Earnings Call: Q4 2017

Jan 25, 2018

Ladies and gentlemen, good morning or good afternoon. Welcome to the STMicroelectronics fourth quarter and full year 2017 earnings results conference call and live webcast. I am Moira, the conference call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. After the presentation, there will be a Q&A session. You can register for questions at any time by pressing star and one on your telephone. Should you need assistance, please press star and zero to call an operator. The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Mr. Tait Sorensen, Group Vice President, Investor Relations. Please go ahead, sir. Thank you, everyone, for joining our fourth quarter and full year 2017 financial results conference call. Hosting the call today is Carlo Bozotti, ST's President and Chief Executive Officer. Joining Carlo on the call today are Jean-Marc Chéry, Deputy CEO and Designated President and CEO, Carlo Ferro, Chief Financial Officer, and Georges Penalver, Chief Strategy Officer. This live webcast and presentation materials can be accessed through ST's website. A replay will be available shortly after the conclusion of this call. This call will include forward-looking statements that involve risk factors that could cause ST's results to differ materially from management's expectations and plans. We encourage you to review the safe harbor statement contained in the press release that was issued with the results this morning, and also in ST's most recent regulatory filings for a full description of these risk factors. Also, to ensure all participants have an opportunity to ask questions during the Q&A session, please limit yourself to one question and a brief follow-up. Today, Carlo Bozotti will begin with a summary overview of 2017, and Georges Penalver will discuss our 2017 product and application review. Carlo Ferro will then review our financial results in detail. Jean-Marc Chéry will then discuss the strategy and key programs driving our technology R&D and manufacturing investments. Finally, Carlo Bozotti will provide closing remarks and lead our Q&A session. I would now like to turn the call over to Carlo Bozotti, ST's President and CEO. Carlo? Thank you, Tait, and good morning, everyone. Well, this has been a morning of important news for ST. Therefore, before we start our usual review of the fourth quarter and full year 2017, allow me a few minutes to comment on the press releases. As you know, I am going to retire this year at the time of our annual general meeting of shareholders. I will leave ST after 41 years, proud to retire at one of the best times in the history of our company, and extremely glad about the decision of our supervisory board to propose the appointment of Jean-Marc Chéry as sole member of the management board and President and CEO of ST, subject to approval by ST's shareholders at 2018 annual general meeting. Our board decision is supporting the continuity of ST's strategy, plans, and management culture, and I am really pleased about that. Jean-Marc has been with ST since 1986. He knows the company in-depth, and you will get to know him better as a skilled, results-oriented, proactive, pragmatic, and trustworthy leader who has gained in all these years an extensive experience in technology, manufacturing, critical business management, and more recently, also in sales and marketing. As part of my succession plan, the ST supervisory board has also approved, upon Jean-Marc's proposal, the establishment of a newly formed executive committee entrusted with the management of the company and led by ST's President and CEO as its chairman. The executive committee will, of course, become effective upon shareholder approval of the appointment of Jean-Marc Chéry at ST's 2018 AGM. Before I mention the list of the proposed members of the executive committee, let me comment on another important development. As you may have read today, someone that we all know and respect, Carlo Ferro, has informed our company about his intention to step down from his position at the same time as my retirement in order to pursue other personal opportunities. Carlo remains committed to our company with unchanged dedication during this period of transition, and Carlo will remain until the end of 2018 as President of ST's Italian affiliate. I want to deeply thank Carlo. As you know, he has been associated with ST in various capacities since its IPO in 1994. Since then, he has strongly contributed to the company's average compound total return to shareholders of about 10% per year. In his role of CFO and then with increased responsibilities in legal, IP, infrastructure, and planning, he has fully supported ST's transformation, inspiring and driving key initiatives of product portfolio management, financial discipline, asset management, and financing on the capital market. Through his leadership, he has developed an outstanding and talented finance organization, and this is allowing us to plan for a highly qualified internal succession to his role. I am sure you will join me in wishing him all the best for the future. Going back to the proposed members of the executive committee, all the members underline the strong intention to guarantee continuity of the ST strategy end result. Let me go through them. Orio Bellezza, President, Technology, Manufacturing, and Quality. Marco Cassis, President, Sales, Marketing, Communications, and Strategy Development. Claude Dardanne, President, Microcontrollers and Digital ICs Group. Lorenzo Grandi, President, Finance, Infrastructure, and Services, and Chief Financial Officer. Marco Monti, President, Automotive and Discrete Group. Georges Penalver, President, Human Resources and Corporate Social Responsibility. Steven Rose, President, Legal Counsel, and Benedetto Vigna, President, Analog, MEMS and Sensors Group. During the coming months, Jean-Marc, the incoming executive committee, Carlo, and myself will continue to work together to prepare for a very smooth leadership transition, with our strongest commitment to continue to deliver strong business and financial results. Now it's time to start our Q4 and the full year 2017 review. Building on the results of 2016, our priorities for 2017 were, first, deliver year-over-year sales growth across all our product families and across all regions, both with OEMs and in distribution and the mass market. Second, continue to lead in innovation, supporting our customers through product leadership and optimize application-oriented solutions. Third, invest for growth, maximizing innovation with our R&D spend and leveraging our manufacturing investment to quickly ramp up our major programs. Fourth, continue to be disciplined on operating expenses. Finally, as a result, continue to improve our operating profitability. During 2017, we made significant progress quarter after quarter, and we achieved our goal of placing ST on a sustainable, profitable growth trajectory. As you have seen for our press release this morning, we closed 2017 with strong fourth quarter results. Net revenues increased 32.6% year-over-year to $2.47 billion. Our year-over-year growth was broad-based, with all regions contributing and with double-digit growth across all product groups. We maintain a very good balance of revenues between OEMs and distribution. This is an important point, as this indicates that we are matching new product trends of OEMs with a diversified business, including tens of thousands of small and mid-sized companies. Today, we have more than 100,000 customers worldwide. Moving to profitability in the fourth quarter, gross margin reached 40.6%. Operating margin, as reported, was 16.5%, and net income was $308 million. For the full year 2017, net revenues increased 19.7% to $8.35 billion. Gross margin expanded 400 basis points to 39.2%. Operating margin increased 880 basis points to 11.9%, and net income grew to $802 million. Now let's focus on growth and product leadership. $802 million. Yeah, sorry, $802 million of net income. Now let's focus on growth and product leadership, and I will hand over to Georges Penalver for that. George? Thank you, Carlo, and good morning, everyone. Actually, we are executing on a growth strategy centered on the most promising application domains, smart driving, Internet of Things, including industrial and the non-digital part of smartphones. This enables us to cover 40% of the total semiconductor market. We have deployed an aggressive and very successful sales and marketing strategy targeting distribution and the mass market, as well as key accounts. Revenues from our top 10 customers in 2017 grew 37% year-over-year. Distribution