STMicroelectronics N.V. (EPA:STMPA)

CMD 2018

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May 15, 2018

Okay. Good morning, everybody. My name is Tait Sorensen. I am the Group Vice President of Investor Relations. I want to welcome you and thank you for attending today. Looks like we might have outgrown our venue this year. Hopefully next year, we will be in a bigger spot. But thank you for joining us very much at our Capital Markets Day here in London, and live via our webcast. Of course, hosting our event today is Carlo Bozotti, our President and Chief Executive Officer. As usual, we have many executives that will present today, and throughout the day will be available for questions. Hopefully you do not leave today without any of your questions unanswered, of course, to the extent that we can answer them. Briefly, here is our agenda for the day. As again, we will have plenty of time to answer your questions. We will conclude our plenary session and webcast after the general Q&A session. Of course, for those people here will be able to enjoy a nice lunch. Very conveniently, everything is located on this floor. We have got demos outside. Hopefully you have all been able to get a coffee or some juice, in the atrium. Clearly we will start off and then we will have a break around 10:45 A.M. What we will do this year is we will have a Q&A session after each product group head. We would like to focus those questions on that particular product group. We will do that. I think also today you will hear a common theme about sustainable and profitable growth. Some of the many products that will help to drive that growth will be available as demos outside. We will also have technologists that will be able to work you through the dynamics of the technologies, and also talk about the products as well. Please don't miss that opportunity. As usual, today's plenary presentations are being broadcast live over the web and can be accessed through our ST website. A replay will be available shortly after the conclusion of this event. Our presentations 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 presented here, and also ST's most recent regulatory filings for a full description of these risk factors. Without any further ado, I would now like to welcome Mr. Carlo Bozotti, our President and CEO, to take the stage and kick off our event. Thank you, Tait, and good morning. Again, thanks to everyone here in the room. You are many. Thank you. Also thanks to those attending on the webcast. Before leaving the stage to Jean-Marc Chery, our designated President and CEO, I would like to make three points. Point number one, I am very pleased about the evolution of our top line. Last year, we grew 20%. In the first six months of this year, we are growing 20% again. This is certainly much better than the market that we serve. I am really excited by the potential of our sales evolution moving from H1 to H2 this year. Today, with the visibility of today, if I look at the overall 2018, we expect to grow in between 14% and 17%. This is more than what we had anticipated. For this reason, we have reviewed our CapEx plan. It is a moderate increase, and this moderate increase is to support the high end of our new guidance, of course, but importantly also to build up, to improve the flexibility of our manufacturing machine and flexibility, not in terms of capacity, flexibility in terms of technology mix available in the various fabs. Second point, I am happy about the progress in terms of financial result. Last year, our operating income, US GAAP, as reported, was 12%. in Q1 this year, operating income was 12.1%. Net income in Q1 this year was $239 million. That is more than double compared to last year. I am excited about the potential that we have moving from H1 to H2 to make a significant step forward, both in terms of operating income and operating margin. Operating leverage in the second half of this year will not come from gross margin. The reason for this is the evolution of our product mix. In fact, it is the evolution of our product group mix with a strong growth of our imaging and of our discrete products. Operating leverage will become big way from the sales growth. All the groups will contribute. Again, both growth and operating leverage will be very much across the board. Comment number three, or point number three, I would, as usual, we present many technologies, many products, but, this time we have decided to focus more on, let us say, our end market strategy. We normally talk to you a lot about automotive. Of course, we will do that. We have a very broad range of products and technologies to address the mega trend in the automotive, the digitalization, the electrification. We will talk about smartphone, where our offer it is more limited in terms of technologies, but they are innovative technologies, and we are working with a limited number of major accounts. We really want to present to you today the progress that we have made in the industrial market. We have invested a lot to cover many different industrial applications, and we want to give you a flavor of our effort here, the progress that we have made with many new products, many new applications for a large variety of systems in the industrial market. This will give us additional opportunities in terms of market share gain, but importantly, this will provide a lot of stability. There will be a strong focus on industrial in all the presentations that we will run today. Having said that, I think I have concluded with my very short remarks. I would like to invite Jean-Marc on the stage, and thank you, and very confident will be a very nice meeting for all of us. Thank you. Thank you, Carlo, and thank you everyone for being here today or on the webcast. I am proud and pleased to have worked so closely with Carlo and together with colleagues here in the room. Carlo, so many intense teamwork to transform ST as it is today. Under Carlo leadership, we have placed ST on a path of sustainable profitable growth. Our recent quarterly and annual performances has clearly demonstrated the relevance of our application focus, our product, technology, and manufacturing strategy, and also our determination, our discipline, and the quality of execution to achieve our goals. Carlo Ferro, our CFO, will soon give you details about our key achievements in term of financial performance. On my side, I would like to highlight few key points. First, our balanced revenue growth, whatever our product groups, geographies, or customer type. Second, our successful introduction of many innovative proprietary technologies and product clearly given us a competitive advantage, enabling key innovation at our customers. More recently and importantly, we have started 2018 well in line with our financial objectives, despite the weakness of the smartphone application market. This is thank to our well-positioned market with a $160 billion of SAM, addressing four important end markets. I would like to say first, the automotive, second, the industrial, the personal electronics, including, of course, the smartphone, and then communication equipment, computers, and peripherals. It will be now my privilege and my duty, pending approval of the general meeting of shareholder at the end of this month, end of May, to lead ST. Driving the company forward and aspiring to make it even stronger player in the semiconductor industry. So the prize of all its employees. This aspiration certainly deserves an assessment and an update of our current strategic plan. This is something we have planned, and we will do it later in the year. But our first and clear priorities are to deliver on our 2018 business and financial objectives. Following our successful marketing and sales strategy, while perfectly executing our new product and technology roadmap milestones as well as our critical and key manufacturing programs. Our goal today with this meeting is to share these priorities with you, and to explain why we believe ST is well-positioned to achieve its goal and how it will benefit for 2018. Let me outline some of these key objective for the second half of the year, of course, which my colleague will discuss then in detail during their presentation. Starting first with our business and financial performance. Here, the key success factor will be, first, revenue growth, discipline in operating expenses, resulting in operating leverage to bring significant improvement for ST's operating margin in 2018. For the second half of the year, we see a healthy demand with a strong backlog across the product groups, geographies, and region, of course, and markets, including the smartphone. We now expect revenue, as Carlo already disclosed, revenue to grow year-over-year between 14%-17%. Based on this visibility, our current visibility, and align with the higher end of our revenue expectation for 2018, we now expect to increase our CapEx in a range to $1.2 billion-$1.3 billion. As before, this will support our key programs, the ramp-up of our key programs. It will serve higher than expected specific customer demand. And importantly, it will improve our manufacturing flexibility. I mean here, in a wafer fab, the process mix flexibility at a given capacity. For analog mid signal fab, like Crolles, it is mixed between imager, embedded flash, and CMOS. For a power fab, it is a mix between PowerMOS and BCD. So, important part of the CapEx will be focused to improve our flexibility in order to leverage our foreign end market position. Moving to our sales and marketing strategy, our 2018 objectives are to maintain, first, a strong focus on the fastest-growing application areas; ensure a balanced sales model will well spread across key accounts, small and medium-sized customer and distributors, and of course, balanced across the end markets we serve. Then, innovate, continue to innovate, focus on enhancing our clients' customer experience. Major global brand choose ST because our technology is the best, and in many cases, unique and proven market. About our distributors, they choose ST because we engage with them with a unique partnership and demand creation approach, and I guess you will see, during some video, what they say about that. Expand our marketing initiatives, so both in the field with a digital channel. We have made great progress in the past two years, and more is coming. About technologies, concerning technologies, I would like to highlight again that ST portfolio is one of our key differentiators. Today in our product group presentation, we will discuss the key technologies that are supporting the market success. Again, our 2018 focus is execution, to simply timely execute the critical milestone of the technology roadmap and provide a broad portfolio of differentiated technologies that allow us to address the varied market and application we target. Let me give you few examples about technologies. Well, for me, it's always a passion to speak about technologies. Our 10th generation of BCD now under development will enable fully integrated system on chips for smart power products. It will be supported by our investment in the 300-millimeter pilot line in Agrate. Specialized imaging sensors will focus on providing proximity and ranging sensor either to the personal electronics or industrial market, and addressing in-depth 3D sensing for smartphone and smart driving. The last but not the least example I like a lot, silicon carbide. I like it, Marco, huh? So, silicon carbide. We are one of the few semiconductor companies today able to supply silicon carbide in volume production. Today, we are only the unique supplier currently in production with silicon carbide MOSFETs for automotive traction. Here, we are also continuing the technology development of our next generation on automotive-grade silicon carbides, which include a move from planar to trench technology for the third generation of silicon carbide. Moving now with manufacturing. Here, we focus on two areas for 2018. First, to continue to drive the efficiencies with the right balance between internal scale wafer fab, wafer sorts, and assembly and test plants, and a selected network of foundry and OSAT partners. Second, as I have already said, we have the strong determination to improve our manufacturing flexibility through our CapEx investment. The loading of our infrastructure is a key success factor. With the investment we are making, we can better serve, in a more flexible way, our customer now and well into the future. So let me conclude this short preview of our 2018 objective with comments on the product groups and, of course, their related priorities. In this area, again, our main goal is to drive innovation with a focus on time to market and strong execution. Our Analog, MEMS and Sensors Group is leveraging its customer base of over 65,000 customers to continue to lead in industrial end market. We have many opportunities coming from our broad branch portfolio of analog products, which grew by 23% year-over-year in 2017. Of course, another key focus in 2018 for this group is to continue to pioneer new imaging technologies and bring them rapidly to the market, building on what we have already shipped. 600 million components already delivered to the depth 3D sensing market. Moving to automotive. Our Automotive and Discrete Group is starting from a solid base, with extensive coverage across all the market in power and discrete, and a market share well above 30% on average in all the automotive application we cover. Here, the 2018 focus will be on delivering the most innovative program in car electrification, while continuing to grow in ADAS, both with OEMs, but with distribution as well. Moving to our Microcontroller, Memories and Digital ASICs Group. They will focus, first of all, on strengthening their position of number one supplier in the 32-bit microcontrollers market. We are doing it in general purpose microcontrollers by adding wireless connectivity, advanced security features, and distributed artificial intelligence capabilities. This will allow us to further expand our already broad customer base. We see also some important opportunities in smartphone with our secure solutions. We see also opportunities in 60 GHz short-range connectivity and 5G communication infrastructure with our analog mixed signal CMOS-based technology, like BiCMOS or FDSOI, enabling RF millimeter wave products. To conclude, I would like to say we are very well positioned to make another step forward in term of year-over-year revenue growth and profitability growth. We are very well positioned as well in order to create value for our stakeholder by delivering a sustainable and profitable growth. Now, let me hand over to Carlo Ferro, our CFO, to share our recent financial performance. I really thank you for your attention and great interest with ST. Thank you very much. Thank you, Jean-Marc. Good morning, everyone. Thanks for joining us. The initial objective we take was to make this event the most attended, the most important in the week in London. However, we pick the wrong week for that. However, we will try to make it interesting enough, and I will start with a simple storyline, I guess. This is about growth outperforming our served market, sustainable margin expansion, and shareholder value creation. It looks a bit like the same of my presentation last year. The difference is that one year after, this is more sustainable, this is more solid. It comes with an excellent year of execution in 2017 and in the first quarter 2018, and it comes with another year of further prospect of improvement in 2018. Today what we will do with Lorenzo Grandi is I will share a few points documenting how the path is solid, and Lorenzo will introduce how the path will be sustainable going forward in 2018. Indeed, our first quarter results already show growth across the portfolio, margin expansion, solid cash flow generation, despite an industry situation that has been a little bit tighter in the smartphone applications as other semiconductor players show. I appreciate that after the earnings release, some of you noted and published that ST has become resilient. Let's take a closer look at our revenues growth strategy, leveraging on our focus areas in smart driving and IoT applications. In 2017, revenues increased year-over-year by 19.7%, outperforming the SAM by seven points, supported by a broad product portfolio and the successful ramp of key programs. This solid performance is continuing into 2018. The first quarter 2018 was our sixth consecutive quarter of year-over-year growth, double digit, with a 22.2% growth. For the second quarter of 2018, we anticipated to be our seventh quarter in a row of double-digit year-over-year growth with a 17.5% growth at the midpoint of the guidance. Coming here, I took the time to look at these similar metrics for other semiconductor company does when combining the actual of the first quarter result and the plan for the second quarter at midpoint of the guidance. For ST, it will be again a 19.8% year-over-year growth for when comparing the first half 2018 to the first half 2017. For other companies, and I took TI, Infineon, NXP, Maxim, On Semiconductor, Microchip, Renesas, all are anticipating a single digit year-over-year growth. I am sure that you did a similar exercise. Even if really we consider and recognize that is a particularly health economic situation, is a positive momentum for the semiconductor market overall. Our market growth over the last 12 months has solid roots, as it is synchronized across the product groups, the regions, the customer categories. All the three product groups posted the double-digit growth in the last 12 months. If we go one notch of granularity below, almost all the subgroups posted double-digit growth. We will see it later. All the three regions posted double-digit growth, and by origin of the customer, our sales are well-balanced, about one third each coming from each region. By customer category, both distribution and OEM grew by over 20% in the last 12 months, and distribution represents in that period 34% of the total sales of the company. Revenues growth is supported by a product portfolio which is broad, and this is today an advantage to serve the IoT applications. This focus on the fastest-growing applications in the semiconductor industry, serving the mega trends of electronics like the vehicle electrifications, the autonomous driving, the smart manufacturing. You will see all of it during this morning presentation. We know that you investors in general also want to see exposure to applications that are characterized by possibly longer life cycles of the product and a higher barrier to shift supply. We agree on that. As really this brings higher resilience in respect to the industry cyclicality and strengthen the sustainability of the financial performance for a semiconductor company. Here in the chart you see our positioning in this respect. You see the ST's revenue split by end market, which is on the top row of the pies as a percentage of the total of ST sales compared to the semiconductor industry, which is on the bottom pies as a percentage of each end market on the total TAM. Well, four remarks on this chart. ST sales are overexposed to automotive, 30% to us, 9% for the industry, and to industrial, 27% for us, 13% for the industry, and underexposed to the smartphones 18% for us, 28% for the industry. About 57% of our total sales are sold to what I guess you call the more stable and sticky applications, like automotive and industrial markets. 18% of the revenues in smartphones are well diversified among different customers and different product. Communication equipment, computers and peripherals is a very diverse market, where we are present with high margin products in selected niches. My colleague, Marco Cassis, will cover more on this respect. Last year at our Capital Market Day, we shared our action plan to improve our operating margin along four drivers. Over the past 12 months, we have well executed these actions and captured many of these opportunities, delivering an incremental operating margin of 48%, meaning that one additional dollar of sales translated in 48 additional cents of operating income. We are encouraged by the progress we've made, and we're confident that we still have opportunities for further leverage, particularly in respect to the revenues growth. The result of the first quarter are here. Revenues are $2.23 billion, I guess we have already commented. Gross margin was 39.9%, with about one point hit from one-time items specific to the quarter, and reflecting an effective euro dollar rate at 1.18. We anticipated a 40% gross margin, plus or minus 200 basis point, for the second quarter. This will be, at the midpoint, the fourth quarter in a row for us with a gross margin percentage in the 40s. Operating margin, as reported, meaning that it takes in account about one point of restructuring and impairment charges, reached 12.1%. The good is that we can discuss now GAAP, operating income, as we expect no further restructuring charges after Q1 2018. Between the operating result and the net income, our P&L is quite effective, with a few million dollar of interest expenses, non-monetary, and 8.6% tax rate. Net income increased more than $131 million year over year to $239 million, driving the diluted earning per share to $0.26, more than the double compared to the year ago period. Finally, free cash flow was positive, $95 million in the quarter. Over the last 12 months, the free cash flow was $372 million, well exceeding the level of our distributed cash dividend, while we continue to invest in our company's growth with capital spend of $351 million in the first quarter, after the $1.3 billion last year. The chart here illustrates the multiple drivers of the improvement of our operating income in the last 12 months versus the previous 12 months period. There are $753 million of improvement in one year, bringing the GAAP operating income in the last 12 months to $1.14 billion, or 13.1% operating margin. You see on the top, all product groups have contributed, each with a substantial improvement and each delivering double-digit operating margin. Among the key drivers, you see that both the top line growth, volume, mix, and price all combined, and the manufacturing efficiencies are the drivers of the improvement. I believe clearly it's a growth and value story continuing. But before turning to our capital structure, allow me to share four considerations about this level of profitability. Number one, it's sustainable as it comes across the board for all our businesses. Number two, it's solid, as it reflects an excellent execution. Number three, it shows a faster expansion than competition. And number four, it translate into a return on invested capital among the highest in comparable semiconductor IDM companies. Maybe one quick look at each of these point. In the first quarter of 2018, the year-over-year improvement of our financial results reflect growth across our product portfolio and operating margin expansion for all the product groups. It's visible in the chart. Looking at revenues, MMS, as well as MEMS and sensor, grew well above the corporate average of 22.2%, on strong growth respectively in general purpose microcontrollers and imaging sensors. Analog growth was similar to the company average, excluding imaging, which was 18.7%, benefiting particularly from general purpose analog. APG and PDG grew double digit, and I would say only digital grew single digit, but was a very good growth benefiting from growth in the digital ASIC, but also reflecting the progressive phase out of legacy business. In the same period, our product group's operating margin improved significantly. MDG almost doubled to 20%, ADG doubled to 11%, AMS improved by 30% to almost 10%. Next is about execution, and here allow me a personal note. The first quarter of 2018 has been the 54th quarter I have closed as ST's CFO, and I'm proud that 52 of them fall within the guidance. And I'm sorry for the two that we missed, that I missed the two, Carlo only one. But let go on the point, focusing