the diversification of the customers and some stronger presence at our traditional major customers would indicate that we can restart growth both sequentially and year over year on this product line.

Now to respond to the second question, well, I would leave this to Jean-Marc.

But indeed this is a new product.

It's not the same that we mentioned earlier in previous meetings.

But Jean-Marc, please comment here.

Yes.

This is new.

So basically this is a digital custom product for consumer application.

And I cannot comment more.

Of course, it is a material impact for EPS and Company-wide, otherwise we have not mentioned this information.

For the gross margin, Carlo?

Yes.

Good morning, everyone.

Good morning, Sandeep.

Yes, you're right, at the end, the impact of the currency on gross margin and operating margin of course materialized progressively as anticipated because of the hedging through the year, quarter after quarter.

And the one in the first quarter at the end is only a limited part of the overall impact when considering the euro/dollar in a range between $1.08, $1.10 on the bulk of the current trading.

Short answer to your question is there are about or a bit over 2.5 points of additional gross margin to come once we will see the full effect on our P&L after hedging on the current euro/dollar rate.

Thank you.

You're welcome.

Thank you, Sandeep.

Next question, Moira?

Amit Harchandani, Citigroup.

Good morning.

Amit Harchandani for Citigroup, and thanks for letting me on.

Two questions, if I may.

Firstly could you maybe comment on how you've seen bookings shape up during the quarter across your different segments and what levels of visibility do you have as you look forward to the next quarter and beyond into the second half of the year?

Secondly, in terms of OpEx, this quarter was closer to the lower end.

I think you mentioned $555m.

How should we think about OpEx trending during the course of the year?

And just maybe finally, a quick clarification.

If you could clarify your exposure to the PC end market as well as the communications end market.

Thank you.

Well, maybe let's start from the booking trend.

Particularly in the month of March, we saw some correction.

The correction is for us is, I would say, negative correction during the month of March of the booking trend.

That has also impacted the billing impact.

The correction for us is mostly on power products, of course is a large variety of power products, either discrete products and also smart-power products related to PC applications.

And this was indeed mostly in Asia, I would say, Greater China, China, Taiwan.

And of course not only with Chinese customers.

This is what I'm referring to here is the point of billing.

And it's impacting both OEM customers and our distribution channel.

For the rest was fine.

We see traction, for instance in the automotive, I think particularly in Europe and in the United States.

We see good traction with our major smartphone customers, good opportunity as I had already mentioned in earlier calls for the rest of the year.

In general, the European industrial market was solid.

So I think that the correction that we saw was concentrated in Greater China, was very much at the end of the quarter, was on the PC part, and impacting also what we do with our distribution.

Now, of course, it's a little bit premature to have a conclusion here on this correction.

But I have to say that in the guidance that we have given, there are areas -- still areas of weaknesses in PC and PC-related products.

But from a geographical point of view I would say there is some recovery, sequential recovery in our Greater China region.

So I think this is the first one.

Then there was a second one, Carlo, that you can take.

Certainly, Carlo.

It's about the operating expenses in Q1 and going forward through the year, right?

That's the question.

And you're right.

Indeed, expenses in Q1 at the end went really towards the low end of our range, $591m gross expenses, $555m net of the grants.

And these do not include yet the full effect of currency.

The hedging has impacted expenses negatively this quarter by $23m.

So you have the number for your modeling.

We need also to say that first quarter is a quarter normally seasonally low in expenses because of the number of days, because of vacation dynamics.

I would expect going forward that expenses would remain overall at that level, including all the various ingredients, the rollout of the hedging and the normal and usual inflationary expenses dynamics, with the characteristic following the calendar and the vacation calendar in the various quarters.

So you may expect eventually Q2 to be slightly higher, the Q4 to be slightly higher and Q3 to be significantly lower than the first quarter.

And of course, when projecting on the second half of the year, we are also considering the effect of the completion of the expenses realignment plan ongoing in EPS.

That's very helpful, gentlemen.

And on the third one, your exposure as a percentage of sales to maybe PC and communication market.

Well, overall on the PC, I think it's about 25% of what we do IPD -- in IPD if we put together the -- if we put together all computer peripherals kind of products and battery chargers, power supplies for PC applications.