increased significantly in absolute numbers and moved to 34% of total revenue in 2017 from 33% in 2016, with year-over-year point-of-sale growth of 12%. Importantly, our unique product portfolio offers all the essential blocks to serve the IoT and smart driving applications. We launched many new products in 2017, and we continue to innovate at a fast pace. Turning to some of the key 2017 achievements of our product groups, I will start with our Automotive and Discrete Group, ADG. Our automotive revenues, considering all our product groups, grew about 10% for the full year. Also, in 2017, the average ST content in a car has continued to increase, with our company now providing up to 1,000 semiconductor components in a premium car like the Audi A8. In the area of safer driving, we made good progress in product development and production ramp-up, and we achieved substantial growth with ADAS-related components. We started production of our partner Mobileye EyeQ4 product for semi-autonomous vehicles based on our 28 nanometer FD-SOI technology. As Mobileye said at the CES two weeks ago, 13 automakers are planning designs on this SOC, and five major brands will launch their EyeQ4-equipped vehicle during 2018. Development of the next generation Mobileye EyeQ5 is ongoing, with first silicon planned for later this year, and we have started joint work on the next generation, EyeQ6. We also had success with our 24/77 gigahertz radar product, which grew revenues by about 25% in 2017. In the area of greener driving, we won new designs in car electrification, growing our market share in power components. These wins include our silicon carbide products. We have already talked about important wins in the U.S. and Asia, and I can now mention that we are collaborating with the Renault Group on the next onboard charger generation with our silicon carbide diodes and MOSFETs. Silicon carbide revenue started to materialize last year and, looking forward, we see big opportunities as the adoption of hybrid and electric vehicles increase. We also continue to see strong growth and market traction with our 32-bit microcontroller family for automotive, particularly in body and gateway applications at several car makers. Power Discrete had a robust 2017. We scaled up by about 13% for the year in total, and with a strong contribution from automotive applications. On top of silicon carbide for automotive, we also enjoyed growth in low and high-voltage Power MOSFETs components for industrial applications. Now let's move to Microcontrollers and Digital IC, MDG, where year-on-year revenue grew 15.8% during 2017. Our microcontroller business grew throughout the year to deliver year-on-year growth of about 25%. This strong expansion of our business was driven by our STM32 General Purpose family, where we shipped more than 1 billion products during 2017. This achievement is impressive as, one year ago, our cumulative shipment since 2007 had been 2 billion units. The STM32 family now offers more than 800 parts. A key part of our success is linked to our development ecosystem, which allows fast and easy access to tools and design resources. During the year, we added a number of tools to enable product development for the IoT, as well as integration with leading cloud services providers. During the fourth quarter, we acquired Atollic to offer our customers a full integrated development environment, specifically tailored for the STM32 family and the STM32 Nucleo development ecosystem. Our secure microcontroller solutions and near-field communication connectivity both benefited from the acquisition we made in 2016. We announced two key products, the ST54 and ST53, targeting mobile and wearable for NFC and secure applications. We also made significant inroads with our RFID readers and NFC controllers in areas such as game console, automotive, and smart furniture. In the digital area, we were recognized by many OEMs for our technology leadership and service excellence, and we achieved several design wins for digital ASICs in advanced technology for optical and satellite communication. Let's now move to the newly formed group. Starting in the fourth quarter of 2017, we organized the activities related to our sensors into one group, transferring the Imaging product division, previously reported in Others, into the Analog and MEMS group, formerly known as AMG, to create the new organization, Analog, MEMS and Sensors Group or AMS. In our main sensors and actuators business, revenues grew over 20% compared to 2016. We further developed the business with our high volume consumer and mobile customer base, thanks to multiple sensor design wins with leading smartphone, wearable and game console makers. We also saw strong growth with our industrial and automotive customers, to whom we shipped over 60% more sensors in 2017 compared to 2016. In this area, we received new business awards for sensors to support assisted driving. To accelerate growth in industrial application, we introduced a number of new sensors with 10-year longevity. Our analog business also performed well in 2017, achieving growth over 20% year-over-year. This growth was broad-based across our wide analog and power product portfolio. We saw solid progress both with design wins and revenue growth with our high-end industrial customers, with product families such as our STSPIN motor control family and our intelligent power switch solutions, which target smart industry applications. We continued to have success with our smart metering solutions, and we announced a new modular programmable chipset. We also grew with power conversion products, such as our VIPerPlus family of high voltage AC/DC converters. In 2017, our wireless connectivity revenues more than doubled versus 2016. We launched a new system-on-chip Bluetooth Low Energy 5.0 certified, and we won multiple design in a range of applications. In imaging, 2017 was a year of continued success as revenue grew triple digits year-over-year. Our proprietary time-of-flight technology gained traction, and we released our third generation of laser ranging sensor. Also, our specialized 3D sensing technology ramped in volume for a major customer, and we also won a design for a depth sensing time-of-flight solution to support assisted driving with tier 1 automotive supplier, certainly a priority for us. Now let me turn the presentation over to Carlo Ferro to discuss in detail our business and financial performance results. Thank you, Georges. Good morning to everyone. It is really a great pleasure to be here today to present the results, particularly to present the 2017 fourth quarter and full year earnings results, which are the best historical performance for our company in the last 17 years. Beginning with a brief summary of our fourth quarter, the significant progress we have made over the last year, including the substantial creation of shareholder value, is quite visible. Net revenues up 32.6% year-over-year, gross margin up 310 basis points, operating income was $408 million, translating into an operating margin of 16.5%, and a positive free cash flow of $145 million. On a sequential basis, sales grew 15.5%, and we were 200 basis points above the high end of our guidance on higher than expected revenues in imaging products and microcontrollers. This performance is above our historical seasonality. In part, this reflect the strength of our offer with sequential growth in each of our microcontroller, analog, power discrete, automotive, and MEMS subgroups. It also reflects the fact that with the imaging product ramp, our seasonality is evolving as our product portfolio evolves, leading towards higher sales in the third and fourth quarter of a year. Turning to the full year 2017. Net revenues increased 19.7% year-over-year, equivalent to the addition of $1.37 billion in revenues. Operating income came close to the $1 billion mark, indeed, $993 million. Operating margin of 11.9%, almost a four-fold increase over 2016, and clearly above the anticipated 10% target. Net income increased $637 million to $802 million, and free cash flow increased about 7% to $338 million. A key element of our strategy to achieve sustainable, profitable growth has been synchronizing growth in each of the area of our strategic focus, IoT, smart driving, industrial, and smartphones, after having positioned our portfolio in multiple growth markets. In the fourth quarter, our sales growth of 32.6% year-over-year reflected double-digit growth across all the product groups. AMS revenues increased 70.1%, MDG revenues were up by 21.4%, and ADG revenues were higher by 14.6%. For the full year 2017, our revenues