on the last four years. So we really capture the ongoing momentum of the ST strategy. The chart shows the actual revenues and the gross margin in respect to the quarterly guidance. Over the past 17 quarters, we always delivered actual result when in line with our guidance, and in fact, over 82% of actual result have been equal or better to the midpoint of the guidance plus or minus 10 basis points. ST as a team has delivered this result, and the company will continue to make a substantial effort to deliver excellent execution. My third remark is about the evolution of our operating performance in respect to our competition. Operating margin is still below benchmark, which on one side reflects a different product portfolio, on the other side, shows opportunities for further improvement. Certainly, our recent financial results have translated into faster revenues growth and larger operating margin expansion than our key competitors. This is evident charting the first quarter 2018 result versus the prior year period in term of sales growth on the x-axis or in term of points of operating margin expansion on the y-axis. I guess the chart speaks for itself. Moreover, the benchmark started to show a stronger ST, ranking on the top of the industry performance in respect to the return on invested capital, whose excess on the weighted average cost of capital, in my opinion, is a good proxy for shareholders value creation. Expanding profitability and accelerating the net asset turns, our RONA, our measure for the return on invested capital in the last 12 months was 26%. As you can see, this performance places ST at the third highest return among comparable companies. I mean, non-memory, non-processor, semiconductor, integrated device manufacturer. After two analog American companies and before any European or Japanese competitor. Finally, our solid capital structure and the strong balance sheet. Strengthening, even if and when investing about 31% of our sales to fuel growth and innovation with R&D and capital spending. Our free cash flow in 2017 increased to $338 million, after absorbing $1.3 billion in CapEx, while covering our cash dividend to shareholders totaling $214 million per year. Available liquidity at the end of March is approximately $2.2 billion, with an additional about $1 billion of flexibility from undrawn committed credit facilities. Our net financial position was a cash balance of $522 million, improved year-over-year. Since really foundation, we are taking a long-term prospect when it comes to our financial flexibility. For example, since our last Capital Market Day, we have accomplished a significant improvement of our balance sheet and a further improvement in the P&L line of interest with the successful offering of $1.5 billion new convertible bond at zero yield and the full settlement of the $1 billion convert issued in 2014. I'm glad that our financing Strategy has been several times recognized with prizes. Just last week we were informed that we are the overall winner of the Best Funding Solution award in the 2018 Adam Smith Awards here in London. Finally, important for you, at our annual shareholders meeting on May 31st, it will be proposed for resolution to continue a cash dividend distribution of $0.24 per share or $0.06 per share for the current and each of the next three quarters. To conclude, since ST's public initial offering in 1994, the company has delivered to shareholder an average compound total return in excess of 10% per year. I believe it's a good result. I'm proud of this result, and I truly believe that their merit is ST's very solid foundation of technology, product IPs, and people. In the recent past, we have even more accelerated, and we are encouraged by the progress and prospect in the target sequence, sustainable growth, margin expansion, shareholders value. It has been a team effort, and I'm confident that Lorenzo Grandi, who has been our corporate controller with me since 2005, will continue on this path as the next Chief Financial Officer of ST soon, with the support of an outstanding professional team. I'm glad now to turn over the stage to Lorenzo to present the ST's financial prospects. Thank you for your attention today. Moreover, thanks all of you. Thanks very much for all the trust and support through these years. Thank you. Thank you, Carlo. Thank you very much. Thank you for your words. Good morning, everyone. It's a great pleasure and privilege to be here in London with you today, and for the first time on this stage. I have been in ST since its formation in various business and financial roles. I have worked, as just said by Carlo, for many years with Carlo Ferro, more than 10 years of tight collaboration and achievements under his leadership, supported by a strong team. As you may know, after our annual general meeting of shareholders on May 31st, I will take over the role of CFO. I am looking forward to this exciting opportunity and to developing a relationship with you all in the future. This about the future, in particularly the second half of 2018, that I would like to talk about today. I will cover three main areas. First, I will review our revenue progression for the current year. As you have just heard, based on current visibility, it looks very good. Second, I will share how we expect this revenue progression to positively translate into improved profitability for ST. I will also give you some more color on anticipated profitability by product groups. Finally, I will share our updated expectation on capital investment for year 2018, needed to support current and near term market opportunities and technology and product mix flexibility. Let's start with the revenues. Our objective for 2018 is to leverage the result we achieved in 2017, continuing on the path of broad-based, sustainable, profitable growth. Based on our first quarter 2018 results, we have started the year well on track. Revenue grew 22.2% year-over-year to reach $2.23 billion. All our product groups and region posted a double-digit revenue growth, we have just seen. While we are pleased by these results, we are focused on staying on this trajectory. Based on current visibility, and despite the weak demand that we are experiencing for smartphone continuing into the current quarter, we anticipated the second quarter and the first half revenue to grow year-over-year about 17.5% and 19.8% respectively, at the midpoint of our guidance range. Let's look now to the expectation for the second half for the full year revenue. Looking at the revenue growth in 2018, again, based on current visibility, we now expect year-over-year growth between 14% and 17%. It is clear we are expecting 2018 to be another year of strong revenue growth, with significant revenues acceleration when progressing from the first half to the second half of 2018. Similar to last year, our revenue growth is expected to be driven by continued strength in key application end products. A solid demand backdrop generally, as well innovative and new products across all our product groups. Let me share some of them. In ADG, with ADAS, 32-bit microcontrollers, electrification products including silicon carbide, smart power, and high voltage in PowerMOS for industrial. In AMS, with analog application specific standard products, MEMS sensor, general purpose analog and RF, time-of-flight, and specialized image sensor. In MDG, with general purpose MCU, secure MCU, and digital ASICs. Overall, at this level of expected revenue growth, we believe we will outperform our service available market in 2018, as we did already in 2017. Very good progress in the revenue level, demonstrating sustainability and driving profitability. Let's now look at other elements that we expect to help drive improving profitability for ST in total and for our product groups. Starting with gross margin. If we look at the recent past, we have just heard, our first quarter gross margin increased 220 basis points year-over-year to reach 39.9%. Manufacturing efficiency was the largest contributor to the improvement, followed by the product mix. Looking forward, gross margin in the second quarter is expected to slightly improve compared to the first quarter at about 40%, plus or minus 200 basis points. Gross margin has significantly improved over the past year. Over the last three quarters and the current quarters, including Q2 guidance, is ranging more or less at about 40%. In the second half of 2018, we see revenue growth as the main positive driver for the gross margin, together with the contribution from new products and, to a lesser extent, manufacturing efficiencies. This gross margin dynamic, however, will be substantially offset by the revenue mix evolution among our product groups, with accelerated revenue in the second half, mainly driven by imaging and discrete. Additionally, negative factors impacting our gross margin will come from higher material prices and unfavorable Euro-Dollar rate. Therefore, we expect to substantially maintain our current level of gross margin while absorbing product group mix shifts, higher material price, and unfavorable Euro-Dollar effect. Of course, keeping gross margin substantially at the current levels means our gross profit will increase, in line with our expected revenue growth. How does this increase in gross profit translate to operating income growth and operating margin expansion? Based upon our anticipated level of operating expense spending, we think it translate very well. Our operating expenses are well under control, and we are continuing to exercise a strong discipline in prioritizing our operating investment. First quarter 2018 net operating expenses, the combination of R&D, SG&A, and other income, were $598 million, and $619 million including restructuring charges. As anticipated during our first quarter earnings result call, we expect the second quarter net operating expenses at about $610 million to $650 million. In the second half of 2018, we see operating expenses moderately increasing compared to the current level. The negative impact of inflation and Euro-Dollar rate will be substantially offset by overall discipline to control our discretionary cost, in particular in general and administrative expenses. Additionally, we will benefit from the completion of our restructuring plan. We expect negligible, perhaps even zero restructuring charges. Revenue growth will translate into a reduced OPEX to sales ratio, which we estimate to be around 360 basis points of operating margin improvement when progressing from the first half to the second half of 2018, at the midpoint of our expected revenue growth for the year of between about 14% and 17%. Of course, our aspiration is to target the high end of this range. Now, I would like to spend a few minutes on the performance of the three product groups. Our progress for ST as a whole is visible through their individual performance. The synchronization of growth across our three product groups has brought a good balance and stability to ST. On the last 12 months basis, Automotive Discrete represented 36% of our total net revenues, while Analog, MEMS and Sensors and Microcontrollers & Digital ICs each represent 32% of net revenues. In addition, all three product groups posted a last 12 months double digit operating margin, with MDG leading with 17.5%. They also were balanced in term of contribution to improving our profitability. Let me expand on the margin contribution we expect from each product group in the second half of 2018. Automotive and Discrete, ADG. ADG leverages a strong technology foundation, including our proprietary BCD technology, embedded non-volatile memories, RF, FDSOI, silicon carbide, and gallium nitride. Our automotive portfolio covers all the key application areas in the car, while our power discrete product family include power products and protection devices. Driven by our innovation, key revenue contributors this year are expected to include ADAS, automotive 32-bit microcontrollers, and silicon carbide for automotive and industrial. Distribution is also expected to be a positive contributor as we leverage our global network. On the margin side, we expect ADG's operating margin expansion drivers to include a leverage on revenue growth, improved mix, and growth in distribution. In the second half of 2018, we expect ADG to contribute an operating margin in the low teens, higher in automotive, and lower in power discrete. Turning now to Analog, MEMS and Sensors. AMS leverages a strong technology foundation, including smart power, mixed-signal analog, MEMS, and imaging sensor. As you know, AMS offer a broad range of building blocks covering sensing, conditioning, connectivity, actuation, power, and energy management. We expect key revenue drivers to include analog and MEMS for industrial and automotive, power management combos for HD drives, general purpose analog, and motion control ICs through distribution, and of course, time-of-flight and specialized image and sensor. Accompanying sales growth, we anticipate AMS margin expansion drivers to include a strong leverage on revenue growth, improved analog and MEMS mix, and manufacturing efficiency. In the second half of 2018, we expect AMS to contribute an operating margin in the mid-teens, higher in analog and lower in MEMS and sensor. Moving now to MDG. The group leverage on a strong technology foundation, including embedded non-volatile memories and differentiated digital processes such as FDSOI, BiCMOS, and RFSOI. Key revenue drivers include our STM32 general purpose microcontrollers, secure microcontrollers, near-field communication, and digital and mixed-signal ASICs. MDG margin expansion drivers include the leverage on revenue growth, manufacturing efficiencies, and improved product mix. In the second half of 2018, we expect MDG to contribute an operating margin of about 20%, higher for microcontrollers and memories, and lower for other products. Now, let's move to the third part of my presentation, our capital investment. As we have just discussed, based on demand evolution and the healthy backlog for the second part of the year, we are expecting strong revenue growth across all our product groups and markets, including smartphones and regions. Entering the year, we anticipated to invest in a range of approximately $1 billion to $1.1 billion. In light of a strong demand and evolution of the technology and product mix in the second half of the year, we now anticipate the capital investment in 2018 to be in the range of about $1.2 billion to $1.3 billion. This moderately higher CapEx is mainly aimed to increase technology flexibility and support product mix evolution. Also, this investment, coupled with the expanded sourcing from foundry on a larger set of technologies, including analog and mixed-signal for non-automotive products, will support both 2018 revenues and our future growth programs. Moreover, it will increase our manufacturing flexibility as the new technology introductions. Based on expected profitability and increased EBITDA in the year, we do expect to generate free cash flow well above the dividend level, thus keeping our capital structure solid and flexible. Finally, we are on my last chart, the takeaways. What are the main takeaways of my presentation? First, based on current visibility, we now expect a solid revenues growth in 2018, as we said already, between 14% and 17%. Strong acceleration in the second half. Second, based upon our revenue growth outlook, we expect to outperform the served available market. 2018 will be like 2017, another year of market share gain. Third, ST will significantly expand in the second half its operating margin compared to the first half, mainly driven by expenses operating leverage, despite our product group revenue mix evolution, that will substantially maintain our gross margin at the current level. To be clear, we see 2019 second half gross profit increasing in line with revenues, with operating profit increasing at higher pace, thanks to expense operating leverages. Fourth, we plan to invest between $1.2 billion to $1.3 billion to support our revenue growth and increase our manufacturing flexibility. Fifth, ST solid capital structure and free cash flow generation is allowing us to invest to support growth, to reward the shareholder, and to maintain flexibility. Conclusion, we expect 2018 to be another year of progress on delivering sustainable and profitable growth. We have started the year well on track, and we intend to deliver on our expectation to continue to create and increase shareholders' value. Thank you for your attention. Now I would like to turn over the stage to Marco Cassis, head of our global sales and marketing. Thank you again. Thank you, Lorenzo. The secret here. So good morning, everyone. As head of sales and marketing, I'm going to talk to you about our consistent and successful sales and marketing approach. This has been one of the enablers that allowed us grow in a balanced and broad way. Let me say up front that our market success is built on the fact that ST has the right products at the right time to take advantage of key trends, like IoT, car digitalization and electrification, as well as enhanced user experiences in smartphones. This means that the choices that we have made in the past, in terms of investment in technologies and products, have put us ahead of competition in the end markets we target. These four end markets, as mentioned by Carlo Ferro before, are covering virtually all electronic applications, and all of those are set for growth in the next few years. The part of the market we serve represents over $160 billion, with a compound average growth of 5.6% over the next three years. As I just mentioned, we see growth across all end markets. But industrial, very fragmented, is showing particularly strong growth, driven by IoT and by the introduction of a number of enabling technologies. Personal electronics is instead influenced by the slower growth of smartphone, which however represents an opportunity for us in terms of adding new semiconductor content per device. Across all of these end markets, we apply our successful application focus. As you know, we started an application-oriented strategy in 2015 focused on smart driving and IoT, including Smart X, so smart industries, smart home and cities, and smart things. This focus has already proven to be successful. I repeat again the outstanding results of last year with 20% growth, and a very strong forecasted growth for this year, too. We believe that this continues to be the right approach. Of course, we will continue to focus on the areas growing fastest. This chart is quite well-known, and these are the application we have been talking about for the last few years. Here you can see the absolute growth in billion of dollars of the applications. You can see that application where we focus are showing the fastest growth, and again, automotive and industrial dominates the growth and confirm our focus. In these two pie chart, you can see on the right one, the growth in terms of TAM, the split in terms of TAM of the end markets, while on the opposite side, you see our presence in those markets. Clearly, as Carlo Ferro already said before, while from a TAM point of view, automotive and industrial represent only 22% of the pie, in our case, we are close to 60%. Again, very important, solid and sticky market, and a long-term growth market. Let's look now at the individual end markets and ST's position there. Starting with automotive, where our smart driving focus fits perfectly with the long-term trends in the market. We have a very broad portfolio, which allows us to benefit from the growth in electronic, in all parts of the car, growing in both the very latest technologies to come into the car, as well as with the more traditional products. Simple example, the latest Audi A8 has 1,000 components from ST. New application and legacy products. We are ahead of the curve in the major trends. As you will see in the other end markets too, we made early investment in technology and customer relationships that put us in the position we are now. For example, in ADAS, with Mobileye, where we have developed multiple generation of products together and 13 automakers are already planning designs with the latest EyeQ4 device. But also, we are staying ahead of the curve in another major trend in the automotive industry, electrification. Again, pioneering in car electrification as the first high volume silicon carbide for automotive. Moving now to industrial, where we see a huge opportunity in terms of growth, thanks to the level of innovation now present in industrial application, leveraging to the IoT revolution. This is, again, an extremely fragmented market. There are a number of enabling technologies for the evolution of the industrial market, including pervasive embedded processing with artificial intelligence capabilities, wired and wireless connectivity, security and protection, innovative power technologies, cloud and edge computing, and big data analysis. We are leading in many of them. ST here is already working with industry leaders across the globe, like Nidec in Japan, Delta in Taiwan, Siemens in Europe, Emerson in U.S., Embraco, Cree, Midea in Asia, to tens of thousands of small and medium-sized customer. Working with leader to build products that can proliferate to the broad market. An example is STSPIN32, which combine motor control and an STM32 general purpose MCU. The first product was developed as a custom project with a global industrial leader for advanced motor control. ST then introduced a family of products with a variety of features addressing the broader market. Today, we have more than 200 ongoing projects in industrial robotics, power tools, embedded motors, pumps, fans, et cetera. You will see more in Benedetto's presentation. Here is just to give you a flavor of the fact that we are covering a huge number of application for industrial, for example. You can see some example here of the breadth and depth of the industrial application for which we offer solutions. Nearly 200 individual applications. We offer there, of course, MCUs, sensors that are going everywhere, analog and power. In personal electronics, we address the market with multiple business models. Smartphones, as I mentioned, for ST, has some and content growth story despite moderate unit growth. We are planning to increase our share inside the set. We are working with top smartphone and wearable makers such as Samsung and Fitbit, with leading gaming device creators such as Nintendo, and with leaders such as DJI for drones. We invested also in our time-of-flight and specialized imaging solutions ahead of the market. This allowed us to become a leader in time-of-flight and 3D sensing application. In communication equipments, computer and peripherals, we have a varied customer base. Our approach is to work with leaders like Seagate and Western Digital in combo power ICs for data storage, taking advantage of our leading-edge technologies like BCD. We work also with the top infrastructure leaders in U.S., Europe, and China, like Huawei, where we sell 150 different components into their communication infrastructure equipment. Here, we are also investing to stay ahead of the curve in areas such as next generation architecture for data centers' power management. The balanced model I mentioned before in terms of end market applies also to our customer base. We are balanced both by region in terms of revenues and by customer type, roughly one third in each of the regions and one third in each of the customer type, with 34% just on the distribution side. Let me say a few words on our approach to our different customer groups. We have more than 100,000 customers, and they are growing fast. We have, of course, different models to address our customers. Global key accounts, OEM are supported by dedicated organization at worldwide level. Our top customers are leaders in the market they are serving. They bring high volumes to amortize our investment, and they work with us on leading-edge technologies, allowing us to keep leadership in innovation. Of