If we look at the communication infrastructure market, our overall dependence is, I would say, much more limited.

This is an area where we are present with our ASIC business and with some commodity and standard products.

But I would classify in the range of, I would say, $300m, $400m per year.

That's very helpful.

Thank you so much.

Thank you.

Thank you, Amit.

Next question, please.

David Mulholland, UBS.

Hi.

Thanks for taking the questions.

Just firstly on your Q2 gross margin guide, I wonder if you could just help us understand.

You've mentioned about what the hedging impact is, but what have you included in the Q2 guide?

And also what underutilization charges are you assuming carries on in Q2?

And secondly you mentioned on pricing pressure.

I wonder if you could just clarify exactly what areas you're seeing some of that in, or is it just, as you mentioned, annual price deflation from customer agreements?

And then I've got one further that I'll come back on.

Perhaps I start with the question on the gross margin dynamic from Q1 into Q2.

So here, at the end, there are three blocks of ingredients.

One is about the currency.

Of course on the currency we're going to have another step.

We were not complete yet in respect to the over 2.5 points of additional benefit I have just mentioned, assuming the exchange rate staying at this level.

Between Q1 and Q2 we expect to capture less than 1 point or about 1 point of improvement of gross margin.

In respect to the utilization of capacity, the plan is to improve the level of utilization of capacity in those fabs that have generated the $19m of unused capacity in the first quarter.

However, for both the second quarter and even perhaps going forward through the year, we do expect to basically halve it, but not to fully cure and fix it.

In this respect you may anticipate an about 0.5 point of improvement in the gross margin thanks to lower unused capacity charges.

And then there is the overall combination of price/mix, including revenues from licensing that quarter on quarter have [risen].

And some of the aspects of the efficiency that eventually, with lower saturation in Q1, has been less than what could have been or has been in other quarters.

And this is an overall detractor.

These factors altogether detract from the gross margin dynamic less than 1 point.

So this is the bridge to go from the 33.2% actual in Q1 to the 33.8% midpoint for our second-quarter guidance.

Yes.

On the prices, I think there is nothing specific to mention.

I think, of course, with the start of the -- with the start of new year, we have the new contracts, with some major accounts.

They are yearly new contracts.

I would say that if there is an area where we have seen recently a stronger price pressure, I would say this is on discrete products and probably is somehow were related to the [price] correction that we have experienced in Asia.

That's great.

And just one final one on the postponement that you mentioned in digital, can you give us any color whether this was an FD-SOI [ISIC] product and whether this is purely because the actual product the customer was looking to sell has been postponed or whether they're proceeding with a different approach?

Just to understand the dynamics, whether it's the actual end product delay or just specific for your business.

Yes.

It's not an FD-SOI product, and the program is postponed, but not cancelled.

Thanks very much.

Thank you, David.

Next question, please.

Achal Sultania, Credit Suisse.

Hi.

Thanks for letting me on.

So just on automotive, I think last quarter you talked about some revenue opportunity you left on the table because of some delays.

I just wanted to get a sense of whether that was actually captured in the quarter or not.

And also, obviously I think your exposure to euro in that business is significantly higher than the rest of the Group.

Can you give us some sense of what revenues would have done at constant FX in the automotive business?

And then I have a follow-up on FX as well.

Yes.

No.

I think we -- of course, we are back to normal in our manufacturing activity now Carlo Ferro is making some math.

I think, overall, in our automotive business we have between 20% and 25% of the revenues that are denominated in euro.

So, Carlo, what is the math?

But this is about -- you have mentioned, Carlo, in your introduction that at the end, overall, for the Company, the impact in the first quarter has been $19m.

I would say that out of this $19m, some $7m, $8m belongs to the automotive product group.

Okay.

That's very clear.

And then I think last quarter you also mentioned -- you gave us some numbers around how much your exposure is at what hedging rates for the euro/dollar for Q1, Q2, Q3, Q4.

Can you give us an update on those numbers?

Sure, we can, and here I am.

So when referring to the second quarter, maybe what could be the most beneficial I believe, I will give you the effective rate for each of the next quarter, assuming the euro/dollar rate of yesterday evening at $1.11.