growth of 19.7% reflects broad-based growth across all product groups and geographies. Asia-Pacific revenues increased 26.5%, EMEA revenues were up by 14.3%, and America was up by 3.2%. Turning to our first quarter outlook, based upon the midpoint of our guidance range, we are anticipating year-over-year revenue growth of about 22%, plus or minus the usual 350 basis points, which, on such a strong Q4 2017, is a sequential decrease of 10% at the midpoint. These revenue dynamics reflect a better than seasonal quarter-to-quarter evolution for smart driving and Internet of Things applications, combined with the negative influence of seasonality in smartphones. One year ago, I have outlined the four key drivers of expanding growth and operating margin to translate into higher net earnings and significantly enhanced return on invested capital. Leverage on sales growth, full loading of fab, manufacturing scale and technology reducing costs, and innovation improving the product mix. Indeed, they all have been well implemented, and in 2017, $1.37 billion of additional sales year-over-year translated into $779 million of additional operating income, or a 57% margin on incremental sales, 57%. Let's see in greater detail how our P&L performed. Manufacturing efficiencies and favorable product mix have been the main drivers of our gross profit and gross margin improvement during the fourth quarter and for the year in total. Our fourth quarter gross profit reached $1 billion, and our gross margin was 40.6% above the midpoint of our guidance, and this is the best performance for ST since the internet bubble in the early 2000s. On a sequential basis, gross margin increased 110 basis points due to increased product mix and increased manufacturing efficiency, partially offset by normal price pressure and negative currency effects net of hedges. For 2017, our gross margin expanded 400 basis points, bringing it up to 39.2%, a level that already generates solid earnings. For the first quarter of 2018, at the midpoint of our revenues range, we anticipate a gross margin of about 39.5%, reflecting the anticipated decrease in revenues on a sequential basis, and importantly, we have started the year 2018 above the prior year gross margin. We have maintained a very strong expense discipline, with average quarter operating expenses in 2017 and net of the R&D grants of about $555 million, in line with our target range. As a result, we saw significant operating leverage, with a 2017 OPEX to sales ratio of 27.4%, which is an improvement of about five points from the 2016 level. As we first discussed in October, operating expenses net of R&D grants are anticipated to increase to somehow above $600 million per quarter in 2018 in average, reflecting revenues growth, inflation dynamics, currency, low R&D grants, and increased marketing and sales efforts, while keeping tight expense discipline. Commencing in the fourth quarter of 2017, the company transferred the Imaging Product Division, previously reported in others, into the new organization, Analog, MEMS and Sensors Group, the AMS. Please note, and you may note in the press release that we have reclassified the data for 2016 and 2017 to facilitate your job. Operating income before impairment and restructuring is significantly improved from $152 million to $428 million in the first quarter of 2017 versus the year ago quarter. Importantly, you can see that all the three product groups improved their profitability progressively during the year and achieved in Q4 2017 a double-digit operating margin before impairment and restructure. In Q4, ADG posted an operating margin of 12.3%, a year-over-year improvement of 500 basis points. AMS, now including Imaging, operating margin was 20.9%, well above the 10.1% in the year ago quarter, and MDG operating margin was 19.6%, 9.9 points above Q4 2016. All product groups reached their operating margin target for the second half of 2017, as anticipated at our Capital Markets Day in last May. In particular, the former AMG, driven by the improvement in both analog and MEMS, and MVG driven by both improvement in microcontrollers, a significant reduction in digital losses well exceeded the target of low teens. Our free cash flow increased to $338 million after absorbing $1.3 billion of capital expenditure in the year, while covering our cash dividend to shareholder totaling $240 million in 2020. CapEx at the end of follow well our anticipated route to support revenue growth. Free cash flow came in higher than anticipated, amid higher EBITDA, which reached about 25% of revenues in the fourth quarter. The expansion of our profitability and acceleration of our net asset turns have driven a strong increase in our return on asset, which for us, you know, is the measure for the return on invested capital, accelerating quarter after quarter during 2017. Already in the third quarter, to take as a reference a period with available data from competitors, ST position in the ranking places us amongst the best in the semiconductor non-memory IDMs. Then we made a significant step forward in Q4, going to reach almost 36% in the first quarter, well above the 15% in the year-ago quarter. This result is significantly exceeding our weighted average cost of capital, which is currently about 9%. In 2017, we also accomplished a significant improvement of our balance sheet with the successful offering of $1.5 billion new convertible bonds at an average zero yield. The full settlement of $1 billion convertible bonds issued in 2014, a new credit facility. As a result, the overall liquidity increased to $2.19 billion at the end of 2017, with an average yield of 1.5%. At the same time, our financial debt cost has been significantly lower this past year as a result of our refinancing, bringing our cash cost of the debt to 44 basis points, thereby creating a positive spread of over one point. We also strengthened our financial flexibility by signing a new $500 million EUR credit facility with the European Investment Bank, and we had over $1 billion of available undrawn credit facility at year-end. Further, we continue to maintain our financial flexibility with a financial position of $489 million December 31st, compared to $513 million one year earlier, showing our ability to manage the planned increase investment made in 2020. Importantly, during the year, shareholders received a cash dividend paid quarterly of $0.06 per share, representing a yield of about 1% based on the current share price, and we repurchased in the year shares for $300 million. Finally, we are pleased to have our progress in operating profitability, coupled with maintaining a very solid capital structure, recognized with a return to the CAC 40 index in September 2017, as well as with the rating agencies, with the Moody's most recent upgrade of our rating and S&P upgrading their outlook on us. Now to describe our technology and manufacturing strategy and the related capital investments, I will turn the stage to Jean-Marc Chéry. Thank you, Carlo. First of all, I would like to deeply thank the supervisory board of ST for their confidence, and I am honored to have been nominated as the successor to Carlo Bozotti. Carlo has set a very high bar, and I owe him great debt of gratitude for his guidance and support of my candidacy, for his ultimate leadership role in ST. I would like also to deeply thank Carlo Ferro for all the years we have worked together and the solid legacy he leaves behind, both in term of the financial solidity of the company, as well as the highly capable finance team, soon to be led by Lorenzo Grandi. I joined ST even before it was ST. I know and admire this company, its people and its culture in depth. You can trust that when appointed, I will put the utmost commitment to drive ST forward, supported by a strong executive committee composed of great colleagues. I have been working with them for many, many years, and that I deeply respect and trust. Moving now to my presentation. ST has a broad portfolio of differentiated technologies that allow us to address the various market and application requirements we target. I would like to highlight 2017 development and our key focus areas for 2018. BCD. Our BCD technology is a longstanding area of strength for ST and a major enabler of our business in automotive and industrial applications. During 2017, we expanded our product portfolio and continued the manufacturing ramp of our 110 nanometer technology. We also completed the transfer of our 160 nanometer node to major silicon foundry in order to extend our capacity to serve the growing smart power markets. For 2018, we are focusing on the