course, there are a lot of other customers that we are supporting through distribution and through online accounts. Online accounts are growing extremely fast, and distribution customer are a lot everywhere, and especially in the industrial field. So distribution is key, is a key element of our go-to market strategy. The benefits are clear. The reach, the localization, the capability to go to very, very small customer, the capability to bring back to us information on what the market needs. Very important is that we are not only selling to them, we are not only selling through them, but we have a two-way relationship, where they give us feedback on what we need to support the final customers in their industries and regions. Help us to come to, with joint development, turnkey solutions like low-end ADAS that we did for automotive market in China. We have decided to invest in the model of joint business creation, and clearly it is working. In 2017, we grew with distribution POS by more than 12%. We did by applying a winning model of cooperation with distributors built on five blocks. Very important is the one on the last right, is the aligned go-to market and joint business creation. This relies on a number of other building blocks in our distribution approach. Products and application solution, you will hear much more from my colleagues soon. Partner ecosystem, very easy-to-use tools combined with training, and of course, online and digital marketing efforts. We launched a number of new development tools that were aligned with our new strategy set in 2015. Development tools are key to allow customers to prototype and develop quickly and easily. Results. In a recent survey by AspenCore, 30% of embedded developers said that they were applying new MCU designs based on our STM32 microcontrollers. We were ranked first among competitors, and the second one was far behind. We also have structured programs with partners to expand our ecosystem and now have about 150 partners in there and growing extremely fast. Equally, we are investing in digital marketing initiatives to expand the reach of ST. Our initiative here is about providing better support to developers through our community website and more visibility of our products with digital marketing campaigns. One encouraging data point is that we are able to gather more and more contacts from our marketing programs, and that more of these are opting to receive information from ST. Our aligned go-to-market approach has result in tangible business benefits in terms of new customers and additional designing sockets. But rather than listening to me talking here, I want to show you some of what our distribution partners have to say about working with us. Willas-Array Electronics is a Hong Kong-based company principally engaged in the distributions of electronic components in Greater China market. Willas-Array has enjoyed the privilege of a strong and mutually rewarding partnership with ST for more than three decades. Today, ST is the number one supplier of our group. In recent years, the focus of our partnership has targeted two major, fast-expanding segments, automotive and industrial. As part of our commitment to grow together with ST in these segments, Willas-Array has dedicated FAEs who trained under ST. At the same time, we bring our knowledge of the China market into the partnership and ensure that our automotive sales team continue to build our network of local car makers and the overall supply chain in China's automotive market. So that we can continue to drive sales for ST. The outcome has been beyond our expectations, as automotive has become one of our group's fastest-growing business segments, with double-digit revenue growth over the past few years. Through our proactive sales and marketing efforts, this array has initiated a lot of new demand creations for ST's latest technologies and products in the field of battery-powered and energy-saving applications. The solid result from these applications, leading this industrial segment being our highest grossing revenue earner in the recent years. ST has been a very good partner, and I look forward to continue our close cooperation for many more years to come. WT is one of the leading electronic component distributors, with 45 regional offices throughout the Asia Pacific region. ST is one of our most important suppliers. Our strategic partnership with ST started in 1999, and our business expanded with them over the past decades. I would like to emphasize that ST has very strong innovation capabilities. Over the past years, ST has accomplished impressive product transformation. Smart driving and IoT are both the most important trends for the future, and ST is riding on them. There are over 47,000 registered opportunities in the design pipeline, and expected to generate over $350 million new creation business in the coming three years. We are very confident that we will reach substantial growth in these focused segments with ST's products. WT is honored to participate in ST today, as well as future business expansion. We, as a semiconductor specialist, are being asked to provide in-depth application support, value-added services, and logistic solution to a diverse customer base. EBV, as a part of Avnet, the largest distribution group in EMEA, will embrace these challenges as we take advantage of our leading role with the electronic component industry. We count on ST, and Thomas Staudinger will detail why. ST and EBV have been partners for more than 12 years with a focus on mass-market customers. STMicroelectronics is an engineering-driven company that is investing in leading-edge technologies like analog, power, microcontrollers, and sensors. They are also a broad liner with a lot of experience in standard products, and a common focus on building blocks for IoT, industrial, and automotive applications. In other words, ST is a reliable partner with great tools, such as evaluation and fast prototyping boards, and outstanding distribution channel policy, as well as a highly motivated support team. We at EBV have a close relationship with all ST levels: general, marketing, sales. ST helped us to grow at a double-digit rate over the last five years. We will definitely continue to invest in joint activities, like trade shows, seminars, trainings, and so on. The journey has only just begun. As a leading global technology company, Arrow guides innovation forward in what we call the world of five years out. We have a role in making life better, smarter, and safer for people the world over, and that is really meaningful work. Life augmented and guiding innovation forward. Our businesses have similar DNA and a common mission to enable our customers with total solutions. ST is indeed a world leader in semiconductors, and over the last 30 years, we have become preferred partners for integrating their building blocks into complete designs and business solutions. From sensors to embedded processing, power management, and secure connectivity, ST's broad portfolio, combined with Arrow's full spectrum of capabilities, let our customers focus on the thing rather than its parts. They define the outcomes they need, and we ensure that they can be delivered. In many ways, ST is a complete partner for Arrow. They have embraced our digital platform as a route to market and for its ability to expand our collective customer base. And collectively, we are enjoying record growth and customer penetration together. Looking forward, ST's investments are poised to bring some very differentiated leading-edge solutions to market. In particular, new technologies such as silicon carbide and secure solutions for industrial IoT, smart city, and smart driving. As we continue building momentum together, we cannot wait to see where we will be five years out. Okay, to conclude. First, our sales and marketing approach has been the right one, and we want to continue to grow. Second, investments in new technologies have allowed us to have the right products at the right time to take advantage of key trends like IoT, digitalization, and electrification. We are ahead of the curve. Why? Because we invested in microcontrollers, starting our 32-bit MCU family back in 2007. Moving from outside the top 10 to number 2 in combined secure and general purpose. We invested in 3D sensing, we invested in silicon carbide, and we invested in ADAS. You will see more about how we're investing for the next wave, artificial intelligence, the next level of integrations, the ecosystem. This is what will enable us to grow this year and beyond. A structural sales and marketing approach, built on the solid foundation of ST's innovation. Innovation comes from my colleagues in the product groups, who I now hand over to, starting with Marco Monti. Thank you, Marco. Good morning also from my side to everyone. I'll talk about ADG for a bit. What we do in ADG, we do two different things. We do automotive under the APG subgroup. I think it's the part that you know better. You are more familiar with this because I'm normally reporting to you the status of our business in automotive. Then we do under the PDG, the product and discrete product group. We do all the market for power and discrete products, so for the power product and also for the whole family of discrete product, including protection, integration of passive component, and diodes, for the full market, including, of course, also the activity that we do in automotive. For example, the activity we are running today on silicon carbide, that we are mentioning several time, is made under this subgroup, and the revenue are associated under this subgroup. If you take the 2017 result, APG has been roughly EUR 2 billion, so EUR 1.93 billion, and PDG, EUR 1.1 billion. So overall, we represent 37% of the total turnover of the company. Last year, we grew 9% overall, combining the two different subgroups, with the APG growing 6%. We saw a very fast acceleration of our growth the second part of the year, so we are reporting the chart, the 14% growth that we had in APG in Q4, so the same period of the previous year. This is continuing in 2018. We reported a 15% growth that we have in Q1, and the feeling that we have is that this growth will continue and probably even further accelerate in 2018, considering the strong backlog that we have. Instead, the power and discrete group has been already growing two digit in 2017, at 13%, and we saw the same kind of acceleration the second part of the year, 16% growth in Q4 and 16% growth in Q1. Also in this case, the backlog is really very, very strong. As mentioned, we are very busy in trying to differentiate our customer base, and this is very visible in the result that we had in distribution. We grew, taking as an example, Q1 this year, 25% in distribution through proliferate a different number of customer. This is particularly true in automotive. In automotive, we are growing in Q1 35% in all the distribution channel. Let's see how we serve the different markets inside the ADG group. Plotting it in the kind of axis where on the bottom you have the stability and the predictability of the business, and in the top you have the dynamic of the business that we have in our market. You see that our business is pretty much stable. We have 69% of the turnover in ADG made with automotive customer, 25% in industrial, and 6% in personal electronics and in communication infrastructure. You see a very stable and solid and predictable business. Definitely, we are contributing to the solidity and the predictability of the business of the company. In the right part of the chart, we listed, without any particular order I have to say, some of the customers that we are serving, of course, with the customer that gave us the authorization to put their name in the chart. The remark I have here is that I have to say that with most of these customer, we do not have just a relationship customer-supplier, but we have a true partnership, particularly in automotive. All those customer are helping us to drive efficiently our manufacturing machine. In term of technology, and starting with the APG, the automotive organization, we are basically using most of the technology of the company, starting with the smart power. The BCD9 today is the reference technology for our product. We will enter in 2018 in production with 25 new ASIC and ASSP product for automotive application. We are starting to generate product with the BCD10, so the 90 nanometer generation that is making us in the position to have a very strong integration for our smart power product. The VIPower technology is a very traditional technology for us. It's the technology that we use to implement intelligent switch in application like the body or the lighting. All the embedded non-volatile memory. Today, we are in production with the 40 nanometer technology with the traditional tunnel oxide flash. We are generating now product, you will see in a moment in my presentation, with the 20 FDSOI technology, integrating a disruptive flash made on a phase change memory concept. CMOS for us, reference technology for us in CMOS area is the 28 FDSOI that we are using for many different kind of application in ADAS and infotainment. Now the 7 nanometer that we know we are using for the most advanced eye lithography product in the area of vision safety, like for example, the product that we are currently designing together with Mobileye. All the RF technology on BiCMOS, when we have to integrate only the transmitter and the receiver or the 28 FDSOI, the RF when we are integrating also the baseband processor. In term of manufacturing, Crolles for us is the reference plant for all the digital activity that we have. Agrate and Catania are the reference plant for all the smart power and analog activity that we have in my group. Singapore is the big manufacturing location for consolidated product in a smart power application. And of course, we use foundry for the 7 nanometer I just mentioned, but also as a second source for our microcontroller in the 90 and the 40 nanometer generation. The same chart for the power discrete subgroup. PowerMOS, we are basically serving all the market in high voltage and low voltage kind of technology, of course, with the trench option. Silicon carbide, we are today in production with the second generation that is planar, and the third generation that is trench is in qualification on our customers. We think that we will enter in production with the third generation trench probably beginning of next year. And then of course, all the proliferation of the SiC diode. GaN, you will see in a moment, we are very active on GaN, particularly on Power RF GaN, but also on the power GaN for transistor and diode and all the discrete in term of again, protection diode and integrated passive. Also in this case, in term of manufacturing, Catania for us is the reference plant for all the PowerMOS activity at voltage and low voltage, is the reference plant for the silicon carbide for the new GaN RF technology. Tours for us is the reference plant for all our discrete traditional products and the power GaN that we will produce in Tours. And Singapore also in this case is the large manufacturing location for Power MOSFET. Let's start with automotive. I will not spend too much time on this chart. I think you know that our presence in automotive is very wide. We are covering most of the application, I would say all the application in automotive with very important market share. We mentioned the combustion engine, the body and convenience, the infotainment and the ADAS for both vision and radar. So very large market share and very broad product portfolio. I mentioned that we are growing a lot in automotive and particularly in APG. I just listed some of the application for which we are growing as let's say base data 2017, more than 15%. So all the car radio processor, all the electrical power steering, the smart power ASIC, the vertical integrated technology, and also the application that we grew more than 30%. So all the ADAS in term of imaging and radar processor, all the 32-bit microcontroller for automotive, the premium audio, and the transmission IC. So you see very important growth in many different kind of applications. The same chart for the power discrete. So in this case, as you know, we are market leader in high voltage MOSFET with basically we represent almost one third of the total market in the high voltage domain. And here we are concentrating in application like lighting and power conversion, as you will see in a moment. Silicon carbide and let's say all the new material for us is a key activity. As Jean-Marc Chery mentioned, we are the only company today shipping in volumes in automotive for traction application. So we reported a market share higher than 50%, but in reality, what we are shipping today in automotive is exceeding the estimation of all the analysts in term of market size. And so we will continue to proliferate our silicon carbide activity also outside the automotive. I just report two examples of discrete component in terms of switches and protection, where our market share is really important. Also in this case, I just reported a few areas where we are consistently growing in 2017, more than 10% in all the voltage of PowerMOSFET domain, all the automotive activity in power architecture, smart power, Schottky diode, sorry, and protection, and more than 20% in all the IGBT that we ship in modules. The ultrafast diode for the rectification, all the silicon carbide for diode and MOSFET, and the antenna filter. Let's focus one second on the automotive market. Automotive market is a good place to be, and what we see is that this market is progressively transforming from a market of volumes to a market of contents. You see that car registration is in some way limited to 2%. This is the result of 2017, and we continue that the compound average growth of the car registered in the field will be in the range of 2.5%. But you see that the pervasion of silicon per car is growing at a pace that is more than double than this. A good example, I think, is Chinese market. Chinese market is growing 2%, 2.5%, but you see the pervasion of silicon in the Chinese car is growing three times faster than this, and definitely the contents of semiconductor in the Chinese car is rapidly approaching the contents of semiconductor car in Europe and in U.S. Again, we are exceeding the performance of the market. In this chart, you have the benchmark between the market by the different kind of application in the left part of the chart, and our performance is restricted to ADG in the right part. You see that we are basically exceeding the growth of the market in all the different application. The only application that we are not exceeding the market growth is the infotainment, but we know we are vocal on this since several quarters. We are transforming the size of the business that we have in infotainment, moving progressively from the aftermarket domain that is quite exposed to the market cycle to the OEM. I am sure that in 2018 we will exceed the growth of the market also in the infotainment applications. In terms of strategy for automotive, the major part of our business, more than 70% of our turnover is linked to very conventional, traditional, high volumes automotive application. This is the area where we are developing relationship with our customer, we are developing our IP, we are developing our technologies, and you see that market share is clearly rewarding us. On this kind of area, technology like BCD9, the 90 nanometer embedded flash, the VIPower or low power PowerMOS are giving us a strong advantage against our competitor. About 30% of what we do in automotive is really innovation that we split it in two. One is to serve the transformational trend of automotive, you know, the increase of safety, the green concern, and the connectivity. Also, in this case, technology like the BCD10, the 40 nanometer embedded flash, the FDSOI28 and RF CMOS with BiCMOS flavor is clearly giving us advantage against the competition. Part of the innovation that we have is because of disruptive technology. Of course, the silicon carbide, you will see in a moment the gallium nitride, the FDSOI with PCM integrated, is clearly disruptive technology that are trying to anticipate market trend, like the autonomous driving, the vehicle-to-vehicle communication, or in the strong integration of the power stages in the automotive application for the electrical car. There are a good reason, as you know, to serve the transformational trend of automotive because this is totally changing the landscape of the market that we are serving. If it is true that an average car is having today $330 of semiconductor on board, it is also true that the full electrified car is having more than 900 or let's say $1,000 of semiconductor. But even the mild hybrid car that today are in large volume in the field are showing a consistent improvement in term of semiconductor per vehicle. Autonomous driving, we all know that it is changing totally scale of the contents of semiconductor in the car. A full autonomous car is having more than $1,200 of semiconductor on board. But even the level 2 or level 3 that I think every one of us is having today in the car is showing a consistent increase of semiconductor, and it is the same in infotainment and telematics. I want just to concentrate one second on the first, on the premium. You see that what I mentioned, that our market is moving from a market of number to a market of contents. You see that is very visible because serving the premium vehicle is clearly providing a boost on the sales because a premium vehicle, fully electrified, could have even more than $2,000 semiconductor on board. A big value to follow this market. I just want to mention very rapidly what we do to serve the transformational trend of the automotive. I want to start of course, with environmental impact, taking the CO2 that you know for different reason, is one good parameter to, let's say, measure the ambient impact of the different cars. Internal combustion engine, as you will see in a moment, is far away to be disappearing from the market. Thanks to the electronics, now the car with the traditional internal combustion engine are capable to overcome and exceed the stringent regulation of the Euro 6 and the carbon regulation in the U.S. This is for us turning an additional semiconductor contest because an Euro 6 is having more than $10 semiconductor on board than a traditional Euro 5 or Euro 4 car. Then the mild hybrid. Mild hybrid is a car that is coupling on top of the traditional combustion engine, an electrical engine driven by a 48 volt bus. This is a very good, let's say, car because it doesn't need any change in the infrastructure. The cars should not be recharged, so it is very easy to be inserted in a normal life. These car are basically making the car maker capable to satisfy the 95 gram of CO2 per kilometer. That is the target that everyone is having. Ultimately, the full electrical car. Let's go one by one very rapidly on this. Internal combustion engine, good market, far away to disappear. The cross between electric and internal combustion is after 2035. There is still a lot to do in this field. In this area you see in the middle of this chart, we represent our capability to serve the full system in this kind of application with our smart power technology for ASIC and ASSP, our 32-bit microcontroller, and all the power stages and discrete component to serve the application that are listed in the bottom of the chart. Of course, we are keep doing innovation in this area. The BCD9 and now the BCD10 are making possible the integration of a 32-bit ARM microcontroller together with the smart power in order to have a very cost effective system-on-chip solution to integrate a system in one piece of silicon. Let's focus a moment on the mild hybrid. Mild hybrid is very good market. Even today is a huge market, but we have the feeling that this market will grow almost three times in the next few years. Also, in this case, you see we are a full system solution with