Right?

This is I guess what you have asked.

So on the -- for the second quarter -- in first quarter, as you noted from the press release, the effective rate, the combined rate of actual rate and hedged rate has been $1.23.

For Q2, it is expected $1.17; for Q3, $1.15; and for Q4, $1.13.

When modeling the revenues, please consider that the revenues are not hedged, so they cannot impact on revenues.

Refer to the actual rate before hedging.

And this is the reason why in Q1 we had a more significant impact on revenues.

So the revenues should be modeled based on the actual rate, considering and knowing that about 15% -- 14% or 15% of our revenues, total revenues of the Company are euro denominated.

Yes.

Overall in Q1, we had hedging costs for about $54m.

Sorry, how much, $54m?

$54m, yes.

Okay.

Thank you.

Thank you, Achal.

Next question, please.

Youssef Essaegh, Barclays.

Hi.

Thanks for letting me ask questions.

Actually most of them of them have been answered.

If I may, eventually, it's just if you can remind us a little bit of the timeline of your set-top box products.

It's slipped a little bit since last year, so if you could just tell us again exactly where you are now.

Thank you.

Yes.

Jean-Marc, you want to take this?

So, as we said, okay, despite our new product design win, mainly in the area of ultra-high definition for 4K2K P60 application, we were still seeing a legacy product decrease which is outpacing our design win and ramp up in new product.

Of course, we are seeing as well, in a certain extent, some slight delay in the ultra-high definition for K2K adoption, which is amplifying a bit also this picture.

Thanks.

So what would you do then?

How would you describe, therefore, the revenue ramp towards the second half of this year?

Or is it more than that it's going to, at the moment, remain flat and then maybe some recovery next year or -- I'm not sure what to do with all these moving parts.

Thanks.

No.

The dynamic will remain.

Of course, it will be slightly delayed because it's difficult to anticipate the synchronization between the legacy product decrease and the new design win product increase.

This is linked to the customer adoption and the ramp up of their own program.

But okay, we are -- what I can say, we are on track in our design product activities and product development.

Now we are linked to the market adoption, customer growth.

But of course, okay, we are still facing a legacy decrease according to our forecast of (inaudible) product.

Do you -- one last final word on this, if you don't mind.

Given all the mergers or non-mergers happening in the US, do you expect the outcome of some that haven't been pronounced yet to impact on your expectations for the ramp or has it nothing to do with the cable world in the US?

Thank you.

No, no.

We are not seeing any impact.

Thank you.

Okay.

Next question, please.

Adithya Metuku, Bank of America.

Yes.

Good morning.

I have four.

Firstly, on your gross margin guidance, if I do the math using the FX rates you've given for 1Q and your FX assumption for the second quarter, I would have expected around 150 bps in tailwinds.

You said you expect less than 1 percentage point from FX.

Can you explain why it's so low?

Secondly, on the DPG product group, when do you expect this postponed socket to come back?

And how should I think about the revenue evolution in the second quarter and for the rest of the year?

And also, can you confirm how the legacy is at a proportion of DPG revenues?

And then finally, on the costs, you said earlier, on the sequential evolution, how the evolution is going to be in the second, third and fourth quarters.

Does this include FX and the OpEx savings you expect from the program you announced in the fourth quarter?

And finally, I take it that you have taken the current FX rate when providing your revenue guidance.

Am I right in assuming so?

Thank you.

Okay.

So there are many questions.

I try to answer, but please remind at the end I have missed any of your questions.

Starting from the last one, yes, the revenue guidance refer to the current exchange rate.

And this also help to answer the first of your question I guess.

What is eventually different could be different in your modeling, is to fully capture the impact on revenues.

That has been a $19m negative in Q1 and is expected to be $16m negative in the second quarter.

Then -- and another question was about the OpEx progression going forward in respect to the ongoing initiative to realign expenses in EPS.

In this respect, the plan, as Jean-Marc said in the press release, is on track and progressing.

In the first quarter, we have captured a portion, about 30% of the total target savings of $25m per quarter.

For the second quarter, we expect to move on with another about 25% of progress on this plan.