development of our tenth generation, which addresses the need for more digital logic and memory-intensive smart power products. This new 90 nanometer platform enables the development of fully integrated system-on-chip smart power products. We are also developing differentiated flavors of our BCD technology family, which allows us to address higher power and voltage applications, as well as galvanic isolation. Our advanced CMOS technology roadmap is evolving along three axes of development. First, we are reaching our 28 nanometer FD-SOI platform with additional features to address RF and space applications. Second, we recently announced our adoption of 22FDX foundry technology as the next node in our FD-SOI roadmap, targeting specific high-performance and low-power products. And third, we are working with 16 and 7 nanometer FinFET platforms for the foundry partner, where we are designing products for high-density digital applications, including system on chips for autonomous driving. In addition to the development of RF features on our 28 nanometer FD-SOI platform, we also continue to leverage our differentiated BiCMOS 55 nanometer technology. This unique platform offers best-in-class bipolar transistor, capable of operating at frequencies up to 300 gigahertz. This technology is very positioned to address high-speed communication links for data center and cloud infrastructure and 5G infrastructure applications. In 2018, we will continue to improve the performances of this technology with additional bipolar devices operating at even higher frequencies. Now, embedded non-volatile memory. This technology is a key enabler for our microcontroller family, which address a broad spectrum of applications from consumer to automotive and industrial. In 2017, we expanded our capacity for 40 nanometer in-house on 12-inch wafers for all flavors of 32-bit microcontroller. Embedded non-volatile memory is also important in our 28 nanometer FD-SOI offering. As we can embed phase-change memory to deliver a competitive low-power, high-performance technology platform to address automotive and IoT applications. This is one of our focus areas in 2018. Imaging now. 2017 saw our continued deployment and penetration of our patented FlightSense time-of-flight technology. With the launch of our next generation of products, introducing optics and advanced processing to boost performance, this enables us to grow our wireless business, but also to drive growth in wider application areas, such as PC, robotics, and the general mass market. We also successfully ramped up an important time-of-flight product and a specialized imaging sensor addressing a 3D sensing application for major customers. For 2018, we are focused on the further development of our next generation of imaging technology. We will launch a new single photon avalanche diode, SPAD, in 40 nanometer technology, enabling a step change in performance for time-of-flight applications. We will also secure the following generation with the 3D SPAD, further boosting the performance, scalability, and enabling higher resolution time-of-flight sensor. This is key for multiple markets from 3D sensing to lidar. We are also developing our next generation of global shutter technology with significant performance improvements in near-infrared light detection, as well as our future image sensor with backside illumination and 3D integration for visible and non-visible light applications. MEMS sensors and actuators. 2017 saw a significant increase in our manufacturing volume in MEMS associated with the prior introduction of a number of new market-leading motion and environmental MEMS products based on our optimized micromachine technology. Our focus in 2018 is on developing next-generation technology. For example, we are developing a version of our motion MEMS technology that supports demanding industrial applications. We are also developing our next generation of motion MEMS technology for consumer and automotive that will boost performance and add new magnetic and resonator capabilities. Our pressure sensor technology also continues to evolve with higher level of integration and waterproofing. Our focus in actuators is on our thin film piezoelectric technology, which enables a number of different applications such as inkjet and 3D printing, smaller and lower power camera autofocus solutions, and MEMS speaker. Silicon carbide. Moving now to silicon carbide. As we have said before, this is an area where ST developed the technology organically for a number of years. Today, we are one of few semiconductor companies able to supply silicon carbide products in volume. In 2017, we started volume production in our newly installed 6-inch manufacturing line in Catania, and Carlo already mentioned some of our business with it. In 2018, we plan to increase our 6-inch capacity in line with customer demand while expanding our product offering based on our third generation of silicon carbide technology. At the same time, we are continuing the technology development of our next generation of automotive-grade MOSFETs, which will include a move to trench technology in the fourth generation. Let me turn now to our manufacturing strategy. Here I would like to explain how we ensure the strategy supports our revenue growth, competitiveness, and ability to differentiate. First, our wafer fab, where our currently available and planned capacity relies on a smart combination of internal wafer fabs and a network of great foundry partners. We follow a number of principles consistent with our technology strategy and our ability to differentiate our offer to silicon. Some technologies are completely outsourced. In digital CMOS technology, beyond 28 nanometer, we rely on foundries for all application-focused areas. Some technologies are partially outsourced. A good example is digital CMOS derivative technology, like embedded non-volatile memory, which enable IoT and smartphone applications. Some technologies where ST has unique proprietary IP remain internal. This includes differentiated CMOS technology enabling automotive applications or analog and RF ASICs and specialized imaging sensors and time-of-flight. Differentiated analog, power, and MEMS technologies also remain generally internal, whatever the application focus. However, we also have a flexible approach for these internal technologies as they mature and as foundry opportunities evolve. For example, this year we set up a partial outsourcing to support strong BCD demand opportunities. ST internal manufacturing competitiveness relies on the smart combination of appropriately scaled wafer fabs with some dedicated to differentiated processes, like our wafer fab in Agrate, Catania, Crolles, and Tours. Some very high-volume production fab capability, like in Rousset and Singapore. All of these fabs are engaged in a continuous lean manufacturing improvement program, including an absolute focus on quality. In each of them, we have a stabilized and modular approach to adjust internal capacity to demand, whether through technology mix or selective capacity addition. In order to support our anticipated product portfolio mix and to fuel strong revenue growth in the second half of 2018 compared to the first half, we expect to invest approximately $1 billion to $1.1 billion. In front-end manufacturing and R&D, we will further expand capacity in Crolles 12-inch within the current footprint to increase flexibility and support the introduction of new technology. In our Agrate facility, we will continue the mix evolution to advanced BCD and prepare for the 12-inch pilot line. In Catania, we are focusing on capacity growth on 8-inch advanced BCD and 6-inch silicon carbide. In Singapore, we will continue 8-inch capacity expansion for power discrete and BCD, broadening our technology capabilities. In probing, assembly, and testing, we will continue to invest to align our revenue growth and new products, particularly in silicon carbide, as well as new product lines for automotive MCU and advanced BCDs. We will also accelerate the pace, sorry, of equipment modernization in our assembly and testing fabs. With that, I would like to hand back over to Carlo. Well, thank you. Thank you, Jean-Marc. Indeed, a very impressive package of new technologies. So important for new products and future growth. As we discussed, we have demonstrated actually in 2017 the ability to grow revenues at accelerated pace and to significantly improve our operating profitability and net income. In 2018, our objective is simple and straightforward: to leverage our achievements and to continue to drive sustainable and profitable growth, thanks to our continued product leadership. Just starting from Q1, we will be adding $400 million additional revenues compared to Q1 last year. The progress we made in 2017, a truly successful year for ST, materialized during the 30th anniversary of the formation of the company. We are very happy to be able to celebrate this milestone with a much stronger ST, with solid product leadership in IoT and smart driving, strong market position and distribution, and with major accounts, and a world-class team of engaged employees. We are certainly very well set to continue to grow and to leverage this growth to bring additional improvement to our 2017 financial performance. My colleagues and I would now be very happy to answer your questions. Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. You will hear a tone to confirm that you have entered a queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. The first question is from David Mulholland from UBS. Please go ahead. Hi. Thanks for taking the question. Just one clarification, first of all, on the commentary you are giving on the second half and your growth expectations. Could you just clarify that is growth in absolute terms, H2 versus H1, rather than a year-on-year acceleration into the second half? And could you give us a bit of color on what is actually giving your confidence in the business and potentially by business area, and what is giving that confidence into H2? Then the second question, there has been a lot of volatility in currency rates recently and quite a few changes in ST's business mix. So can you just give us an update on what the sensitivity is at the kind of gross profit and operating profit level of the business, to each change in the euro dollar rate if we exclude the impact of hedging? Yeah. Well, I take the first one, the first part, and then Carlo will comment on the second one. Well, it is both. I think, certainly, as I just said, if I take Q1 this year over Q1 last year, this is an addition of about $400 million of revenues. We want to keep going. So certainly, we plan to have an important growth H2 this year over H1 this year. Of course, we plan for growth H2 this year over H2 last year. And this is, of course, based on the visibility that we have today. The visibility today is of a strong automotive market. Last year, as we said, automotive overall for ST grew about 10%. In Q4, our overall automotive business grew Q4 over Q4 almost 18%, and we expect a very strong year in automotive. We are targeting a growth this year in automotive that is certainly stronger than 10%. This is across the company. It is not only in our ADG, but also our MEMS, our automotive, other products. We mentioned before, for instance, new things like lidar, based on our imaging technologies, et cetera. We have last year enjoyed a great distribution business. Our stock turn last year increased. Inventories are very low. I think at the end of last year, we have an unprecedented level of stock turn. For me, it is even too low. I think with our product portfolio, we should have around 3 months of inventory, and we are certainly below that with our distributors. We do not have any, of course, with the visibility that we have today, any negative sign on our distribution business. We are particularly pleased about our microcontrollers. As we said, last year we sold more than 1 billion pieces of STM32. This is great. This is so many customers. We have certainly more than 50,000 customers in microcontrollers. It is very broad. Finally, projects and new projects in wireless. This is for us, of course, important additions. This is also changing somehow, the pattern of the quarterly sales. As Carlo said before, we expect to see, moving on in the future, a different way to quarter by quarter, with typically the second half that is significantly higher than the first half. Our visibility is based on this. Certainly not everything is perfect, but there are many things that are moving into the right direction. Carlo? On your second question, David, I would first summarize the currency exposure and then offer you a rule of thumb to compute the sensitivity. Our revenues are in about 87% in US dollar and about 13% in euro. When looking at the operating expenses structure, the euro exposure has a little bit reduced in favor of exposure to other currencies. In costs, about one quarter of costs are based on the euro, about another 10% is based on other currency, and those are mostly Asian currencies, and 55% is in US dollar. In operating expenses, about 60% is still euro-denominated, and the rest is a balance between US dollar and other currencies. To wrap up on a rule of thumb on sensitivity, we estimate that one percentage point, not one figure, one percentage point of change in the exchange rate between the euro and the US dollar translates into $6 million of operating income per quarter, as I would say, an approximate estimate. Can I just. One very quick follow-up on that. On the commentary you gave on OpEx through 2018, you said around $600 million run rate. Just given the currency sensitivity around that, what currency assumption have you used in the guidance? 1225. Yes. Again, what we are referring today is where we were this last Friday, 12/25, before, of course, considering the effect of the hedge. Okay, that's great. Thanks very much, and enjoy your retirement, both of you. Thank you, David. Next question, please. The next question is from Janardan Menon from Liberum. Please go ahead. Hi, good morning. Thanks for taking the question. Just going back to the strength that you are seeing in the second half versus the first half. If you can compare that with last year, how does your visibility stack up? Because you were pretty bullish about the second half around the same time last year as well. Last year you did about 23% growth second half versus first half. I was just wondering, can we expect that kind of seasonality because of what is happening in the wireless business? Or will it be lower than that this year for various reasons? Listen, of course, we do not give guidance for the second part. I think the way that I see it is, first of all, automotive is good. In Q4, year-over-year, we grew almost 18% in the automotive business. This year overall, we grew 10%. We expect that in 2018, our growth will be more than 10%. This is the first data point. Here in the automotive, typically, the visibility is longer-term. We have better visibility. There is a second element that I would like to give to you as a data point. There are certain projects that last year they were more concentrated in 6 months, while, of course, this year we will enjoy them on 12 months because they started mid this year. A third data point. We also have new projects with the customers. Now, of course, if you take the smartphones, we have three blocks of technology. We are not in the digital core in the smartphone, and we will not be in the digital core of the smartphone. But we have three blocks of technology. One is sensors, the other one is security, the third one is power management. We are working on all these three blocks. Of course, we also have new projects that are important for the year. Finally, there is distribution in mass market. Of course, clearly, we are living in a moment where the demand is very, very strong, and we know that we will not live in a super cycle forever. However, we are encouraged by two things. First, that we are very sticky with our microcontrollers. We have 1 billion pieces of the STM32. This is penetrating many, many applications around the world, and I think it's really a solid presence in the mass market. Let's face it, if we exclude memories and the big processor we are not in, we want to be number two in the world in this market, and I think we can be number two in the world. We are getting there. The other encouragement point here is the inventory turn. As I said before, the inventory turn at the end of last year is higher than what we had at the end of 2016. But we do not have a crystal ball, and we know that, particularly in this area, some correction in the cycle may come. But based on all of this, I think we expect another interesting and good year of growth for the company. That's very helpful, Carlo. Can I just ask a small clarification on that from another angle, which is, you said your automotive business will be growing faster than the 10% you grew last year. In your businesses, which division do you think will clearly grow slower than last year? Or will all your other businesses grow roughly at the same rate or faster? You see it in the automotive or in general? In general, across the company. In