our low voltage PowerMOS for the traction, for the DC-DC converter, and for the main inverter. The VIPower to drive the 48 volt bus. All the BCD and VIPower to drive the different component in this field. A specific lineup of 32-bit microcontroller for the mild hybrid application. All the variety of protection and diode for these car applications. Ultimately, the electrical vehicles. Electrical vehicles is an important subject. It could be really disruptive, as we saw. Also in this case, we have the full capability to cover the different applications. For the charging, for the infrastructure, and inside the car, the DC-DC converter, the traction inverter, all the battery management. Also in this case, the concept for us is to fulfill the full system application. On the top you have our system solution for the traction inverter, again, for the DC-DC converter, and for the main inverter. On the bottom, you have our solution for the battery management, high voltage and low voltage. This is an area where the different car maker at worldwide level are directly involved. It's very important for us to have, specifically on this electrical application, direct contact with the car maker. I just listed the update, link, and design award that we have directly from the car maker at worldwide level. You see in Europe, in America, in China, in Japan, and in Korea. I'm very pleased to report that 85% of these award are containing on top of the other product, the microcontroller, the smart power, also the SiC product. Of course, I cannot leave the subject of electrification without talking about the silicon carbide project that we have. Silicon carbide for us is not just an R&D project, it's really a manufacturing project. In the second part of 2017, we already shipped more than 2 million unit in silicon carbide for automotive, for traction application. The plan that we have is to multiply by 10 this business. And honestly, with the backlog that we have today, I think we will exceed this projection combining what we do in transistor and in diode. Of course, it is also an R&D project, as Jean-Marc was mentioning. Today we are in production with the second generation that is planar in order to gain time and to gain confidence on this technology. But we are rapidly qualifying the SiC in trench, that is already in our customer, in the qualification in the vehicle, and we think that will enter in production next year for the trench technology. We know very well that silicon carbide, we need also to have a strategy combining the silicon strategy with the package strategy. So module is very important for silicon carbide. We have a full line-up of module for automotive application, combining what we do in the ceramic and in the molded one. Also, sorry, we cannot show you the real module that we are providing because it is a custom one. But I just want to tell you that we have the possibility to specialize packages and modules on request of our customer. This is the solution that, for example, today we have in production for the main inverter. The second trend that we have in automotive is the digitalization of the car. The digitalization is going 2 different direction. One is the increase of calculational power that you need from a 32-bit micro for automotive. The second is the security. Let us talk about the security at first. The digitalization is making a car a very vulnerable object, very subject to attack. Every object must be secured. So I am complementing what my friend Claude is doing to protect the connection between the car and the cloud through the operator with their secure element. We are complementing this with a specific line-up of microcontroller for the different application listed in the chart, with a secure element on board capable to do crypt and decrypt functionality. Then the increase of computational power. It is a big subject in automotive. This is because automotive system are becoming more complex, and it is also because of the increase of security and safety that this automotive system need, and you need to have a concurrent computation. So at the end, this is translating in additional requirement of MIPs. How to solve this? Having multiple core architecture. In the example listed in the chart, we have a six core based on ARM architecture that is making the microcontroller capable to have a 15 times more computational power than a standard single core solution. But also is going through the technology, because you need to exceed the 400 megahertz of clock inside the core. So here, FDSOI with embedded PCM is clearly enabling us to have a very much superior performances against our competitors. Again, this is an R&D project, but it is already in qualification. FDSOI 28 with PCM is already at our customer. We already sent in our customer, and today is in the qualification of the vehicle in order to have the qualification of the full technology. Just very rapidly mentioning on our activity on ADAS. Again, I will not spend too much time on ADAS. You know we are very active, component in all the ADAS. Of course, the activity with Mobileye is continuing without change after the acquisition of Intel. Production on EyeQ4, very advanced stage of development for EyeQ5, and we already started the EyeQ6 design, still on the 7 FinFET. All the activity on radar, 24 and 77, progressively moving from, let's say, a bipolar solution to a FDSOI RF in order to integrate the baseband processor. Then you see we have all the ASIC in term of auto parking, in term of 360 degree on surround view, and so on. I just want also to mention in ADAS that we are differentiating our offer, because with Mobileye, we are basically serving the high-end part of our market. But we want to also to serve the mass market in this kind of application. We have a solution reported in this chart that we are doing in cooperation with our partner in China that is integrating in one module, very compact module, a sensor, so a camera with a processor, in order to have a basic functionality for the front and from the rear camera in ADAS application. This is very successful, for example, in China or let's say in all Asia. We are already in production with the two different car makers, and we have more than 10 program today running. Let's move now from probably the part that you know a little bit less on my business, the part that we do in power and discrete. Also in this case, the main framework that we have on our business is business stability. You see this is clearly represented by this chart. 56% of what we do in power and discrete subgroup is in industrial application, 16% is in automotive, of course, including the activity that I just mentioned on silicon carbide and on power MOSFET, 16% on power electronics, and 12% in telecommunication infrastructure. You see a very solid and stable and predictable business also in this case. Last year, we reported we grow two digit. This is continuing also this year. We have very well-defined the strategy that is reported in the chart. In term of high voltage, we want to maintain and reinforce our market leadership in this application. We want to complement the innovation that we have in a trench technology for the high voltage or low voltage with a very well-defined backend strategy, particularly with the module for automotive and industrial application. Of course, big focus on new material, complementing the big success that we have in automotive, but also in industrial with the new generation in industrial and also entering in production with a new GaN technology, as I will show you in a moment. Strong focus on low voltage application on top of the 48 volt in automotive, as I mentioned, and then all the discrete product for the different market that we are serving. Let's see, as one example that I want to give you of presence of ADG outside the automotive domain, let's take the power management. Power management, you know, is a big market. It's more than $1 billion in 2017. In this market, we are growing two digit with our high voltage MOSFET. We grew 12% in 2017. We will continue to grow double digit this year with a very well-defined strategy, for example, for this application, specializing our product for the different market need. I just give you three example. One is the server farm and the UPS, on which we have a 35% market share, for the full line-up of requirement from the 500 watt to the 3.5 kilowatt. All the portable application, also in this case, a 30% market share, from the entry-level consumer light product 5 watt to the high-end industrial at 120 watt. Then I want to mention also the LED lighting. LED lighting is really changing scale in this kind of business, because on top of the usual ambient and infrastructure application that are very traditional, there is now the big tendency of the greenhouses that are using the LED as enabling factor that they are really booming this market, and will boost our sales in the next few years. Another example I want to give you, I want to give you what we do on silicon carbide outside the automotive, taking as an example the factory automation. So factory automation including robots, power conversion, and high power inverter. In order to give you the feeling how much is important silicon carbide for this kind of application, independent analysts are showing that $1 spent in silicon carbide in factory automation is rewarding with $150 of energy saving over a normal cycle time of a manufacturing location. On top of saving cost because of the reduction of the unit, of the space, and reduction of the passive component. So this is also even today a big market. It is a $250 million market in 2017. But the feeling that we have is that this market will multiply at least three times for the next seven years. What is important to notice is that the part of this market that is growing more, 31% compound, is the market that is coupling silicon carbide and module. This is, again, a market on which we target to be, and the target that we gave to ourself is to exceed the 20% market share on this specific market by 2020. This is made with the product that are listed in the chart, so coupling the discrete activity that we have with silicon carbide together with a ceramic module that we are using for our products. Another example I want to give you in industrial application is the air conditioning, air conditioning, where we can serve the full applications for the indoor and outdoor fan, the power converter, and the main inverter with the technology that are listed, the intelligent power module, the power module. The difference between intelligent power module, power module is that in the intelligent power module, you integrate also the smart power. So you have basically in one piece of silicon, the possibility to drive, for example, the main inverter. Then the MOSFET, the IGBT, the ultra-fast diode on the triacs. So again, this is a very large market. It's 130 million installation in 2017, expected to grow double digit for the next few years compound. You see the outstanding growth that we have in the last few years. I have to say that this year we are market leader on this. This is made because of our technology, but also with the strong link that we have with the market leaders, particularly in China. This, I just gave two example. One is the, let's say, ultra-fast rectification with power factor correction, with our TurboSwitch product family, that grow 33% in 2017. Also with the integration of the intelligent power module that are integrating power and smart power in order to drive a main inverter of an air conditioning until 3 kilowatt with just 9 square centimeter of board. So very cost effective solution. Another example that I want to give you is a total disruptive area. Is what we do on telecommunication infrastructure, taking 4G, but mainly 5G as a reference. If you take today a telecom base station, we see that of course in the area of power and Power RF, we are serving the full application. So the high voltage of the AC/DC conversion with a voltage and a rectifier. The DC converter with our low voltage and our diode and protection. But also the Power RF, complementing what we already are doing today in the market with a new strategy on GaN, on silicon. Probably you saw few months ago, a press release that we did with MACOM, in order to integrate the DRP of GaN on silicon, in our manufacturing location in Catania. This is exactly targeting 5G application, particularly in the base station. You know how much is important to serve in Power RF, the 5G application, because of the narrow beam of the transmitting in the 5G application, you basically need to multiply the number of Power RF that you have in order to cover the 360 degree. So we calculated that the contest of semiconductor or Power RF in a 5G application is 10 times more than what you have in the 4G. So it's a big market, is opening $20 billion of opportunity for the next five years. So it's very important to be there, and this is an area where we want to be among the leader. Of course, we want to demonstrate, and we are already demonstrating, we have a lot of design award on this area. Unfortunately, we cannot report the number of our customer, but we have really a lot of design award in the area of telecom base station. We want to demonstrate that our solution of GaN on silicon is successful against the solution made on GaN on SiC, that are much more expensive with the same kind of performances in term of electrical performances. Last example, again, I'm probably running out of time, as the timer is telling me, is the presence on smartphone. Also in this case, our offer is very diversified, so we are not just in the end set in the smartphone, but we are also in the data cable and connector and power adapter, in order to be resilient as much as possible to the cycle typical of this industry. And of course, also in this case, we are innovating because of the integration of the passive component and because of the miniaturization of the power stage, very important in this kind of application in order to give advantages to our customer. This is concluding my presentation, and before to go to the Q&A, I just want to, let's say, reinforce that we are a solid participator of the business of ST. Of course, in automotive, where our presence is very wide, very spread, covering traditional application, covering transformational trend, and covering disruptive application. But also in application like the industrial and the IoT, where of course we want to profit of the increased semiconductor on the traditional application, and we want to serve also disruptive application like for example, the 5G and the smart industry for manufacturing. Thank you. Thank you, Marco. So at this point, since we're running a little late, we're just going to take a few questions. Marco will, of course, be available in the general Q&A. So Alan has got a microphone, so whoever's closest to him. Stefan, you got your hand up first. Raise your hand so Alan can see you. Perfect. Hello. Good morning. Stéphane Houri from Natixis. I have a question on the profitability of ADG, because I think that earlier it has been said that ADG was targeting low teens margin. So the question is: Is there a potential to go higher from that level? And could you help us understand the difference between the profitability of the automotive part and the APG part, and if there is a significant difference in term of gross margin and R&D intensity. Thank you. Yeah, we are not commenting specifically the different business. ADG has a multiple source, if you want. We have a premium application like the ADAS or the electrification. We have a lot of business on discrete, so pure discrete, including integration of the passive. So you should not expect that we have the same level of profitability in automotive, in industrial, particularly in the serving the transformational trend and what you have in the discrete application. And when I'm speaking about discrete, I'm speaking about really the discrete component, not the power discrete. So overall, this is generating the average value that Lorenzo presented. And of course, there are action that we are doing to improve the marginality overall of ADG. Of course, as I showed, the booming of application like ADAS, electrification, all are premium kind of application, and the new technology like the 28 FDSOI with PCM, all the silicon carbide, the activity we do with GaN, then production on BCD9 and the production fusion on BCD10, for sure are all element that are boosting our gross margin. Thank you. Let's go to Amit, Vicky. Amit, raise your hand. Vicky? Good morning, everyone. Amit Harchandani from Citi. Two questions, if I may. My first question is with respect to the automotive business. You've talked about the acceleration in growth coming through in Q4 of last year, and again, mid-teens growth for this year. Are you in a position to comment whether you see this mid-teens growth sustaining beyond 2018 in the longer term, based on the visibility of the backlog that you have? The second question I have is with respect to distribution. A lot of insights provided earlier. Could you give us a sense of do you have a sort of a longer term target for distribution as a share of group revenues? What are the drivers that go into the decisions behind going for distribution versus direct? Potentially, if you can share data points around distribution levels across the product groups. Thank you. Well, let's say in term of growth, for sure our backlog is very strong. Today, the backlog that we have in overall, I would say in all the business unit, not just in all the subgroup, but in all the business unit, in all the different area, and I would say almost all the customer that we have, the backlog is very strong. So it is giving a confidence that the growth is sustainable for sure for this year. We already said that the projection for this year is between 15% and 17% growth. I think this is something that we already disclosed. The feeling that we have, first of all, because of the successful factor of our technology, our customer, but also because we are more and more in application that are changing scale in automotive. I just showed the ADAS, the electrification, but also the traditional powertrain because of the need to satisfy the rules of the Euro 6 and the carbon in U.S. Chinese regulation is also very strict. All these are boosting the semiconductor contents. As I mentioned in my presentation, the confidence that we have is that more and more our market is not just linked to the number of car registered, that is few percent. Also, China is just few percent. But it is more linked to the proliferation of semiconductor usage in the different applications. So this is giving the confidence that automotive will continue with that pace, for the next few quarters, let's say, and also even more than 2018. So in term of distribution, just commenting what we do in ADG. And of course, the distribution has been a natural channel for all the power and discrete because of the nature of this business, so we are continuing to do this. But also more and more in automotive, because there are application for which a small customer are today playing a big role. So small customer, I just did the example of the ADAS that we have for China for the mass market. This is made in strong cooperation with the distributors. So for us, the distributor is not just the channel that is very important, by the way. It is not just the channel to sell more our product, but it is also to establish partnership in area, like for example, China, where the market is very much fragmented. So without having a strong partner, they are capable to know the detail of the market and to support us in what this market is needing, it is very difficult to us to approach. So is a channel to sell our product, is also a partner to develop our R&D activities. Okay, thank you. I think at this point, we will go ahead and take a quick 10-minute roughly break. We will reconvene at 11:15 A.M., U.K. time, and then we will have more questions again for Marco at the end. Thank you. Okay, if I could have everyone's attention. And for those back on the webcast, sorry the break went a little bit longer. So thank you for your attention. I would like to welcome everybody back. At this point, we would like to have Claude Dardanne, who is the head of our Microcontrollers and Digital ICs Group, give you up to speed, performance and information on MDG. Claude, please. Good morning, everyone. I am going to give you overview of the MDG group. First, I will cover the statement where we stay at MDG level. Then I will explain where we stand in term of technology roadmap, mandatory to build up our product. Then I will go in detail by subgroup with more information. I will explain how we are going to maintain the 20% operating profit proposed this morning by the management. So where we stand. In fact, in 2017, we enjoy $2.65 billion revenue versus last year, where we grew 16%. More than $2 billion of those revenue were coming from the MMS group. MMS group is microcontroller plus memories. MCU means general purpose plus secure MCU. Roughly $600 million were coming from digital group. If you check what has been done, I said 16% growth versus previous year, 25% growth for MMS group in 2017 versus 2016, and drop, minus 7% for digital subgroup. Do not forget, we decided two years ago to discontinue the set-top box activity. Of course, we still see this market going down. Now it is time we are ready to reconstruct our digital activity. When you check the trends, Q1 2018 versus Q1 2017, we see even a strong acceleration of the growth. MMS growth Q1 2018 versus Q1 2017 was 26%, with extremely solid growth on microcontroller and memories, MMS, plus 34%. With some sort of stability for what concern digital, where we grew 3% versus previous year. So microcontroller and digital are organized by different products. I will cover all those products today. First of all, what is our mission? First of all, since 10 years, the plan for us is to become the worldwide leader on microcontroller, general purpose, and secure. This is a target we pursue for 11 years. We are not too far, but we are not there yet. On this score card, since score card, we are worldwide leader since 2003. This market is very stable. We see a migration of application based on those product permanently, but we adapt ourself to this migration. For what concern digital, as we stop activity on set-top box, for us the goal is to be able to capitalize on the strengths we have in this market, the competence we have in this market, in order to recover and to address a specific market in order to ensure profitable growth within the next few years. In term of revenue split, of course, with a strong focus we have on microcontroller, some 68% of our activity is made with MCU, general purpose plus secure. 