And then, progressively, this will kick in for this full effect in the second half of the year.

Okay.

And just the question on DPG, when do you expect the postponed socket to come back and how should I think about the evolution through the rest of the quarters?

And finally, if you could say how big the legacy is as proportion of DPG revenues.

Thank you.

What the question is?

Tait Sorensen?

I'm sorry?

What is the question?

It's on DPG, what percentage of legacy versus non-legacy within DPG.

And how much postponed (multiple speakers) the socket.

Jean-Marc?

Jean-Marc?

Yes, yes, yes.

So it's difficult for me to comment the exact number of percentage between legacy and non-legacy product because it's a number we usually do not disclose.

And the second part of your question is about the postponement?

Yes.

How should -- when do you expect the postponed socket to come back and how should I think about the evolution in the remaining quarters of this year for DPG revenues?

The postponement of the socket.

The postponement of the socket that we sell, yes, this will be from three to four quarters postponement.

About three to four quarters postponement, did you say?

Yes.

Yes.

Sorry.

We cannot hear well.

Yes, from three to four quarters postponement.

Yes.

Okay.

Thank you.

Thank you.

Thank you, Adithya.

Next question, please.

Robert Sanders, Deutsche Bank

Yes.

Thanks for taking my question.

A quick one on the Crolles 300 millimeter fab, I was just interested to know what your utilization rate is right now.

And maybe if you can give us some color around you mix between embedded flash and logic.

And just related to that, what your -- what you think your uplift in profitability could be if you -- once you start to complete your transition there.

Yes.

So you comment on the -- on loading.

Yes.

Perhaps I comment on the loading, and, Jean-Marc, if you mind to take the one on the technology mix and this evolution.

In respect to the loading, it is a progress.

I would remind you that in Q4 the loading was 55%.

This -- in Q1, we have experienced 68%.

And this quarter, we expect to make another step ahead to go towards about 75% of loading, which of course is not sufficient yet not to incur into unused capacity charges.

We said that we expect unused capacity charges to reduce by about 50% to an impact of about 0.5 points to the gross margin.

However, it's moving in the right direction.

Okay.

And-

So about the-

Go ahead.

Yes.

So I answer about your question on technology mix.

So about technology mix, okay, our objective is to have, let's say, a well-balanced technology portfolio.

I have to say, for (inaudible) volatile memory, for microcontroller, for both secure general purpose and automotive, we would like to be in the range of 35% to 45%.

In photonic sensor and specialized imaging sensor, our target is to be in the range of 20% to 25%.

Then on CMOS and SOI and advanced CMOS technology, we would like to be in the range of 25%.

And the rest of the technology portfolio is analog [mixing] and photonics and high-performance analog, which complete the loading of the fab.

Great.

Okay.

Thanks.

And just a quick follow-up on automotive, you were down 2% year on year.

I was just wondering if you could give some color around the relative performance of the key sub-segments, so powertrain, infotainment, safety and body electronics.

Yes.

I think we have certainly a good trend and a good traction in the automotive, a broad -- across the board.

We have an important effort in everything that is advanced safety.

We are now in production -- we are starting in production with the third generation.

We have a partnership in this area with Mobileye.

And we have an increasing number of customers, including major customers, on everything that is related to the advance strategy.

If we look at car infotainment, our leadership position is very, very clear in everything that is around satellite radio applications.

We are definitely the major supplier for satellite radio applications in the United States.

And our Accordo family is -- together with our new class D products, is becoming reference products for many, many Asian customers, both in Japan and in Asia.

We also recently introduced a new family of digital tuner products, again for car infotainment.

This is -- for us is important because we are present in this business.

This is now a new opportunity that we want to exploit in the car infotainment.

As far as body and powertrain, we see a lot of traction with our Smart Power technologies, again across the board.

I would say that, apart to the currency effect that we have already mentioned for automotive, the area where we have some, let's say, a little bit of less traction is more in the mass market in the recent, let's say, weeks.

And I think it's probably related to some form of moderate inventory adjustment at the mid- and the small-sized customers that we serve through distribution, while we see a very strong pattern with all our OEM customers.

Okay.