general. So maybe, Carlo, you have the budget in front of you. Why don't you comment? Yes. Certainly, Carlo, but at the end, it is early, I believe, to share all the, how say, the expected sales by segment across all the different subgroups. Certainly, we have to consider that in digital, we are still progressing on the phase out of legacy product from the set-top box business, and maybe should I take one answer to your question, perhaps digital will be the least growing of the other seven, the overall seven subgroups. This is digital within the MDG business? This is digital in the MDG. In the MDG group. Today, frankly, what we see is another year of good growth across the board. Both part digital, where we have product that are phased out. We still have some older products that we do not support any longer, that are going down. But in general, we see the opportunity for another year of growth across the board, both from the product point of view, but also from the geography point of view. And for us, it's very important to make sure that, yes, key customers, major programs, they are vital, crucial. But our distribution and mass market presence is also crucial, and we want to keep growing. Understood. Thank you very much. Thank you. Thanks. Operator, the next question. The next question is from Adithya Metuku from Bank of America. Please go ahead. Yeah. Good morning, gents. I just had a quick question on wafer pricing. We have been hearing a lot from the likes of TSMC on pricing going up and about the impact on margins. Could you give us some color on how you expect to see the impact from wafer pricing increases on your gross margins in 2018? Thank you. Yes. Indeed, there are certainly some price increase, particularly on the 8-inch diameters. We need also to consider that at the end, the price increase on this material already started mid of last year. So some of it affects already in our cost of goods sold in the fourth quarter. Then overall, we may expect some further negative impact in the course of 2018. Nevertheless, our global procurement campaign is anticipated to continue to generate overall savings, all materials and services included, also for the year 2018, including the already defined and fixed prices for silicon substrate. Okay. Do you think your gross margins can go up in 2018 despite the wafer price increases? We are not here to guide on the 2018 gross margin, but generally at the end, there are really a number of factors of ingredient from the product innovation to the product pricing, to the manufacturing efficiencies, to the overall advantage on scaling up the fabs. Plus, the overall cost of manufacturing materials, and there, I would not consider the silicon substrate pricing one of the major ingredient affecting our gross margin dynamic this year. Okay. Thank you. You are welcome. Thank you, Adi. Next question, please. The next question is from Jerome Ramel from Exane BNP Paribas. Please go ahead. Yeah. Good morning. Morning. Best of luck for Carlo and Carlo, and congratulations to Jean-Marc. First question, concerning gross margin, actually, I am surprised by the resilience of the gross margin in Q1, because revenue is down. You guided for down 10% sequentially. I just wanted to understand what is offsetting the volume decline you are seeing in Q1 for the gross margin. Is it better mix? Is it better pricing? I just like to understand how resilient it has been. Thank you. Yeah. Carlo, please. Yeah, Jerome, I take your question at the end, trying to drive on the evolution of gross margin from the 46% reported last quarter and the 39.5% anticipated midpoint for the current quarter. We start to see some of the currency impact. There are about 30 basis points of currency impact. The other 80 basis points is a combination of sales price, and you know that the Q1 is particular for certain applications and customers as we enter into the yearly new price for the full year. So Q1 normally is heavier than the second half of the year in this respect. Overall, at the end, we continue to generate efficiencies for the fab, but some of the seasonality effect in some of our applications, particularly in assembling, is generating some negative on the overall efficiency of one assembly line. Okay, thank you. Maybe as a follow-up, what do you think will be the biggest challenge for STMicroelectronics in 2018? The biggest challenge? Well, the biggest challenge, we still have many ramp-ups to do. We have opportunities for new programs, for new products. Some of the things you guys know, some of the things you guys do not know. There are still challenges in terms of ramping up new technologies internally, ramping up new technologies outside. There is a big effort with our silicon foundry partners. These ramp-ups, we are getting used. We had a major ramp-up in Q3, Q4 2016. We had really two major ramp-ups last year, in the second half. In fact, in two important fabs for the company. There are more opportunities to ramp up, which is good, of course. This is, of course, on different technologies. It is not always the same fabs, the same technologies. These ramp-ups, we must execute, and we must make sure that this is properly done, and this is certainly a challenge. Another area that I would like to mention, of course, but it has been already touched, is the euro dollar. This is not helping us here. I think we are becoming more resilient. Carlo was mentioning how much of our manufacturing cost now is euro-denominated. We are becoming more resilient, but this is certainly not helping. What I said before, of course, we will be very pleased to see this strong pattern of business coming from distribution and mass market and the proliferation of the STM32 and building around this STM32. Maybe the market may correct here. But it is not what we see today. This is another potential concern. I think we will remain disciplined for sure. We will be very attentive with CapEx, with expenses. I will say a number of ramp-ups important, of course, also this year on new things. The euro dollar rate, making sure that the STM32 is very sticky with all these 50,000 customers, and that we could build more around the STM32 with other products. These are the things. Okay. Thank you very much. Thank you, Jerome. Next question, please. The next question is from Stéphane Houri from Natixis. Please go ahead. Yes, hello, good morning. I have a question around the CapEx, and I would like to understand a little bit more if this CapEx you are announcing for this year is related to one specific project, and if you can give us some information about the capacity of code to where you want to take it. The follow-up is a little bit related. I would like to understand a little bit more the seasonality now of ST sales during the year, now that the exposure to mobile, I would say, has increased again. So the -10% is on a strong basis, of course, but what is a normal seasonality for ST now? Thank you. Well, I would say 10% is of course also starting from a level of revenues that frankly, we did not expect. When we started Q4, we did not expect to end up with a 2. For 66 billion. For us, this was really unexpected. I believe, the best way for you to look at this, I think in ST, there is the opportunities for us to keep growing with this project for a number of years because a very complex project, we believe we are innovating a lot. So it is important for us to keep growing for a number of years, with a number of generations. To study the seasonality of our wireless business, I think you need to look at, of course, our major customers in Korea, in China, in the U.S., and look at the sales of smartphones, quarter by quarter. There is certainly an acceleration in the second half of the year. I would say that considering the very strong Q4, 10% is possibly a little bit on the high end, if we look at the future, because we really start from a Q4 that is very high. However, I think this year, automotive and industrial and distribution are certainly better than seasonal. In practice, we are eating up completely the negative effect of the Chinese New Year. Okay. I do not believe that this is sustainable in the future. But the drop in wireless is ethereal, and I believe is also related to a very strong Q4. Exactly. But overall, I think maybe a little bit on the high end, if we project in the future, even if, of course, we just started. It's not that simple. But I try to give you a few points. The fact that this year, the Chinese New Year, basically we don't see it. But on the other hand, pretty strong decline on wireless. The other question was for Jean-Marc, I think. On CapEx. On