10% with flash memories, and 32% with digital. In term of worldwide ranking, we were number 2 worldwide supplier for what concerned consolidated MCU plus secure MCU last year. Number 3 for general purpose only, but leading the 32-bit market. Number 3 for secure MCU, and like I said, number 1, solid number 1 on EEPROM. So no way to be successful in those markets if you do not have the right position to build up a product portfolio. Here you have the non-volatile memory portfolio, existing solution plus future development. The past 10 years, we have been able to enjoy a significant growth on microcontroller and memories, capitalizing on advanced process from other 30 nanometer node to 80 nanometer node in both embedded flash cell and embedded disk cell. All those application using those devices, all the product based on those process are going to move to 40 nanometer now. In fact, they are moving to this type of process now, advanced 40 nanometer flash process. Also we are preparing the future, moving everything to 28 nanometer flash process, and the 28 nanometer flash process should be in production in 2020. For what concerns standalone EEPROM, we are still pursuing our effort in order to bring more competitiveness and to follow the market demand, and we are moving in that domain from 150 nanometer to other 10 nanometer node. For what concern digital, we are able to capitalize on very advanced process available when we are producing set-top box. First of all, this morning you have seen a lot of application using 28 FDSOI type process. Today, those process are the best solution in order to have low power consumption, to have a good immunity to radiation. In other word, when you are targeting to bring product in a satellite, that's the right process to be used for the product. We are also extremely strong in BiCMOS, so FDSOI plus BiCMOS technology are giving us a lot of strength to address the RF market, and you will see that later on. Also we have some activity in photonics and FDSOI. Associated with the foundation of our activity, we must be sure that when we do the portfolio, when we prepare the product portfolio, we have the right manufacturing tool in place in order to serve the market. As you can see, we enjoy the past few years almost 30% growth, and we were able to support this growth with a very state-of-the-art manufacturing tool. MDG is focusing on three fabs within ST, Crolles 300, Crolles 200, and Rousset 8 inches. Those three fabs are serving 60% of total needs of MDG. The remaining 40% is coming from various foundry business we have over all of the world. This is a ratio we want to keep the next years. In other word, we are growing same speed internally, externally. I think that way we give a lot of security in term of supply chain to our customers. The key point to be successful and to become number one worldwide supplier is to be good with the best product at the right time, but also to be good in servicing customers with the right quality level. Now let's start with the main product line we have, which is 70% of total business, and I would like to share with you what we have done the past 11 years. We launched the first STM32 product in 2007. At that time, the market share of consolidated MCU, general purpose plus secure, our market share was less than 5%. 11 years after, with a pure organic growth, we have market share, which is equal more or less to 18%, sorry. In other word, from 2007, 2017, we have been able to gain roughly 13 points on market share, which means more than one point gain in market share every year. This is extremely important for us. In fact, we are pushing a lot the new product in order to be number one, which is our ultimate target. We didn't have any significant M&As the past years, but we concentrate all our effort in order to bring the best possible portfolio to our customer. As you can see here, we have made significant progress since we are now number two behind Microchip. First product family, which is more weighted, weight 50% of overall MDG activity is a general purpose microcontroller. Here you see what has been done in 2017 on the right. In the middle you see the current architecture we are using, future evolution of our product, and also the very solid ecosystem, which is mandatory to support our growth. What have we done in this market in 2017? First of all, we addressed 30% growth. We end up number three supplier worldwide. The market share we have in this area is more than 19%. We have shipped overall more than 2 billion MCUs worldwide last year, which means we are shipping an average of more than 500 million MCUs everywhere. It means a lot of applications are using our platform. From those 2 billion units, we are talking about 8 bits plus legacy product. More than 1 billion units were on the STM32. We are right now able to provide our customer a lot of options. The broadest portfolio we have in circuit bit machine worldwide. In fact, we have more than 800 partners available, various package, various peripheral, various options. We are targeting the mass market. To be leader, we want to be the provider of the solution, of the brain, of all application in the mass market. Acting that way, we think that we can push a lot of our activities. In addition, in general, when people are using the brain from ST's, they are also going to use other products from ST portfolio. Today, we have 50,000 identified customer using our STM32, and more than 50% of total revenue is made within a fair market. That's for the situation. Where do we want to go? We want to go, I think that you know that STM32 is based on Cortex-M platform. But today we have to pursue, I thought, bringing more products in three directions. First of all, we have to focus on wireless connectivity. Second point, in this world, moving to more connectivity, we must bring more security. Third point, we want to address artificial intelligence. I'm talking about distributed artificial intelligence. Let's go now in detail on what we are going to do. For connectivity today, we have a lot of solution existing in a module form factor with many, many partners. All those partners are using STM32 associated with various products. With the module form, we are covering all the market standard in term of connectivity. The second step for us is to go in a system in package form, where today we have on one SiP, one STM32 associated with embedded SIM chip, and acting with both solution together with associated software. We are able to provide a very low cost, SiP performing connectivity to LTE type application. Last but not least, of course, the goal for us is to bring more and more SoC. STM32 embedding connectivity features. The first product we have right now in production is embedding Bluetooth Low Energy connectivity performance, and we are going to bring more product within the next few quarters. The second point was on the artificial intelligence. The goal for us is not to provide the solution to our customer to help them making their neural network model. Our customer will use a standard off-the-shelf solution, major platform like Caffe, like TensorFlow, from Microsoft, from Berkeley, et cetera, to generate their neural network model. The critical point for us is to give our customers the capability to transfer their neural network model in executable software on STM32 platform. You see that here. In the middle, you see the software tool, which has been developed by ST, which is STM32Cube.AI. With this software tool, you take your neural network model coming from the platform, and you are going to generate executable code on STM32 platform. That's a key point. In other word, with this tool, you will have a standard STM32 executing deep learning software generated by the STM32Cube. This is where we go. Today, we have software available. We deploy the software worldwide, and the software will tell you which type of STM32 you need to use versus the complexity of your model. If you have a very entry level, it will be maybe a low-end STM32. If you have a very sophisticated application, it will be the most advanced STM32. Today, when we are talking AI, you can see on these charts, as we have a various option in term of processing power. On the left, you have a low processing power when you have to manage few sensor, you have to do some activity recognition, et cetera. So very simple tasks, which are AI, but simple tasks. This can be done by STM32 and STM32CubeMX generating the code, is what I explained previously. In the middle, you have a medium-type computation needed for more sophisticated application. When you drive speech recognition, you drive audio and sound signal recognition, et cetera. So here, maybe STM32 is not enough sophisticated in term of computing power to perform this application. So in that case, we are going to add some IPs embedded in our SoC in order to support this additional computing power requirement we have. Last but not least, when you are talking about a very, very sophisticated application, like computer vision, multiple object detection, et cetera, in that case, you have to have a specific product performing this function. The standard product, STM32-based, is not enough in order to perform advanced AI application. So what do we have today? Today, first of all, we have this famous STM32CubeMX tool, able to generate executable software. Today, in the bottom you see STM32 is available to perform, it's available now. The tool is available, and we are able to perform basic AI function. In the middle, you see that we are going to add, before end of next year, inside the SoC, STM32 SoC, one accelerator able to provide you more capabilities to perform more advanced AI application. Last but not least, on the top, in gray, you have the specific dedicated IC. We have this type of device available today. This device will be introduced next year in volume production. In other words, the goal for us is not just to be opportunistic, as is the AI market, it is to have a roadmap of product able to address all the market needs, mainly distributed, because we are talking about STM32 type product, but we want to become one of the key player. The phase one is done. Phase two and phase three are in development phase. Next year we should have STM32 embedding accelerator, and we should have a single chip to perform specific sophisticated AI function. Third point, concerning general purpose micro, is the security level. Security level today, the basic function, when you have application which are not connected, there is no need for security. That is a standard, I would say standard STM32. But with the world moving to more connectivity, we see more requirement in term of security. Today, we are designing all the new STM32 platform embedding a lot of security features, which are dedicated to secure storage. Nobody can read your soft in the chip. Security service, when you feed your MCU, you have a full security. Nobody will be able to hack your software. Monitoring, cryptography, of course, and isolation. That is the key parameters which are taken into account when we bring security features inside STM32. It is not enough. That is level 2. Level 3, if necessary, we can add on STM32 a companionship, which is advanced secure element coming from the secure micro division, which is called STSAFE. Here you have the best solution. Ultimately, we are going to propose, at the end of next year, we are going to propose one STM32 embedding a very sophisticated security, because it will be a standalone secure element embedded in SoC. That is the three, the four layer of sophistication we are bringing on our STM32 platform. This product line, STM32, is the best choice of many, many developer. Today, 30% of people, when you are asking them which type of 32-bit architecture you want to use, 30% of them are selecting ST. The critical point for us is to remain at this level, even to be with higher number. To do that, we must propose more innovation, more added value product, more sophistication. This is why we have to push a lot connectivity, security, and AI. We do focus a lot on industrial market, which is, in general, associated with mass market. You see here the growth will come, mainly the next three years, will come from the industrial market with 10% growth foreseen. Understand that the past five years, we have been able to gain a lot of share in a market which was flattish. Today, we see the market growing according to WSTS. We do hope that we are going to gain even more in a growing market. The first point for us is to be sure that we are ready to support the industrial market, and this market will grow faster than What is this? I have something on the screen here. Okay. Yes, we have some. The brand of many application will be provided by STM32, many industrial market. And, in fact, we can see on this chart that we are covering, I will not go in detail, covering many, many application, appliance, metering, robotic, et cetera. So we are there. We must accelerate the product proliferation to be present on more application. Now let's go to secure microcontroller. So secure MCU, today, we have done a lot of work in ST in 2017. We grew 15% for total government situation, 15% growth, number 3 worldwide suppliers, with more than 15% market share. This market is moving. It used to be pure smart card market. No longer. Today, we see security embedded in the multiple I don't have any more screen here. Yes. Okay. So, we are shipping 1 billion unit last year of this product, and we have had a strong contribution coming from the machine-to-machine market. In a mobile security, which is a fast-growing market, we see we were able to ship 250 million unit just for this type of market here. We're talking about smartphone. So evolution of this type of application, on the top is on the various security embedded in this platform. We have smart card business, which is dropping. We have authentication, which is flattish, mobile security, which is growing fast, as well as new market emerging. So the first of all, we must try to bring some added value in this market. On the left here, you see we have the traditional smart card business. We are shipping our product to card vendor. No longer. Today, we are planning to bring a lot of software embedded in our chip in order to bring more added value and to generate more profit. So we are covering right now the full solution. For mobile security, the critical point is to have everything in term of security, NFC controller, and also the right process competitiveness to address this market. Same thing, we are coming with embedded software in this device. Last market is authentication, where we are extremely strong. We are a turnkey solution provider in the world. We bring a lot of added value, hardware plus application software. So to make a long story short, what we want to do in term of a secure microcontroller, we want to move up in the value chain. We want to bring more software. We must go that way in order to generate more profitable revenue. So this market is moving a lot in term of growth, in fact, driven by mobile security. But you see in parallel, the smart card business will drop 8% between now and 2020. Why? Because the classical SIM, for example, will disappear in favor of embedded SIM. We are going to see that soon, and I think that this market will disappear faster than this number here. Remaining will be banking, ID, and transportation, which is not growing so fast. Authentication, here we put -7%. In fact, it's a big OEM asking for brand protection. Here, we are present extremely solid. So growth rate, we come from new market. Machine-to-machine solution, mainly driven by industrial market, automotive, and secure IoT solution. So let's go now to the secure mobile security embedded in the smartphone. On the left, you see the existing solution. We have 3 chip, basic SIM card. You have all in your phone, the basic card, the SIM card, sorry. You have an NFC controller, and you have secure element performing secure mobile transaction. We are going to move to more integration. In the middle, you see the first phase, which will be started very soon. We are going to replace, we are going to see smartphone embedding SIM. No more SIM card, but embedded SIM in the smartphone. That's number two. In parallel, we are going to see integration within one single chip of the NFC function plus secure element function. The last one, on the right, you see that the most advanced product embedding NFC controller plus secure element will be able to perform everything. So it will perform embedded SIM, embedded secure element, NFC controller in one single chip. This will happen because today, we are ready with the hardware platform. Today, we are able to serve the phone with the three different devices. Starting next quarter, we are going to launch officially on the market one chip embedded NFC controller with the most advanced secure element available today. This, associated with embedded SIM coming from us, will be the simple solution. Last but not least, assuming the software is ready, we'll be able to propose ST54J product. ST54J will be one single die able to perform embedded SIM, secure transaction, NFC controller. This is the trend. We are ready today. Of course, this platform is based on a most advanced 40 nanometer platform. New market for secure. New market will be driven by machine-to-machine embedded everywhere today. We have solution for embedded SIM. So when people are planning to go machine to machine, we are able to provide the solution, hardware plus software. This is where I said we are going to bring the value in the secure MCU. For what concerns automotive, we are working with the automotive group today. We are providing them with advanced secure element, automotive grade, and of course, the know-how we have in security can be reused in the automotive market. Last but not least, of course, on IoT, we have a connected world. We have a connectivity platform, and also we have STSAFE today available to serve this market in a more secure way. So permission of our solution to the industrial market is there. You can see that we have a lot of application running. In fact, we plan to deploy a lot secure solution embedding our own software to the industrial market. So now let's go to e-score pump product. E-score pump product that will be very fast because we have long history in this domain. We are still shipping more than 3 billion unit a year. As well, it's not a small volume. The market is no longer the same like it used to be 10 years ago. Today, we see those small form factor device embedded in many, many application, in many smartphone. In all your smartphone, I bet you have at least one, two, or three e-score pump today. So you can see the form factor 0.4 milligram, very, very small, tiny device. Future evolution of e-score pump will be driven by small form factor, advanced process, and wireless connectivity, mainly near-field communication compatible. This is where we go today, and we are ready to move on with our ST25 family. Now let's go to digital. So digital today was activity in place for years. We stopped the set-top box two years ago. Now we are going to redeploy completely the strategy. We are going to keep activity related to aerospace and defense. We have a long history. We are able to provide the right process, the right manufacturing tool to our customer in that domain. We are still working on it. Networking, digital and mixed signal ASIC is one of the activity we have. We were targeting many, many markets. Here we just have made a decision to capitalize on the knowhow we have coming from the old time, set-top box time, and we are focusing on our activity on a networking and data center market. In the middle you see in the red part related to RF and millimeter wave. Here we have extremely strong and solid knowhow in term of technical knowledge. In fact, we have acquired this tech knowledge supporting the satellite communication business. But of course, it's obvious that with this knowledge on RF millimeter wave, we have opportunity to create to address a new market. A future evolution of the digital group will be in this area. We plan to develop specific standard product dedicated to very short reading distance. I will explain that later on, which is called Spotlink. We plan to address also the 5G infrastructure. We have the tools, we have the process, and we have the internal competence to do this type of product. Why we have the competence? Because we have done a lot of work the past 10 years on RF millimeter wave. We have technology BiCMOS, RFSOI, CMOS, FDSOI technology are in production today. We have in-house a lot of expert coming from the set-top box and also the satellite activity, knowledgeable in modeling, design, testing, et cetera, which are very specific in this type of market. Those people are in-house ready to develop more product. The past few years, we have developed a lot of IPs, low noise amplifier, power amplifiers, A to D converter, beamformer, analog and digital beamformer, and transceiver. All those IPs are critical to alter in this RF millimeter wave. The knowledge we have acquired the past 10 years is extremely solid and strong asset for the company. What we want to do, we want to bring to the market millimeter wave RF solution. First of all, we will propose a transceiver up to 60 gigahertz. Next year, we have started already this year to propose this product. RF front end, of course, satellite communication with a Ku and Ka band. Let's go to the RF transceiver. The goal for us is to propose to the market very high speed, low power wireless link to close proximity data transmission. In other word, you take two phone, you put those two phone together. The reading distance will be maybe few centimeters, and within a few second, you are going to transfer huge file without any protocol. The same way it's done with near-field communication, but much faster. That's the type of application. So instantaneous data transfer between two smartphone, between your smartphone and docking station. This is where we want to go. Extremely fast way to transfer very large data between two smartphone, for example. The first product, which is called a Spotlink A2 today, is in sampling phase. To give you an idea of what we do, the speed of transfer is 6 gigabit per second today. We are working on the new device, which is called A3. This device will perform the same speed in term of transfer, but we are going to reduce significantly the billing of material, in order to have one device embedding USB type interface or display port. Of course, we are planning to go with a more, faster transfer possible capabilities with a 10 gigabit per second within the next few years. This product line will be in full production phase today. Of course, we are planning to have a mass market approach because also this very easy to use device is a very low power solution. Okay? In fact, I think that the launch of this product line will happen this year, and you will see a lot of usage shortly from consumer market. Next point concern the 5G network infrastructure. Capitalizing also on RF millimeter wave. In some area, we have RF millimeter wave solution, which can be more competitive than fiber optic. When you have a repeater, it can be more competitive, more cost-effective solution than fiber optic. This is where we want to target usage of RF millimeter wave. This will be, of course, based on the new hybrid techniques, phased array antenna, beam forming, everything we have done internally to address those market. We have today all the ingredient to propose on the market some sophisticated product in this environment. Conclusion. First of all, on STM32, we want to pursue our growth, we want to accelerate, and we want to bring to our customer more product associated with state-of-the-art ecosystem. We want to, how we say, to push customers to work with us on future evolution of our portfolio. For what concerns security, as you can see, that we have the solution to have the best integration with the smartphone for what concern near field communication secure element on embedded SIM. This is ready now. We do expect a significant growth next year in this domain. For what concern digital, the focus on RF millimeter wave is a key asset, and we will capitalize a lot on that, promoting the Sparkling product line, the 5G infrastructure, and of course, the satellite communication. Thank you. Thank you, Claude. We'll go ahead and take some questions now for Claude's perimeter, please. Let's go to David right there, Vicky. Right behind you. Hi, it's David Mulholland from UBS. Just coming back to one of the comments you made at the start. Obviously, the last decade or so has seen a very strong market share story. But is it fair, obviously, you still have an aspiration to gain share from here, but is it fair to say the next decade's much more dependent on the market rather than market share gains that you've had for the last 10 years? Can you You were asking, David, about the market share progression going forward? Yeah. So last decade's been very much a market share story rather than market growth. Is the next decade more biased to market rather than market share? I don't think the next decade we are going to gain one point, more than one point every year. When you are at 5% share, you move