Thanks a lot.

Thank you.

Thank you.

Next question, please.

Gianmarco Bonacina, Equita.

Good morning.

A couple of questions.

The first one is about your DPG exposure.

If I got it right, you mentioned before it's about 25% of sales.

But I don't understand --

No, no, no, no.

No, no, sorry.

Sorry to interrupt.

It's 25% of what we do in IPD.

Okay.

Okay.

Okay.

Thanks.

Okay.

Yes, yes.

Sorry.

I think it was.

Yes.

Okay.

So it's only -- so basically it's only about 6% of the Group, so 25% of the 25%?

Yes.

Correct.

Correct.

Okay.

Okay.

Perfect.

The second one is about your guidance for the second quarter in terms of your divisions.

I read that you said basically that most of the Group will contribute.

I guess digital is the segment that will not contribute.

Apart from digital, which other segments will probably show a growth below the 3.5%?

Thank you.

Yes.

Carlo will take this.

Yes.

I would say you are right.

At the end, the only group that will not contribute directionally to the growth is DPG, for the reason already discussed.

Then all the other are expected to contribute.

Perhaps in MMS the contribution could be slightly below the Company average, also considering how strong has been the past of MMS growth in the most recent quarters.

And in the area of sense and power and automotive, the current visibility is a growth slightly above the overall guidance, average guidance for the Company, with -- recovering in the industrial with the effect of the new product in AMS and with the healthy situation in APG that Carlo has just described.

Okay.

And just, sorry, a follow-up, if you can mention on the bookings, because I understood you said that in March you had some weaker booking, especially on the PC vertical.

Can you say something more maybe on the more recent trend, if that has continued there or -- yes?

Thank you.

Yes.

The recent trend is better, but I think it is premature to confirm that it is more structural.

So yes, in the month of April we had a better booking trend than what we had in March.

And of course, we would like to confirm this during the next few weeks, but is a better trend.

Thank you, Gianmarco.

We'll move to the next question, please.

(Operator Instructions).

Gunther Hollfelder, Baader Bank.

Thank you.

Two questions actually.

The one on restructuring charges, I think in a past conference call you mentioned about $40m for the year.

Can you confirm this?

And the second question is, given the currency impact on sales, given that a major impact is on automotive, do you think that any potential for price increases is very limited to offset this or are there some areas where you could react here with increases?

Thanks.

Okay.

Carlo?

So I take the question on restructuring.

And thank you for the question since indeed to clarify that the $29m that we have incurred in Q1 is not only due to some anticipation, but is also due to some extra cost associated with our discontinuation of activity in the Longgang So some local-related expense.

So I would say that the overall for the year is increasing, could be in the range of $55m, $55m to $60m.

So what we have now to incur in the course of mostly the second and the third quarter is in the bulk of $30m or just less than $30m.

Okay.

Thanks.

Yes.

For the prices in the automotive, no, I do not believe that we will have a price increase with our automotive OEM customers.

I think the way that we see that in the automotive business, of course with the euro, if the euro would stay at this level, with time there will be some better alignment in terms of pricing because of course our non-European competitors are -- in a stronger way.

But we will honor our -- of course our contracts with the automotive OEM customers.

Carlo, I was actually referring to non-automotive areas, whether there are some --

Okay.

Sorry.

Okay.

Well, of course, yes, now I think we will do what -- we want to make sure that we align with the market.

And of course, we are starting to see some adjustment here, mostly coming from our American competitors.

And of course, we'll align, which is normal.

Okay.

Thank you.

Thank you, Gunther.

Next question, please.

Moira?

Tristan Gerra, Robert W. Baird.

Hi.

Good morning.

Could you give us an update on your 10-nanometer investment plan and whether you plan on doing this in-house as opposed to stopping investments at 14-nanometer?

We do not have any 10-nanometer plan and we do not have any activity to invest in 10-nanometer.

So to confirm, it's that the decision has already been made and you're not going to invest beyond 14?

Yes.

The decision has been made.

Yes.

Okay.

And then a question on your 6-axis gyroscope design win.

You mentioned Samsung Galaxy, there was a teardown recently showing your competitor.

So is it fair to --?