CapEx. Yes. CapEx, I would like to repeat a few points. First, for front-end. In front-end, I see basically four blocks. The first block of CapEx is to continue to invest our capacity in advanced BCD, in Agrate and in Catania. Again, please put it also in perspective with what we are doing with foundry. I mentioned during my speech that we are qualifying this kind of technology in a foundry partner. This is the first block to support the growth on advanced BCD. The second block, of course, is power discrete, so in Catania and in Singapore, to support the growth and especially the silicon carbide. The third block is Crolles. Crolles was a fab in 12-inch, which supports basically three big block of business: automotive, microcontroller, secure and general purpose, and the specialized imaging sensor. Here, we have again to support timely according to the demand, the growth within the current footprint. Again, please put it in perspective with the fact that we have an intense and strong technology transfer and activities in foundry, especially to support the microcontroller business. This is the three main block in front-end. On top of that, I said that we are preparing the 12-inch pilot line in Agrate. Then, in what we call assembly test and electrical wafer sort probing. Here, clearly this is to support our growth, particularly in silicon carbide as well as new product, for automotive MCUs and advanced BCD. This is, let's say, consistent with the capacity growth we have internally on the wafer fab as described, and the capacity increase we have at foundry partner. Basically, this is the profile of our CapEx between 1 to 1.1, again, which is necessary to support our growth forecasted for the second half of this year. Okay. Thank you very much. By the way, congratulation, Jean-Marc, and thank you to the Carlos, Carlo and Carlo. Thank you. Thank you. Thank you, Stefan. Next question, please. The next question is from Andrew Gardiner from Barclays. Please go ahead. Good morning, gentlemen. Thanks for taking the question. My first one was related to the first quarter guidance and some of the comments you've been making about demand generally. Clearly, there's some worries out there in the financial markets about the state of the cycle. Can I take it from the comments you've made that you haven't seen any real cuts in orders or changes to customer demand in any area so far this year? No. I do not believe in a super cycle, but frankly, we never had a start in distribution in any of the year with the stock turn that is so high that we have this year. I think this is a good start. The distribution POS in Q4 was at the very high level as Q3, with a significant growth compared to one year ago. The inventory are low, I believe too low for us. Of course, this does not mean that will not change forever. My opinion is that one day there will be some correction, but we don't see that. We don't see. On the other end, what we see in automotive is an acceleration of the growth. This is for sure. We see a stronger growth in automotive across the board. Is power technology, it is smart power technologies, it is digital technologies. On projects, there are seasonalities, of course, there are new models, et cetera, but this is the pattern that we see today. So no, we do not see any negative sign coming from distribution mass market, from automotive, and we believe smartphone is, of course, it's more cyclical than cyclical and more project-based. Okay. Thank you. Just another one on some of those specific projects. Clearly, there's lots of interesting things happening within imaging. Some of that has been dedicated to one customer in particular. I'm just wondering whether you're now seeing interest from some of the other OEMs to try and catch up and potentially use the differentiated technologies that you have in this area. Any comment on how you see the rest of the space? Thank you. Listen, I think it's, for us, very difficult to talk about specific customers and certainly there is a great interest in automotive. I believe that with our imaging technology, we can certainly contribute to the new wave of autonomous driving, the lidar, the flicker-free sensors. For us, it's important, rather than talking project for smartphone customers, because we cannot talk about project for smartphone customers. There are a limited number of leaders in the smartphone customers. There is a great leader in the U.S., there is a leadership position in Korea, in China, but there are not many. I think that automotive, I'm sure, is an important opportunity for all our sensors. Last year, in MEMS, we grew in automotive industrial, but it's more automotive by 60%, as we said before. There is a big space to grow. I believe for the next 10 years, we see imaging becoming more and more important in the automotive, and we want to be there, and I think we can be there with our technologies. Okay. Thank you. And thanks from me as well to both Carlo and congressional Mark. Thank you. Thank you. Thank you, Andrew. Next question, please. The next question is from Amit Harchandani from Citigroup. Please go ahead. Good morning, everyone. Amit Harchandani from Citi, and thanks for taking my questions. Two, if I may. Firstly, with respect to, I guess, the current demand cycle, if I could just ask the question slightly differently. At Q3, you talked about your lead time, which was still stretching. I just wanted an update on the same, whether in Q4 they are still stretching, have they at least stabilized even at a high level? Do you anticipate your lead times to come back to normal based on the CapEx plans by the end of this year? That would be my first question. My second question is with respect to the industrial end market. You have talked a bit about automotive and wireless, but I was very keen to understand what kind of visibility do you have in the industrial space. Is it more short cycle? How sustainable do you think that is likely to be going into the second half of the year? Thank you. Yeah. Maybe I start from industrial market, and Carlo will comment more on what we see, but in the supply chain. We are stretched on many families. Let us face it. There is no doubt. We want to go back to a more normal. I will say a few words on industrial. For us, first of all, the definition of industrial is many things, but certainly the biggest area of interest for us is the smart things. So it is the digitalization of the manufacturing line, Industry 4.0, renewable, whatever name in the other countries. Here, we have an important portfolio of products, and we are really working to contribute. We can do this, of course, with leaders, for instance, leaders in factory automation, but we can also contribute working with the final customers, particularly in the mass market. The key products for us are very much around our microcontrollers. At the end of this year, we will introduce also a microprocessor for industrial. This is still based on ARM, so it's really targeting industrial applications. But in general, what we have with our microcontrollers is very critical. Another area that is very much associated with microcontrollers is connectivity. In these kind of applications, there is the must to be connected. If you want to control a number of smart sensors on an industrial line, these sensors must be connected, and this connection is wireless. You cannot conceive models where you upgrade a manufacturing line, and it is through a wired application. It's wireless. So wireless connectivity is crucial. Security is crucial. Port some form of artificial intelligence into the microcontroller to make the sensor really smarter and somehow independent. So distributed artificial intelligence. This is a big block of the things that we are doing. Then, of course, there is all the other domains for us that is smart power, and for these applications in factory automation and industrial, is really motion control. 