fast, and then it's more difficult. Seriously, I think that we can consider. We want to be number one, and for that we need to be above 25% share. That's a goal we pursue today. The key point is to be number one with 25% share and also with 20% operating profit. That's a key point. We don't want to impact the operating profit in order to gain share. We want to have a profitable growth. Sustainable. Yeah. Let's go right here, Jérôme, and then we'll go over to Chinar. Yeah. Thank you. Claude, what kind of accelerator are you going to use for your AI? In fact, I told you that we have a SoC available today. We have a, you know, a working silicon. We have a room. We have a demonstration in the other room, which is based on 28 FDSOI. To be clear, we try to capitalize on what we have in this chip. We just take a part of this chip. We have one IP to be embedded in STM32 platform. This is what we are going to do. We are, we are ahead of competition, and we have this SoC, which is embedding a lot of advanced features. We want to capitalize on that. Okay? We want to go very fast, and we are going to use this IP, extremely powerful IP. This IP, it will be not everything. It will be part of this IP embedded in STM32 platform. Is it a DSP/vector accelerator or if you could give a hint of what behind the black box? The black box, I mean, today I cannot share with you exactly what we are going to do, but you will see it's a very efficient solution. Your Orlando is a neural network. Yes, neural network is specific device. Okay. Is a specific device for neural network. Yes. How many teraflops per watt as a metrics? Thank you. Five. Five? 5 tera. Chinar, please. Hi, Chinar Khan from Liberum. My question's also on the AI side. Just two questions. One is how much selling price increase would you get for that device? If you assume, let's say, a general purpose 32-bit microcontroller is roughly about $1, how much of an upside would you get from it? And what kind of demand are you seeing for your AI devices from customers? What I'm trying to get at is, let's say in 3 to 4 years' time, would this be 20% of your general purpose microcontroller sales? Today this distributed, the AI type business is a nascent market. We just start now. It is difficult to anticipate what will happen within the next 10 years or 5 years. We are convinced if we are able to bring solution and flexibility to the customer, with a software tool associated with top-class platform, we can earn a lot. There will be no add-on cost when people will use the standard device with their neural network and with STM32CubeMX. When people will use chip embedding SoC, the world for us is not to penalize customer. We want to raise a mass market and to have a very competitive solution. Add-on, we are not going to increase the die size by 50% because we are adding this IP. We want to have the cursor in term of sophistication versus cost, et cetera, at the right level to keep our competitiveness. Understand that there are a lot of different application, and we want to be able to. Of course, now we have three product. Okay? But there will be more product. In fact, I am talking about STM32, but there will be between STM32 and SoC, there will be one product, which will be microprocessor for industrial market, embedding also this IP accelerator. You understand? So add-on cost, et cetera, is difficult because the point is which type of application, which type of neural model you have. From that, we are going to have very broad solution. That is what we want to do. Remember, I told you, the strategy is to be in the mass market. It is not we want to be a broad supplier of solution, including AI. Last question. Is there a similar thing on your automotive side as well to put this capability into your automotive microcontrollers? Marco? No, we do not have a Okay, Rob. Two questions. Yeah. Which application areas are you actually exiting in digital? You mentioned you are redeploying some people away from certain, I assume, application areas. Just be interested to know how many engineers that relates to. Secondly, you did not really discuss much about silicon photonics, but there has been a lot of potentially positive news flow around the traction of that technology. I was just wondering, what is the timeline for that to become a big revenue line for you? Thanks. For what concerns rationalization of technical effort, et cetera, when we stop a set-top box, we discover a lot of competence internally. The goal for us is to reuse those competence the best way for the company. The world, when I am talking about RF, mmWave, et cetera, that is where we have a very solid, strong asset where we can think we can do a lot of things, the same way we have done it for MCU, et cetera. That is the first point. In term of number of people, there were 1,000 people redistributed between MCU, digital, et cetera. Of course, when you have a big team, knowledgeable how to make very sophisticated 28 FDSOI-based product, you keep those people, you keep those entity. Yeah, with the wireless, with the decision to exit the digital core of wireless- Carlo, let me get you a microphone so everybody can hear. With the decision to exit the digital core of wireless that was taken at the end of 2012, and then on the set-top box, I think is almost, from 2012 to 2015, is almost 2,500 engineers Yeah that have been redeployed. A lot to A lot. These microcontrollers, of course, new kind of ASICs and, of course, also digital automotive- digital sensors and optical sensors. It was a massive redeployment effort. But it is over. Indeed, it is. It is over now. Last point concerning silicon photonics, we have some activity. For me, this activity is not a huge activity. We are working on it to evaluate what should be done. Today, we are in the intermediate, in the transition phase for what concerns silicon photonics. I cannot share more information, but of course, this is one of the concern we have, to check what we will do in the future on silicon photonics. Okay. Why don't we take one more question? Gunther, right there. Just an additional one on the AI. You mentioned, I think earlier, your strong position on PLCs with power management, smart power. Is this also an opportunity for you, from the controller side, especially also looking neural networking processing capabilities then? With programmable logic control as an application. I'd like to. No, I don't understand exactly this question. Can you rephrase that, Gunther? Yeah. On the industry automation side with PLCs, where you have also the trend for more processing capabilities at the edge. Also probably higher demand for processing, including neural networking capabilities, in PLCs. Whether this could be an opportunity you could address. Yes. Our product will be available to any type of industrial environment. That's the point. For what concerns the neural network model, we don't contribute. All customer will have to go on the existing platform to generate their neural network model with a huge data center, et cetera, where we are not part of this. Then it will be part of their application. When they will have their model, we'll define what we want to do with, we can transfer this model to our chip, in which environment, it's up to them. But we can do this. The key point is when you have your network model, neural network model, we can make it usable any case. Well, the answer is yes, in the sense that, of course, factory automation, the industrial, the things. You saw the application three is a massive effort in the application three, particularly in industrial with hundred of branches. As you said, the core of the factory automation is one of the areas that we are targeting with our microcontrollers, with our IO-Links in analog that Mateo is now selling. On top of what we have with the STM32, on top of the opportunity to embed neural network, like what we have in the other room. Neural network, let's say, arrays together with the STM32. Claude is developing now a new family of microprocessors for industrial application that we will launch later in the year, this year. The first product, yes. The first product. Claude is also planning to embed in this new, let's say, microprocessors for industrial application, of course, the capability that we have in terms of connectivity, the capability that we have in terms of security, and the capability that we have in terms of artificial intelligence. So the answer is yes, and that the program is very comprehensive concerning the STM32 and the new products that we are developing in terms of processors for the industrial market. Thank you, Carlo. At this point, I think we will conclude the Q&A session for Claude, and we will have Benedetto Vigna come up and talk about analog, MEMS, and sensors, and then we will have a short Q&A for Benedetto. Good afternoon. Good afternoon, everyone. I will take this half an hour to drive you through the last group of ST, is AMS, analog, MEMS, and sensors. What I would like to do in this presentation is to show that we are well-positioned for really balanced growth between the key account and the distribution. There are three key messages I would like to convey to all of you. Number one, in AMS, we have a big presence of analog. In analog, as you have seen in the presentation, in some speech of the colleague, Jean-Marc, and all other colleagues, there is a strong focus on industrial application. I will also make some comment about the PLC, the last question you were addressing before. Message number two, we have the broadest, the largest sensor portfolio in this industry. We have both a mechanical sensor, physical sensor, we have imaging sensor. You will see that. I will elaborate about this. I am also proud to share with you several examples of customers, small and big, that are using our solution. Message number 3, we are starting for a solid organic double-digit growth year-over-year. I would like maybe to start with this because I do not want to bother you with many numbers. You have seen already all the performances from Lorenzo. I would like only to share this chart with numbers. You see a lot of numbers, a lot of positive. If you see here, +41%, the growth of the business of AMS 2017 over 2016. With +23% in analog and +64% in MEMS and sensors. You see also +27% Q1 of 2018 over Q1 2017. Here, we have +19% in analog and plus MEMS and sensors. How we did all this plus? We came to make all this plus thanks to many factors, but I would like to underline two things. Number one, the broad, the fragmented, the big customer base that we have, 65,000 customers. Also, the other numbers is on the bottom left side of the chart, where we have 5,200 products. If I put these customers with this product, then I end up with a total billing of this group that last year was EUR 263 billion, more or less equally spread between analog and MEMS and sensors. Obviously, the customer gave us the trust. We make the product. There is a lot of work of many people of our company, either in this room or outside. We charge the product of this. What are the functions of this 5,000 plus product? There are, as I said, two functions. One is analog, one is the sensor world, and we are addressing all the dimension for IoT. You have seen previously the presentation of Claude, that we are addressing the microcontroller. We are at the center with the brain of this IoT. Well, we have all the other functions that you need to run this kind of application. So we start with the sensing, where we can offer a broad range of sensor. You see 3D sensing, the time-of-flight proximity, then you move to the MEMS one, either motion or acoustic. Then you see the signal conditioning part, as well as the connectivity, either on wires or wireless. You heard before the IO-Link that Carlo was mentioning, but you will see later in this presentation also what are we doing in terms of wireless, both with sub-gigahertz and Bluetooth Low Energy. Then you see the actuation and the power energy management. These are the functions we address, but we charge the technology breaks that we need to master, and we master in our factories to make this happen. Let us start from the power and energy management for the actuation. Well, here we are leveraging really on the BCD technology. We are in big volumes to address this market with the eighth generation of BCD. The eighth generation of BCD is the one that is around 150, 160 nanometers. We are moving now to even submicron to 90 nanometers with the BCD10. In this platform, you may remember the chart that Jean-Marc was sharing you today, this morning, where you see the BCD with embedded non-volatile memory in it. This is the first part. When you are talking about power, yes, you talk about putting more digital function in it, so the need to shrink it more and more lithography. There is also a need for power and high voltage evolution. You need to go up even to 1,200 volt. This is not a mistake. It is 1,200 volt if you want to have very efficient conversion from AC to DC. Here we have another family of BCD that is called the BCD offline. These are the two important pillars that are sustaining the product we make for AMS. Let us move to the second part, the MEMS. Here, the name of the processes we are using are not so much standardized across the industry. Here we are running, like other MEMS players, our own proprietary process. You see three name of the process. The first one on top is what we call piezoelectric transducers. What we do with this? With this process, called the PETRA, we are addressing both industrial, for example, the business of the 3D printing. We are also there addressing application in the personal electronics, as well as like the camera of the phone to the MEMS speakers. Then we have a process that we started now 13 years ago, is a THELMA. We are at sixth generation of THELMA. We have been increasing more and more the performance, accuracy, the stability. The sensor we make now are much more accurate than what we were doing a decade ago. With this, we can address really the new demanding application in the MEMS for personal electronics, for automotive, and for industrial. All these sensors are spread all over the world, and this complement well also what is our offer with environmental sensor with BASTILLE. Last year, I would like to mention only one product, the waterproof pressure sensor. We also make a big step over there. There is more and more demand of this kind of sensor, both in industrial and personal electronics. We are here, just to give you a number, around 14 billion sensor are in the world. Third pillar, which is the technology, the base of our imaging solution. We have two important technologies to address both the proximity ranging sensor as well as the 3D sensing. When we talk about 3D sensing, I would like to pass a clear message that we are looking at personal electronics, but we are looking also at the smart driving with the LiDAR. The technologies here, we have been the pioneers in the SPAD. The single photon avalanche diode has been launched now a few years back. We have hundreds of million pieces on the market already. You heard this number, more than 600 million from Marco. We are shrinking the node to increase the processing and to have more function embedded in the sensor itself to split the zone in front of us in multi-zone. But we are also looking at structured light to increase the resolution to go to higher efficiency, higher accuracy product. These are the three pillars we are pushing on. Proprietary technologies for imaging, proprietary technologies for MEMS, and then the BCD technology for analog. Where these technologies are running? The imaging and the analog CMOS technologies are running in France, in the plant of Crolles. In Italy, north and south of Italy, Milan and Catania, we are running advanced BCD and MEMS. In Singapore, we are running all the generation of BCD, but we are also working with foundry partners for two important technology base. One is the advanced BCD. Another one is the 130 nanometers, the CMOS for sensor. This is very important for us to have the flexibility, especially when you deal with personal electronics. This is the manufacturing strategy. When it comes to what we want to do on the market, we address the four markets that have been detailed by my colleague in the previous presentation. We are looking at industrial, we are looking at personal electronics, smart driving, and then communication and computer peripheral. Which are the players on this market that we want to address and how we want to address? You see here, right and left. Our strategy is to balance the growth that is coming from key account with the same kind of growth coming from the distribution channel. Two different players, two different dynamics. We want to have this growth balanced like we have been doing so far, and our strategy is to go ahead in this direction. Because in the key account, we are dealing with global industry leaders. We are leveraging both the long-term relation, the customer intimacy we have, but also the leadership that we have in technology and product. In the distribution side, where we have 65,000 customers, we have a strong focus on industrial centric application, and we are also promoting to these customers technologies solution that are already proven. We have many example of this, and you will see now in the course of next chart what we are doing, for example, in the case of the industrial application. That is really an area of focus of AMS. You have seen already half of this chart in the presentation of Marco. What do we mean by industrial application? For sure, when you are talking about industrial application, there is factory automation, motion control, there is metering, home and building. These are all different names, but at the end of the story, they all fall in the category of industrial. What are the key feature of ST in this market? I would start from the first one that you see here in this chart. It is since the beginning of the company in 1987 that we are focusing in developing technologies in the industrial. It is 30 years that we are working on technologies. We are optimizing the production, looking at industrial application. This gets a clear reflection also on the quality, on the robustness of the product that we offer to the market. In these years, I will show you later some product, but we have been also able to structure, to prepare ourselves with strong presence of very competent people in the field in terms of marketing and application, because when you talk about industrial market, you talk about fragmented application, and you need to be very close to the customer so that you can support, you can work side by side to push these new application. I will make some examples here. The first one will be factory automation. You have seen already, factory automation is growing from 10 billion to 12 billion, a CAGR around 7%, 6.8% in the next three years. Which are the analog solution for factory automation? Many times we hear in the world Industry 4.0, made for industry, many different names. At the end of the story, factory automation is, I would say, one big pillar for this Industry 4.0. Let's look at the analog blocks for factory automation. In a factory, I was at Hannover fair a couple of weeks ago, and really you can have a good breadth of the different customer we are addressing in the different solution. Motion control. You have to move some robot. There were some interesting demo over there that were using our solution. You have to connect the different machine, the robot, because they need to work more and more together. You have to make sure that the signal from the different input of this factory are properly amplified, conditioned, and obviously, you have to work on the power management. To address those function, you see here on the right of this chart, on the bottom, some typical analog product for signal conditioning. In the middle, some product for motion control. On the top here, you see some product like IO-Link for connectivity. Let me spend one chart about motion control. In a factory, there are many kind of motors, with brushes, without brushes, stepper. It depends also what is experience of the people selecting the motor. What ST is able to do to address this solution? You have seen already there is a nice sentence in the chart of Marco showing that one over three solution for motion control is coming from ST. Start from the left of this chart. In ST, we have the beauty to have the three key blocks that you need for motion control. You have the driver, BCD, you have the power MOSFET Marco was showing before, you have the microcontroller that Claude was showing before. These are the three round circle on the left. Now we can combine two of them. If we combine the power MOSFET and the driver, we get the product that you see there, system in package, the one in the middle, the controller and the power MOSFET. If we put together, like we are doing, like we are selling, I'll show you an example later, the microcontroller and the BCD die, then you have another system in package that is integrating more than the power intelligence. Now it's clear, and this is bringing to the system-on-chip solution, that with a BCD platform that has also the embedded memory, we can do even a single chip. These are the solution that we are pushing for motion control. There is another important function in industrial that becomes more and more important. It's called the galvanic isolation. Why this? Industry 4.0, as we said, is meant to put more and more collaborative robot that are talking each other in the factories. It also mean that since you want to miniaturize, analog function and digital function get closer and closer. When you have high voltage and the low voltage getting together, you need someone that is making sure that the two blocks do not damage each other, and this is what we call galvanic isolation. The application are many, are in the green box over there or in the industrial. Here you see a nice picture. We are very proud to share this picture. You see the two dice, the digital and analog, that are separated by this galvanic isolation. As you can see here, we have really different kind of analog blocks to address the industrial automation, but we have also something on the sensor side. I would like to start from the bottom, because the proximity ranging sensors, they find application on the personal electronics you are well aware of, but they also find application on industrial world. If I go one step up, I invite you to go to see the demo that we have in the room here. You will see how we can use microphone, acoustic monitoring, to understand if the noise of the motor is the right one or not. You go up, you have environmental, temperature, humidity, pressure, and also motion sensors. We did a big step forward to push more and more sensors for industrial. Few years ago, we were only selling sensors to consumer personal electronics. Now we are more and more expanding our presence in industrial and in automotive. Look at this. This is application I really invite you to see in the demo. The demo over there will be much clearer than this chart. You can see here how all the different blocks of the company are working together to enable a new application that is predictive maintenance. Again, I was in another fair, and you saw more and more, imagine this engine, big or small, with a box attached to the engine that contains different kind of sensors connected to the network that are calling for maintenance when it's needed. Because when you stop one of these engine, these motors for a while, the impact on the manufacturing are pretty high. We have seen enough, I think, for the product. I would like to share some customers that gave us the opportunity to learn, to expand our presence in this field. The one on the left is a PLC of Siemens, where we are present with our application-specific IC. These are coming from the team of Mateo, and these are, you see here, as the application-specific IC is working very close collaboration with also other product of the colleague. If I move, I