Hello?

We are missing you.

You're cutting out on us, Tristan.

Are you still there?

We lost connection with the questioner.

Okay.

We've got one more?

Yes.

Okay.

Martin O'Sullivan, Cenkos.

Yes.

Hi.

Good morning.

I had a question about competition in analog.

One of your competitors, based in Texas actually, has just turned in a seventh consecutive quarter of year-on-year growth in analog.

So I understood we may not be comparing apples with apples, but they seem to be having quite a bit more success in analog than ST.

So it's obviously well known that ST has lost some market share in MEMS, so perhaps you could remind us what ST is doing to be a bit more competitive in analog and when might analog actually return to healthy growth.

Thanks.

Well, I think our decline was on MEMS and not on analog at all.

I think in analog we have -- today, if we look at the three years' market share and what we do in analog, we have gained market here during the last three years.

There was a significant decline in consumer MEMS.

And what we have in analog today is about $1.4b in the automotive and about $1.2b in non-automotive products.

This is the total analog offering that we have.

But we have just reviewed the market share figures on the analog products in the very recent days, and during the last three years we had in fact a good improvement in terms of market share.

On the other hand, we had a very significant decline of revenues on consumer MEMS, in part coming from competition and in part coming from, let's say, strong -- a very strong price reduction on the smartphone part of our motion MEMS.

We have been working here to compensate with a wider range of products, including environmental pressure and microphone MEMS, MEMS microphones, but, more importantly, also to -- really to differentiate in different segments, like, for instance, the automotive segments.

So the analog part of ST, if we leave for a moment the MEMS apart, is composed by, again, $1.4b of analog products.

And this of course includes Smart Power products, but not discrete products.

$1.4b in the automotive and about $1.2b in the non-automotive sectors.

That of course is very much driven by industrial applications.

Okay.

Thank you very much for that clarification.

I'm just wondering if you can tell us what the underlying growth in analog was in Q1, excluding the MEMS products, if that's possible.

I think we need to make some math here because -- I think it's probably better that we have a separate conversation because we need to take -- to abstract the analog part from three of our product divisions.

One is automotive.

The other one is AMS, and the third one is IPD.

We have four analog divisions in the Company.

We have one analog division that is focusing on industrial, one analog division that is on low-power analog products, and we have two analog divisions in our automotive product (background noise).

Maybe follow up separately on this.

We can cover it at the Investor Day.

Okay.

Thank you very much for the clarification.

Thanks.

Thank you.

I think at this point we've got time for one more question.

Dan Gardiner, Arete Research.

Thank you, guys, and thanks for letting me ask a question.

Can you confirm that -- in the light of the currency movements, your intention to hit that 10% operating margin you previously talked about and what sort of timescale is now realistic for that?

And in the light of the postponement of the DCG ASIC, can you confirm that you will be looking at strategic options again if that business is not profitable within the next 12 months?

Because I believe you have previously.

Yes.

Carlo will take the first one; I will take the second one.

We are of course always putting a lot of scrutiny on our product divisions that are not performing.

And of course, every product division must perform.

And the scrutiny is part of what we are doing, but we understand that there are limits in the time we have to turn around the business.

I think today we have a plan.

Today the plan is based on what you know, but the scrutiny continues.

And of course, we need to show the result also in the digital part of the Company.

The answer to the first question is the same we gave three months ago.

The model of the Company and the financial targets for the Company remain the one that we have shared with you, to achieve an operating margin of 10%.

And for the second half of the year, as Carlo said, we anticipate a significant year-over-year improvement in our operating performance, also, frankly, for this current quarter, if it would not have been for the specific one-time catching up of grants that we have incurred in the second quarter 2014.

So each quarter, apart this respect of the grant, we do expect and plan a significant year-over-year improvement in our operating performance.

And the model of the Company remains to target a 10% operating margin.

Okay.

Thank you.

Thank you.

Thank you, Dan.

At this time, we'll go ahead and close the call.

And again, we do have our annual Investor Day on May 12.

If you need any additional information, please contact Investor Relations.

And we'll look forward to seeing you in London.

Thank you, everyone.

Thank you.

Bye.

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.