60% of the energy that is consumed by a typical manufacturing line is on parts that are moving, so it's motion control. So energy saving, better solution, smarter solution for motion control. Again, more distributed solutions with the simplification of the cabling, putting electronics directly into the model, all of these things. Here is really our BCD, the silicon carbide, all these kinds of products. So we are working on the angle of the control. We are not in the main processor. We have specific products like the IO-Link that are crucial to connect all the sensors. But the big blocks are really the sensing, the smart sensing, the microcontrollers, the connectivity, the security, the distributed artificial intelligence on one part, and everything that is power, smart power, motion control on the other part. For us, it's very important. We want to push this. We have a lot of technology here. It is a fundamental area for Europe, and we certainly want to push this. Just so that I could- Sorry, go ahead. No, I believe you were saying something. Okay. Your other question was on lead times, and Carlo said it. Demand remains very strong across almost all applications. At the end, lead time remains stretched across all the semiconductor supply chain. It is not only for us, and it is not only for our own set of operations in the chain. We have invested. The investment are translating very effectively on increasing capacities, but also demand is increasing. So we are in a catching-up phase where I have to say that certainly in the first quarter, we have made progress in servicing the customer. But at the end, the priority remains the service for us, and overall lead times remain stretched. We have not totally caught up yet, and this is also the reason why, as Gianmarco said, we have a plan of capital expenditure for 2018, which is aimed to balance supply and demand. Thank you. I was just trying to get a clarification on the earlier answer. To what extent was all the industrial factors you talked about, to what extent is the demand, according to you, cyclical versus secular, what you are seeing right now? Secular demand? Secular demand. For industrial? I think certainly is great news for us, this one, because this is what I said, the digitalization of the manufacturing line, the Industry 4.0, I believe this is Robotics, for instance. We had a demo of a robot in Las Vegas, and it was our robot. I think, if I remember well, there were in this robot 32 different products from ST, right? If I remember well. Yes, 30. 32 different products. Take, for instance, collaborative robotics. Here is more and more products. Certainly, this is a long-term trend, and it is good that we have so many products for robotics. It is going through the technologies that I was describing. This is a very good example. We build up our own robot as a demo for all the customers that visited our demo room in Las Vegas at the CES. In this robot, there are 32 different components from ST. Thank you. Thank you. Thank you, Amit. We have about five more minutes, so if the remaining analysts can just ask one brief question, we would appreciate that. We will move to the next question, please. The next question is from Kong Lee from Credit Suisse. Please go ahead. Hi, morning. It is Achal Sultania from Credit Suisse. Just one question on the margin for Carlo. Carlo, we have already seen your margins go up to 17% on the EBIT side this quarter, and you obviously mentioned a couple of headwinds like FX and wafer prices. Can we talk about what are the positives from here? Because it seems like some of the manufacturing efficiencies, you are already operating at 100% level. So what are the positive drivers from here on? Is it just mainly product mix, or is there something else we can think of? Thanks. Well, last year we did a US GAAP operating income of 11.9%, right? This was in 2017 overall. Carlo, why don't you go through the drivers? There are drivers. Last year was an exceptional year in terms of leverage. 57% of the additional revenues fell down into the operating margin. I believe that this is not sustainable, but certainly, we are working to guarantee another step in terms of leverage. I think, Carlo, if you want to comment here. Yeah, thank you, Carlo. Maybe I may refer again to the drivers I was referring earlier that have significantly boosted margin in the course of 2017. In respect to the 2017 operating margin level, certainly the opportunity of leveraging on higher sales will continue to be a very significant booster and driver for margin. On the loading of the fabs, there is frankly very little now, not to say nothing, to be recovered. However, the other point, which is the continued improvement of manufacturing cost, thanks to technology, thanks to scale, thanks to the hundreds of initiative and actions that as we talk, we are running in our fabs remains an important also driver improvement. Then you have noted that in the last quarter, our product mix has been significantly able to offset or significantly offset the pricing trend. Product innovation also remains very well. These are four points that Carlo highlighted, we need to consider for 2018, the headwinds back from the current. Okay. Carlo, just one clarification. In your business, do you still have some products which are loss-making, which was the case, let's say, 12 months back, or relatively older product? We have a lot of products, and so certainly the reason not all are totally profitable, but there are not. There are not very important areas. Is more business unit is not I think, anyhow, you're right. I'm not talking about the product divisions. In the company, we have about, how many? 17, 18 product divisions, right? I'm talking about one level below, because then each of the product division is split in business units. So there are many business units. There are areas for improvement, and we will focus on this area for improvement because I think it's correct that any single business unit perform. There are many? No. But there are some. Right. I think it's our duty to focus also on this limited number of business units. Again, I'm not talking. We have seven subgroups, we have 17, 18 product divisions, then one step down, we have the business unit. We certainly will target those areas where it's not yet the level it should be, but it's limited. Okay. Thank you, Achal. Thanks a lot. Next question, please. The next question is from Gianmarco Bonacina from Equita. Please go ahead. Yes. Good morning. Just a couple of questions. Going back to your strong revenue growth outlook for the second half 2018. Just to clarify the definition. Would it be fair to assume that this strong means at least 10% half-on-half growth? Then in terms of the design win, which are behind this, you have in the press release a couple of pages as usual with several design wins. Can we say that part of the visibility on this ramping growth is linked to these announcements which are included in the list today? Or would you say that most of this ramp-up is linked to, let's say, private non-disclosed design wins? The other one is just going back to the rule of thumb on the euro-dollar. It was mentioned before about $6 million impact on the EBIT every percentage points in the euro-dollar. Is that before or after the positive impact on the top line? Because clearly you have some headwind on the cost and some positive impact on the top line. If you can just clarify. Thank you. Quick answer to the last one, Gianmarco. This is all inclusive, is the overall impact to the operating income. Yeah. The other revenues growth, we cannot quantify. I think we express the sentiment that opportunities are there for another important step. I try to articulate what are the areas, what is the visibility, but I would prefer not to quantify. I think we will have an analyst First of all, we will have the conference call in April. Then, during the month of May, we will have our annual Capital Markets Day, and certainly, there will be a much better opportunity to go in details, to discuss, and we will have also better visibility for the second half, to quantify. In terms of design wins, you are right. There are many things that we can write, but there are certainly many things that we cannot write. And there are also important opportunities that are not in this list, and this we will not be able to comment. I think it is normal. I think it is a combination of the two. We try to be as much as possible transparent and giving all the information, but on certain things we cannot discuss, and this is across the segment. It is not talking particularly on a specific segment. It is across the segment. I would say it is the two things. There are certainly important things that are not in this list. Okay. Fair enough. Thank you. Thank you. Thank you, Gianmarco. I think we need to At this point, we are going to need to close our conference call. I apologize to those that still have questions on the line. I would like to remind everyone that ST will host an investor event at Mobile World Congress in Barcelona on February 27. If you need the details, please contact myself or any member of the investor relations team, and thank you all for participating. Thank you very much. Bye. Thank you all. Bye. Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the call. You may now disconnect your lines. Goodbye.