go from Germany to Japan, Nidec. Here I see the other, an example that Marco was referring to. This is the STSPIN32, the microcontroller together with the drivers that you can find in these other compressors. There is another important application where ST has been really pioneers since now 20 years, is smart metering. We have put on the market more than 100 million unit smart meters. Here is one, our historical partner, Enel, with whom we grew a lot together, and we are expanding outside Europe also to other continents. We have also other customers that are using more and more our solution that embedded together the sensing, the function, the current, the voltage, some microcontroller, and also the connectivity over the Wi-Fi. It's clear that when you talk about industrial, there is more and more the need to put, to automate more and more the house and the building. I put an example here, what we are doing when you want to have the connection in the house. There are many standard, many discussion ongoing. Each customer is using its own standard. There is, however, a recognized worldwide, let's say, universal standard, recognized, that is KNX, that we are able to address with our BCD technology. Imagine this wafer of BCD getting packaged and then finishing in this. This is an example of a customer, Vimar, is an Italian customer. In this way, we can really address in a secure way the connection, the automation of the house over the wire. This is important because if you want to go wireless, then you have another solution. This is a RF module, dual radio. We announced it recently with a Taiwanese partner called Jorjin. What you see here, if you remove that metal still, inside you have the two function that we are able to design, we are able to produce and to sell. There is a BlueNRG, low energy chip, and then there is a SPIRIT1, sub-GHz radio. So you may need sub-GHz radio for longer range to connect to the cloud, and then you may need the Bluetooth Low Energy to read the data of the machine, of the sensor nearby without having an expensive, a big, bulky display. It's clear that here we have a lot of new names, and we are very proud to work with companies, not only the big one, but those also, let's say, the smaller one. Let's start from the Belgium one, Sensolus, asset tracking. They are using both radio, the Sigfox, and the Bluetooth Low Energy. This is the dual radio I was referring to. This is for asset tracking, and you've seen in the chart of Claude that asset tracking is really gaining more and more momentum, and we see this happening. Then the Kamstrup, Danish company, where our radio and also our analog blocks are used together with a microcontroller to measure the water consumption. These are other examples where the connectivity is important, but it's clear that the power management is playing an important role in all this industrial application. The market is also showing a good trend of growth. But when we talk about power management, I would like to say that today there are two solution: or there is a pure analog solution, or there is a DSP-based solution. Analog has advantage of real-time control. DSP has advantage of flexibility, programmability. We have a product family, STNRG, that is embedding the two function in one package. But for this integration to happen, well, you need the galvanic isolation. Otherwise, the two do not fit together. You don't like the high voltage and the low voltage to be very close. So another last example of industrial application, some home appliance manufacturer in China Midea and TCL, and some industrial investors in U.S., Emerson, where we are selling our analog product and that are well complementing the offer that we have in the power as well as in the, let's say, the microcontrollers. So strong focus on analog for industrial. Let's move now to the second block. The second block is the personal electronics. We have different products fitting in this kind of category. There are really three important message I would like to pass here. We are number one in the MEMS for personal electronics. We are number one when it comes to the readiness for the ramp-up of the PZT, the piezo microactuators. We are the only one in 8 inch in the world that is ready for piezo. Number three, we have been the pioneers. In time-of-flight, we've SPAD, and we are reaching more and more the portfolio. Second message, we have really the largest sensor portfolio. We have it. We are selling it. We are not aiming to. We are aiming to improve the performances, the accuracy, but we have it. When it comes to analog, we believe a lot in solution, analog solution for charging. This is a chart that is showing what we are doing on the two sides, the analog, the MEMS and sensor for the personal electronics. On the analog side, we are addressing two clear application, the charging, wired or wireless. What are we improving? Two parameters, the efficiency and the speed. This is important. On the bottom, you see all the analog solution we are offering for the display controllers, as well as the power management. On the right side here, you see what we are doing for sensors, or let's say, physical sensor like motion sensors, or the sensor here, the specialized imaging solution. I would like to take the attention of the next few minutes to show you what is our offers in depth and 3D sensing. In any cell phone today, the optical sensors we are involved in are used for two application, either for, on the left, proximity arranging sensors, and we are there, either for depth sensing. On the left side of this chart, you see what we are doing on the proximity. We started already a few years back. We have altogether more than 600 million units on the market. We started with the SPAD. We have been the first one to industrialize the SPAD technology, and we are improving more and more accuracy, the resolution, and going also to more integrated digital function. On the left part of this chart, you see what we are doing for the imaging, for the 3D sensing. We split the world in two: front-facing, rear-facing, or world-facing. When it comes to front-facing, it means distance maximum one meter, unless you have a long arm, one meter is enough. Up to one meter. Then we have two solution: structured light and time-of-flight. We are working on both solution. Each solution has its pro and cons. The jury will be the time. We are working on both solution to make sure that our customers can implement the preferred solution on the phone. On the right side here, we have the time-of-flight for world-facing. We believe that for world-facing, time-of-flight is the right solution. There will be situation where we are working tight connection for customized solution with the customer, as well as standard solution that are more easier to be embedded in the mobile phone. Some examples of a product where we are in with our sensor. I would like really Huawei, I'm very proud of that, as well as of the other example here. In Huawei, we have analog product, we have imaging product, we have MEMS product. The Samsung S9, you may have seen tear down. I already got several question in the break before. All the MEMS are coming from us. Then the Fitbit, the waterproof pressure sensor. The Nintendo over there. We have imaging. We have analog. We have MEMS. Also we have the product of some other colleague here that are all fitting and powering the Nintendo Switch. Third market, automotive. What are we doing in automotive? We are involved in automotive, and we have three things important when it comes to AMS in automotive. Number one, we see more and more inroad of automotive general purpose product, automotive grade in this market. Number two, you may remember, we have been the first one to offer the three-axis gyroscope to this market, and we have highest market share. We are in a leading position. Number three, we are actively working for the next generation to address the safety function that Marco was showing you before. How we address a safety function, either with, let's say, gyroscope for vehicle dynamic control or, I would say, LiDARs, where we are actively working with important customers. On the left of this chart, you see where we are. We are already delivering solution, medium g accelerometer and six axis for telematics. On the right side here, the first one, high g accelerometer, we are already in production. You may find this accelerometer in cars, either in Asia or in Europe or in U.S. The two bottom, the gyroscope for vehicle dynamic control, as well as the LiDAR, we are actively working on that. Let's say, in the next year, we will see the gyroscope. In 2 years from now, 2 and a half years, you will start to see also the LiDAR hitting the market with our solution. I put here an example that is different from the example that Marco was showing you before. This is a company in China we are working, that is using our analog solution, automotive-grade solution, that is, let's say, making more and more inroads. Now let's go to the fourth market where we are focusing. After industrial, personal electronics, smart driving, there is communication equipment, and then the computer peripheral. Here, I would say there are many kind of product, many applications that are fitting here. There is for sure the data centers. That is very important. There is also the computer peripheral, where you have seen from Marco, we are selling already with product for inkjet as well as for hard disk. I would like to highlight three points. Number one, we have a strong position when it comes to power management for storage devices. This is really important. We are selling our BCD chip for power management in hard disk drive. Number two, we are providing solution for servers, gateways that go from, you can see there, from few tens of watt to kilowatt. Number three, we have a unique system knowhow that can allow us to see the blocks, to read the blocks in a different way, so we can propose innovative solution. If I go, for example, to the power management solution for the center, I put for the data centers, an example here. We are offering both multi-application IC as well as application-specific IC. For the multi-application on top, you see here different example. The power factor corrector, switching mode power supply. When you go to the application specific, you find, for example, the combo solution for the power management in a disk or solid state, as well as the direct conversion for data center in 48 volt. I would like to put here an example. A full set of chip, analog chip we are selling based on this direct conversion from 48 volt down to the voltage that you need for the data center. That means a lot of increased power efficiency. It means increased energy efficiency. Here we are working with Google, and this is a chipset you may find in Google data centers because thanks to our unique IP, we have been able to work together on this direct conversion. A lot of BCD chip inside. Before to leave the stage and to go to the conclusion, I would like to spend one chart about this, what are we doing in general purpose analog and low power RF. You have seen the interview of our partner, Willas-Array. You have seen the interview also of WT. Well, in Avnet, I would like to say that if I take the numbers of 2017 out of 2016, we have been growing almost 20% in op-amp and DC-DC converters, thanks also to our increased product portfolio with higher performance product. On the standard IC, we grew 12%, and in low power RF, we doubled the size of the business. That is the reason why I was putting a lot of focus on BLE and Sigfox. We have more than 3,000 commercial products, and overall, there is really this kind of business line that has been contributing a lot through the distribution to the growth of AMS. So in conclusion, I would repeat the three important messages that I wanted to convey you. Number one, analog is important for AMS. We have a strong focus with industrial customers, industrial market, and we are working with both, let us say, big customer and smaller customers. Number two, we have a largest sensor product portfolio, and we are expanding constantly from personal electronics to automotive and industrial. Number three, we have a good starting point. We have a double-digit, robust organic growth year-over-year, thanks to product leadership, technology leadership, but also application system knowhow and the work of many people in our company. I would stop here if there are some question. Thank you, Benedetto. At this point, we will go ahead and take some questions. David? Hi, it's David Mulholland from UBS. Just coming back to the slide you gave on 3D sensing, and showing all of the different kind of approaches you can tailor to now in terms of time-of-flight and also the structured light approaches. Can you maybe just help us to understand, you mentioned doing it for customized solutions for customers, but also then off-the-shelf solutions. Can you help us understand who else you're working with, how you're able to put together an off-the-shelf solution for a customer, what you're doing in-house versus working with partners? Okay. I would like to say, let's use this chart. First of all, I would say that when you talk about depth sensing, there are two kind of general approach. One is more geometrical, structured light. One is instead more based on the time-of-flight. When you talk about structured light solution, the collaboration with the customer teams, you have to work really very close with the customer to make sure that all the system is working together. Because for structured light to work, you need to keep some distance between the dot projector and the sensors. When it comes instead to time-of-flight, the system is more compact. The solution is more compact. You need always a strong interference, a strong, let me say, work connection with the customer. But is in a certain sense closer to a standard solution. The point is that there are many different customers. Each one has its own also, I would say, they are prepared in different ways to accept the solution. We decided that from our strategic point of view, it's important that we do two things. Number one, we provide the basic blocks fundamental for the structured light. Number two, we provide the full solution for the time-of-flight. I don't know if, Eric, you want to add something. I'm working with Eric on this subject, like with Mateo and Alan. Alan, if you can bring up the mic to Eric. No, I think you well summarized our strategy regarding the structured light, where we are offering components to integrators or customers while on time-of-flight. We are looking to offer a full solution. I will say that our key strategy here is to offer the right technology with the right pixels. On these two technologies, we have started a long time ago, and we are continuing to invest. We spoke about the 40 nanometer for SPAD, but also for sensors, and we are continuing with additional technologies like 3D, like BSI, that we will put on our sensors, whatever they are, for time-of-flight or for structured light. Thank you, Eric. That was Eric Aussedat, the head of our imaging business. Let's go to Andrew right here. Eric, if you might. Thank you. Thank you. Andrew Gardiner from Barclays. Another one on this 3D sensing slide. Just in terms of the customer engagement there, we have clearly seen Apple lead the way with 3D sensing. We are yet to see as much from the Android community, and there is clearly wide range of R&D capabilities within the Android camp. Can you just talk to your level of engagement between the more discrete or component-driven solution, perhaps at the higher end for Android, as opposed to those that may take a standard product? Where are we in terms of that development cycle? When can we expect to see shipments from you guys or devices in the market? Thank you. Usually, let's say, we have the pleasure to show you chart of the customers once we are in production, and they give us authorization to show you. I cannot go too much in detail telling you who are the customer we are working with. I can tell you that we are working with the major players in both operating systems, and let's say, consider that as always, when the new technologies are approaching the market, the different players have, I would say, different approach, both technically but also from a commercial point of view. What we can do, as we said before together with Eric, there are two solutions, this is clear. Structured light, time-of-flight. Structured light, we need to make the different building blocks so that they become a solution in the phone. Time of flight, we provide the solution so that when it comes with the software running on the application processor, the customer has a solution. I cannot be specific on which are the development we are pushing, but I can tell you that we can, and we are working on Android solution with a different kind of approach. And with a high level of engagement. Yes. And with a high level of engagement. Any questions on analog? In fact, I was looking for the chart of analog, and then I stopped here. Anybody on galvanic isolation? For example. Okay, who has our next question here? Okay, Jérôme. Jerome. Jérôme right here. Thank you. Unfortunately, another question on 3D sensing. Talking about pixel size, on your SPAD 14 nanometer node, what is your pixel size and on your BSI, and how do you benchmark compared to SoftKinetic or other potential competitor, and maybe Panasonic in SPAD? Thank you. On the pixel size today, for the SPADs, we are in the range of 14 microns. We have plans to go to 10, which I think is what is the best offer in the market or will be seen as the best offer in the market in short term. We have plan to go up to five and even below for our SPAD and time-of-flight pixels. I will not speak about the structured light pixels. We think that today we have in the range of 2.6 micron pixel in our roadmap for global shutter. Thank you, Eric. We will take one more question, and then we will just move to the general Q&A panel. Any final questions for Benedetto Vigna? Okay. Looks like we will move to the Q&A session. Thank you. the general panel. Thank you, Benedetto. After this, we will have lunch out in the atrium. At this point, we will take any questions relevant to ST. Of course, we have the leadership team up here, so no question should go unanswered. I do have to admit, it is a little hard to see hands here. Vicky, if we could go right here, and we will move our way around. Achal, okay. Thank you. It is Achal from Credit Suisse. Carlo, I think you mentioned, during your presentation that most of the margin leverage in the second half is going to be driven by operating leverage, as opposed to gross margins. Just trying to understand, how much of that is just a temporary issue because you are increasing CapEx, there is some wafer prices going up, there is some FX headwinds, or is it more structural because you are hitting limits of gross margins on certain product lines, which limits your capacity to further enhance gross margins in 2019? Thank you. I am on. Yes, you- I am amplified? Yes, you are. Good. I think we explained that in the second part of the year, we expect a very strong growth on important families for us that intrinsically have a lower level of gross margins, and the two families are imaging and discrete. This is the main reason that is, let's say, related to the fact that in the second half of this year, we will not have another wave of progression in the gross margin. I think, for the rest is normal business, and we expect that there will be other phases where the other families with intrinsic higher gross margin will grow faster. We are working very hard in manufacturing to continue to progress. Progress in manufacturing has been substantial during the last few years, but we have new initiatives in manufacturing to continue to improve our efficiency. And of course, as we have tried to show to you today, we have a lot of new R&D programs on high gross margin products. Like, of course, our microcontrollers, like, in general, our analog family. So it is specific. I think, in H2, the mix is really changing materially for the growth on these product families. I see opportunities, of course, for the future to progress, thanks to product leadership and additional manufacturing efficiency improvements. Okay. Go right here. Wow, I'm having a tough time seeing, so Oh, Amit. Amit Harchandani from Citi. I have a couple of questions around capital allocation, if I may. So firstly, with respect to capital intensity, I think you've talked about keeping it less than or up to 10% of sales. This year we are at 13%. Last year, we were at 15%, slightly above 15%. So as I think in terms of your long-term capital intensity, could you help us understand the moving parts? Is this target related to a revenue growth target through the cycle, revenue growth target that you have in mind, and how does move towards outsourcing come into play? I think about this in the context of capital intensity for some of your peers in the U.S. So, any insights on that, how we should think about that, would be helpful. Secondly, maybe if you could also comment about your thoughts around, or latest thoughts on M&A. Last few years, I've seen you stabilize, return to profitability. Clearly, some of your peers are focused on M&A. So as you think about the longer term from here, the mix between organic and inorganic, would be helpful to know your thoughts on the same, please. Thank you. Yeah. Well, I think, to respond to your question, of course it is a combination of the two things. We are planning for growth, and this year, at the end of the day, we expect to grow faster than what we had anticipated. We expect to exit the year with a very interesting run rate in terms of revenues. When we talk about the 10% over the cycle, of course, these two years have been very special, growing 20%, and on the average is 20%, let us say, over six quarters now. Because it was 20% last year, it is now 20% in the first half of this year. We would love to keep growing 20% in the future. But certainly, I think what we see in terms of exiting run rate is a very interesting run rate. So it is the combination of different level in revenues for the company, and also mitigation, of course, in the capital spending, is the two things together. I want to underline that what we are doing in terms of CapEx, and maybe this is better to clarify, when we talk about flexibility, and we talk a lot about flexibility, is not flexibility in terms of capacity. It is a flexibility in terms of being able, in each of the site where we operate, to be flexible in terms of technology mix. This is, of course, decreasing the risks in the future. A third comment, with the CapEx that we are spending, of course, we must target the higher end of our guidance. Because the higher end of our guidance today is based on customer demands. I think it is our duty to make sure that we invest to support this level of growth. Finally, we have never been so active in terms of outsourcing. We presented some major important programs today. Maybe it was split among the presentations, but Marco Monti presented a very important initiative on microcontrollers for automotive. This is new. Benedetto presented a very important initiatives on the BCD8, on the BCD, sorry, on the BCD, for outsourcing. This is new. Benedetto, again, has presented a very important initiative in terms of outsourcing that is the analog CMOS at 130 nanometer, that is the companion chip for many of the sensors that we make. These three new important initiative in outsourcing are on top of what Claude is traditionally doing with the split gate and with more traditional embedded flash technologies, and are on top of what we want to do on the IM logic. Because as we had already communicated, both on the 22 nanometer FDSOI and on the 7 nanometer FinFET, we are outsourcing. So you see, it is many things. We want to remain disciplined, of course. I think we are living a phase of unique opportunities, and we are really working very hard to build up flexibility and to make sure future will be safe. Comments on M&A? I think was the. M&A, maybe Jean-Marc, you want to comment M&A? No, we have nothing on the table on M&A here. There is a booth. There is certainly. Hey, Jean-Marc, that was Amit's question, not mine. No, I make maybe two comments. Okay a little bit to make the takeaway. The manufacturing strategy, about the CapEx. For wafer fab is very simple. Pure proprietary technology, we invest internal, 100%. Then you have technology we call derivative. Generally speaking, is power or CMOS derivative, like BCD or embedded flash or microcontroller. Here, our strategy is to say 50/50. So most advanced we have in our internal fab, more mature we put external. Then you have standard technology, even very advanced like FinFET, is 100% outsourced. So if you look to product group, MDG, close to 60% internal, 40% external. This is a result of this strategy. Silicon carbide, 100% internal. Specialized imaging, 100% internal. So the capital intensity is a result of this manufacturing strategy, offering a flexible supply chain to the end market we address. About merger and acquisition, I guess we will continue to make us stronger. I have disclosed to you that we have the aspiration with the management team, to become even stronger player in the semiconductor industry. When I say we will revisit our strategic plan, of course, targeted acquisition will be part of the process, in order to make us stronger each product group, that I have done a presentation to you today. Great. Thank you. Alain, can we move up to Douglas here? Hi there. This is Doug Smith from Agency Partner. This is a question for Marco Cassis. You mentioned that you have a lot of distribution into China and at least one top 10 customer in China. My question is, are you seeing a lot of local or more of a move to source locally in China from local manufacturers? That might mean that going forward, there would be more competition than just the traditional European, American, Japanese players. Of course, there is a very strong push towards buy in China. This is basically happening only for, let's say, low-level technologies, because they cannot have access to more advanced technologies. So in this moment, the competition is mainly with the typical players. Also because these people, the Chinese, wants to make extremely good products and device. You take Huawei, et cetera. So they are going to purchase the best device that they can. Despite that, surely there is a strong push from the government toward increasing the local sourcing. It is not that easy. We also feel a strong interest to buy more from Europe. Yeah. Is there some pressure to form joint ventures and so on within China? No. We have one that is successful. No, we do not have any pressure. We have a lot of interests. You listen to the distributors, and they are very important distributors. WT is a major distributor. We see interest from the large base of Chinese customers to buy more European. We do not have any special pressure to do any joint venture. We see the same interest also from major Chinese, Japanese corporation. Okay. Let's go to Adi back there. Thank you. It's Adi Metuku from Bank of America. I have two questions. First one is for Marco Monti. You talked about gallium nitride on silicon and your plans there. Can you talk a bit about what your plans are for GaN on SiC? Secondly, just for Claude, I suppose I'll come back to it after Marco's answer. Michael, we need a microphone for- Or he can scream. No, let's say for Power RF, we do not have a plan on GaN on SiC. We are not excluding the future, but we think our solution on GaN on silicon is very competitive. I would say equivalent performance than our competition, GaN on SiC. Of course, with a completely different cost, and also the manufacturing of this technology is much more easy. So for the moment, no plan on GaN on SiC. Okay, and Adi, we'll get your follow-up here. Just a quick follow-up for Claude. Just on the AI accelerator, you said 5 teraflops per watt. Who would be your main competition with that level of performance, with that level of power efficiency? Thank you. In fact, today I don't know. Today we don't know exactly who will be able to compete against us in this domain at this level. There is no solution available short term, for sure. We are the only one able to provide this type of computation power with computation value with the power is a critical point. At this level, there is nobody available. Of course, for distributed artificial intelligence applications. This is the frame, otherwise we will be too ambitious. Okay, Vicky, we'll go over in your area. We'll start with Jérôme. We'll kind of work our way over here. And Celine and Barlow, if I'm missing anybody back there, flag me down, okay? Jérôme Ramel, Exane BNP Paribas. Maybe a question for Carlo and Jean-Marc. Now that the turnaround of STMicro is, I would not say completed, but you've done a great job turning around the company. You will exceed the year on a run rate of $10 billion revenues per year, mid-teens EBIT margin. How do you envision STMicro in three, four, five years down the road? Thank you. Well, I think it's more for Jean-Marc. Well, it could be good to have both view. Okay. I start. I start. For me, EUR 10 billion run rate in Q4 is not enough. This is a very strategic view, and we need to do a little bit better than that. I think there is the opportunity. We had a run rate of, let's say, in Q4 last year, we made EUR 2,466. So it is already relatively close to the EUR 10 billion run rate. I think the way that I see, we are in a market that is growing. What we are doing, particularly in terms of automotive and in terms of Internet of Things and inside the Internet of Things, what we are doing, not only with the wearable and portable objects, but also what we are doing with home building automation and factory automation. This market is growing. It is a big portion of the semiconductor market that is growing faster than the rest. I think we have all the ingredients with a combination of unique semiconductor, and not silicon only, semiconductor technologies and products to be more pervasive at the limited number of major customers, and very importantly, more pervasive with our distributors. We have been very consistent with our distribution policy, pushing a lot the joint initiatives in demand creation. I think we need to keep growing, improving. I think I would not exclude that we may become quickly a $12 billion company. Of course, remaining disciplined and transforming a part of this growth into additional operating income. Carlo Ferro mentioned that during the last 12 months, 48% of the growth, this is the last 12 months, 48% of the growth was transformed into operating income. I think, of course, this leverage at this level is impossible to maintain. But certainly, we have the opportunity to transform a material part of the growth for a company that is becoming bigger, for a company that shall be in the top five except the memory players, transform a material part of this growth into operating margin. We need to be focused, and this is a big lesson that we have learned. Everything that we select to do something, we need to make sure that for the things that we select, we have all the ingredients to be the best in the world. Otherwise our customers will not select us. We would not have 1,000 components in the most recent model of the Audi A8, or we would not be in the flagship models of smartphones if our technologies would not be the best. So my recommendation is anything we do, anything we select to do, we need to have all the ingredients to be the best and keep this discipline. So I was very stochastic, sorry. Like a poker game, EUR 12 billion. Are you going to raise or beat that mark? They told me I lost the microphone. Yeah. Okay. Maybe what I think one of the main achievements we have done during the past 2 years, after, okay, we disengage ST-Ericsson and pure digital consumer, I think ST has really retrieved the promise to be a technology provider and innovation provider to their customer, to our customer. This is something I would like, okay, to push and to continue, that our customer perceive us as a sustainable, reliable partners, thanks to the innovation we can provide and the differentiation we can provide to them. They perceive us valuable because we will generate a strong performance in term of finance, economical, in order, let's say, to be able to sustain our operating model. Our operating model is IDM, so integrated design manufacturer. Of course, based on a, let's say, robust supply chain, means internal fab and external selected foundry partner, because I am a strong believer that also at foundry level, we need to have a big scale, okay? I don't want to be opportunistic with foundry. I want to be a reliable partner with big scale, and with OSAT the same. Well, then if I am a little bit more accurate, if you look the 4 end market we address, clearly automotive and industrial, we want to do everything. Either we develop our own technology and IP blocks, or we will use in a very pragmatic way, and we differentiate ourself in a different manner. I take the story of the EyeQ4, EyeQ5, EyeQ6. Our strong differentiation is our knowhow to deliver robust design for automotive, and we use, okay, the technology of a foundry. Then on silicon carbide, this is our differentiation. So automotive, industrial will use everything. So smartphone and personal electronics, clearly, okay, I don't want to change the current approach. So sensors, security features, power management and RF. On computer, let's say, and peripheral communication equipment, you see that the market is bigger than our relative weight. But it's very simple, it's because basically we are out on the pure digital. But here, as Claude said, we are really convinced that we have some critical knowhow, critical IP blocks and technology which are not, let's say, in term of lithography, very advanced, but are well designed in term of RF features, analog, mixing feature, where here ST can play a role of leader. Moving out, okay, the pure digital, let's say, core, advanced lithography. As a takeaway, vision is let's push, continue to have a perception for our customer for innovation and a reliable supplier, and continue to address the four end markets we address today with a strong willingness to be leader for everything in automotive, industrial, and specific on personal electronics and computer and communication equipment. This is my vision. Of course, we will put it on a formal way, with the team later in the year. Because we have decided together, to very soon, initiate this strategic plan and to put really in a formal way and deploy it as soon as we can. Stay tuned. Before we go to Janardan, is there anybody that hasn't had a chance to ask a question? This gentleman right here. Thanks. Hello, it's Julian Rossi from Marché Race. Hi. Two quick ones. First, I was wondering if, in generic terms, you could give us a sense of the visibility you have in the imaging division. You talked a lot about the backlog you have in industrials and autos. Obviously, this division is something that is making certain people nervous. So maybe if you could talk a little bit about the visibility you have here. And a second one for Carlo and Jean-Marc. It's remarkable this year how similar the company will look to Infineon in terms of EUR numbers, in terms of revenue, EBIT, CapEx, extremely similar. And I can't help but notice that Infineon, its market cap is 50% higher. I was wondering if you had any thoughts as to whether their product mix is just superior, the consistency at which they've been delivering revenue growth justifies it, or whether you think there's an opportunity for you to close the gap. Well, if Jean-Marc allows me, I will take, because it's very quick response. On imaging, we feel comfortable. We have expressed this clearly. We believe there will be a very important growth in the second half. These programs are very complex programs. We believe they are sticky, and we believe that we have good opportunities for the future. I think if we look at the second part of the question, we need to keep growing and show that we are sustainable. It's now several quarters, but it's certainly not enough, so we want to keep growing. I believe today the way that we report is extremely clear. There is no more restructuring. It is just sales, operating income, and net income. Operating income, we were also very open to show what are the potential moving on in the year. This is an important jump. Of course, we do not target the midpoint of the guidance, but this is the guidance. We also need to remain prudent. We want to get close to the higher end. So the opportunities in terms of operating income are important. We are growing a lot. In Q4, and I will not talk about Infineon, but in Q4, we were slightly above NXP in terms of revenues, which is nice to see for ST. I believe for the rest is to keep going and to make sure this is sustainable. I think if Infineon has a 50% more market cap than us is because they deserve it. I believe they deserve it because they've been able to show that they were sustainable, and we want to show that we are sustainable with a decent level of profitability and a bigger company. That's it. I think also- We do not judge on- Absolutely. I would just offer an additional complexity. One word to complement about imaging. I think during the presentation of Benedetto, it was clear. We have completely made the turnaround of this division, thanks to the time-of-flight for proximity sensing and ranging sensing. We have accelerated the turnaround of this division thanks to the structured light and a big major program sustainable with a major player, and we will continue to make this division sustainable thanks to the diversification in industrial market and in Android world and in automotive. This is a, let's say, sequence of the storytelling we are building and we are already executing. Thank you. I think also, Julian, as an additional complexity, our primary reporting language is US GAAP. The competitor that you mentioned is IFRS, and if anybody needs a tutorial on the difference, Carlo Ferro and Lorenzo are happy to do so at lunch. We will take the next question. Janardan, and we will continue. Hi, it's Janardan Menon from Liberum. The question is again on gross margins. If you look at semiconductor companies, especially some of your peers in the U.S., a company like you can make a decision as to whether to prioritize growth or profitability. Some of your peers in the U.S., especially TI, seem to have decided that they are much more focused on gross margin and have seen extremely high levels over the last five, seven years at a cost of growth to a certain extent. I just want to see from a and you've mentioned in the second half of the year, you will see flattish gross margins despite very strong growth. Philosophically, where do you stand in that situation? Are you willing to take all growth opportunities, perhaps keeping gross margin, give or take, at around 40% over the next many years? Or would you want to do, aspire to, say, a 45% gross margin and therefore may sacrifice some growth opportunities along the way to try and push up that gross margin towards those levels? Where do you stand, sort of philosophical I'm not asking for any guidance or, but where do you stand as a philosophy? It's the philosophy, to respond to this kind of question, I think we also need to put things in perspective. With Nokia and Sony Ericsson, we lost a lot on the top line, and we had challenges with the manufacturing infrastructure of the company. Today, the manufacturing infrastructure of the company, it is of a different type, with different technologies, with different missions. I think today the situation in terms of efficiency loading is much, much better. Having said that, I come to the point, I think that there is a tremendous focus on the company on gross margin. I think the focus for any of our groups is to select those things where gross margin is higher. I think entering in a phase where we have a more optimized manufacturing machine, let's say, thanks to the volume, to the size of the company, I think it is our duty, to make sure that gross margin is a key element in the decision to select the new products to make, together with what I said before. When we select something, we need to make sure that we have all the ingredients to be the best. In general, these two things, they go together. Then, of course, to mitigate what I said, there are some differences. We have discrete, and we do not have any, let's say, initiative to dismiss discrete because they are lower gross margin. This would be a major mistake that we would do. But in terms of view, in terms of philosophy, I think it is our duty, it is the duty of the group managers to focus on gross margin, and importantly, to select those things that we want to select for the future where we know that we can be the best. Okay. Next question. Stefan? Yes. A question about structured light, because Jean-Marc just said that the relationship with the client was strong and sustainable, but it reminds me a little bit to a certain extent, the tone about MEMS a few years ago. Can you give us the element to understand how it is going to be different this time, and that you are going to continue to grow for the long term in this field? Thank you. Yeah, MEMS today are largely double digit, with a great opportunity to do more in automotive and industrial and to improve further. I think, for me, chapeau to Benedetto Vigna and his team, because after the initial phase of enthusiasm on the MEMS with one device, and the following, let us say, disappointment, we are now back strong in MEMS. Maybe with a little bit less of growth, but much better gross margin, to go back to the point, and with operating income that is certainly in the teens. However, there is a point. We cannot compare what we have done with the gyroscope initially, and the complexity of the work that we have on specialty image sensors. It is not 10 times. It is 100 times more complex and is more complex for us, and is more complex for our customers in general, Android and non-Android. They need to work together, and they need to plan for long term. Sometimes they need to plan for very long term. It is not even comparable. It is far away. Now, there are no risks? Of course, there are risks. We are in business, and we know that there are risks, but there is no comparison. Okay. Any further question? Got one in the back, right behind Vicky. Hi. You made an interesting comment about how you wouldn't remove discrete simply because they have a low GM. I was just wondering why. I get the power end of discrete, but you've obviously got focused low margin, discrete vendors in the market that could supply those devices. What value do you see in those? We're not focusing on that at all. We are focusing on high power discrete. In fact, the name of our subgroup is power and discrete. It is not discrete. I would say almost, practically all our discrete products are power products. We are not in the small signal kind, maybe with the exception of the protection. But for the rest, it is really power products. We have rectifiers. By the way, rectifiers, they have a decent gross margin. It is not the average of the company. So why? For two reasons. Number one, because they are generating a lot of cash. Number two, because sometimes discrete are extremely strategic, like in the case of silicon carbide. Because it's thanks to the silicon carbide that we believe we can really contribute to this trend of car electrification. That is, for me, a fantastic opportunity for us, and in general, for the industry. This is why, I think we have a family of product. The objective with this family of product, for sure, is, we didn't say today, but is certainly double digit also in discrete in terms of operating income. Gross margin is lower, it is true, generating significant cash flow. Sometimes, like in the case of silicon carbide, extremely strategic. We want to keep going. I can add, Carlo, R&D intensity is much lower than the other product. Also this product will, from asset reuse point of view, are very nice. We extend the lifetime of the usage of our asset on a very long time with discrete. It is a main advantage for us to process these families. Yeah. Okay. We'll take one more question because we're running very late here. I'm just wondering on a strategic level, I know that Carlo Bozotti and Jean-Marc, you worked together for years. But if you look at the direction of the company over the next five years, what's going to be different? What's going to change? You're not the same person. Do you have any other kind of strategic focus that might be completely different from Carlo's? Thanks. I think the answer is there, stay tuned, right? Okay. No. Clearly, well, in term of vision, I guess, I have shared a few minutes ago what is the vision I guess I have with the team. Well, then what I will change compared to Carlo, frankly speaking, I have said this morning that our aspiration is even to make ST stronger. If with the team we are convinced we have to copy plus Carlo to become stronger, we will copy plus Carlo. If we feel that we need to improve some business process, okay, maybe focus better on RF millimeter waves and disconnect a little bit something else, then okay, we will do it. But most important is the strong willingness and determination we have to make our company stronger as a semiconductor player in the world. I think that was a nice segue. I would like to offer Carlo Bozotti the chance to make some closing remarks. Yeah. Well, we are at the end of the meeting, so thank you again. As you know, this is my last Capital Market Days. In fact, after 41 years and four months, as an employee in this company, which is at the end of May, I will retire. So 41 years is a long time. And I remember when I started, it was a teeny. Those days was SGS, but it was a teeny Italian company. Anyhow, I will retire, and I will leave ST. And, of course, the first feeling is that I am not an employee any longer of ST. This makes a big difference for me. The second is that it has been an honor and a privilege to lead ST for several years now. And I really want to make two comments to close, and then we got to have some lunch. The first, I want to thank you, to thank you all. I want to thank you for your support. I want to thank you for your confidence in ST, for your interest in ST. Very importantly, for your investment in ST. Please keep going. On the other side, I also want to thank you for your stimulus, for your encouragement to improve. This stimulus and this encouragement have been very, very important to us. So thank you. Thank you very much for this. The second point that I want to make is, I believe ST is a solid, competitive, and very importantly, innovative company. I am very confident in ST. I am very confident in the future of ST. I am also very confident, Jean-Marc and his leadership team, very confident that they will lead, and they will keep moving forward successfully. I think I am meeting many sites in these days in ST. In fact, just in the month of May is 19 different cities, which is a challenge. I think we all know that success is never final. On the other end, failure is never fatal. What is important is really the courage, the determination to change. There will be changes for sure, but to keep going, moving on, and generate value to all of you. So thank you again. Thank you a lot. Thank you very much. Thank you very much, Carlo. On a personal note and on behalf of the IR team, I'd like to thank both Carlo and Carlo for their leadership and putting up with these Capital Markets Day. I'm sure the new management team supported by Jean-Marc will appreciate these as well. With that, I'd like to conclude the plenary session. The webcast will now be closed as well. We can move to lunch and continue the Q&A. Thank you.

Data Source: Quartr Last updated: May 15, 2018

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