Earnings Call: Q4 2014

Jan 28, 2015

Ladies and gentlemen, good morning. Welcome to the STMicroelectronics fourth quarter and full year 2014 earnings results conference call and live webcast. I am Moira, the current 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's my pleasure to hand over to Mr. Tait Sorensen, Group Vice President, Investor Relations. Please go ahead, sir. Thank you everyone for joining our fourth quarter and full year 2014 financial results conference call. Hosting the call today is Carlo Bozotti, ST's President and Chief Executive Officer. Joining Carlo on the call today are Jean-Marc Chery, Chief Operating Officer, Carlo Ferro, Chief Financial Officer, and Georges Penalver, Chief Strategy Officer. The live webcast and presentation materials can be accessed through ST's website. A replay will be available shortly after the conclusion of this call. This call will include forward-looking statements that involve risk factors that could cause ST's results to differ materially from management's expectations and plans. We encourage you to review the safe harbor statement contained in the press release that was issued with the results this morning, and also in ST's most recent regulatory filings for a full description of these risk factors. Also, to ensure all participants have an opportunity to ask questions during the Q&A session, please limit yourself to one question and a brief follow-up. Now I'd like to turn the call over to Carlo Bozotti, ST's President and CEO. Carlo? Well, thank you, Tait. Good morning, everybody, and thank you for joining us and for your interest in ST. Today, I will begin with a summary overview, and then Carlo Ferro will review our financial results in detail. I will then turn to a discussion of our two product segments with Jean-Marc Chery reviewing our embedded processing solution segment and Georges Penalver discussing our sense and power in the automotive segment. Finally, I will conclude with our 2015 goals. So let's begin. In December of 2012, we outlined a new strategic plan for ST based on our aim of being an undisputed leader in sense and power in automotive products and in embedded processing solutions through a more focused and market-driven portfolio. It was about moving ST to sustainable profitability with a solid midterm financial model. During 2013, our first year of execution, the focus was on making a major transition: the wind down of ST-Ericsson on time and better than budget, and the resizing of our OpEx base. We well achieved both these objectives. 2014 was the second year of our new strategy implementation. Overall, I believe it has been a year where ST has made significant steps forward along three main axes: product and technology leadership, customer expansion, and operational and financial performance. Let's go through them one by one. Product leadership is about ST focusing on the five areas we see as the most promising: analog, MEMS and sensors, automotive, power and smart power, microcontrollers, and digital consumer and basics products. We have worked hard to refocus our product portfolio, de-emphasizing certain areas and redeploying our resources. As a result, we have become a much stronger company in terms of innovation and in time to market. New flagship products in 2014 included, among many ADAS, our 32-bit microcontrollers for general purpose and automotive applications, MEMS microphones and motion MEMS, touch screen controllers, ultra-high-definition products for set-top box, and the low voltage power MOSFETs and IGBTs. We are excited about the opportunities these products bring, and I will ask my colleagues to discuss them in greater detail shortly. Our product leadership is built on a unique, strong foundation of proprietary and differentiated leading-edge technologies. First, with our FDSOI, we have developed technology that makes the benefits expected of the next generation CMOS technology available faster with low power consumption and at a lower cost. This is a value proposition that resonates with many of our customers and has resulted in a broad design win pipeline for ST. Second, our Bi-CMOS and RF SOI technologies allow us to develop solutions for high-frequency applications, such as in automotive radar, optical communications, wireless base stations, and cellular phones. Third, our embedded flash technology with outstanding low power characteristics is state-of-the-art and one of the reasons for the continuing success of our 32-bit general purpose, secure, and automotive microcontrollers. Fourth, our MEMS technology and manufacturing mastery enable us to develop a very successful motion MEMS business. Now our efforts are focused on leveraging this know-how into additional MEMS areas, such as microphones and pressure sensors, where we have had recent successes with major OEMs. Last but not least, our smart power technology is second to none. Our BCD technology, we are now on the ninth generation, continues to be a key differentiator in our power, industrial, and automotive businesses. Moreover, we have a number of other technologies such as vertically integrated power, silicon carbide, power MOSFET, IGBT, and intelligent power modules that are at the core of our power product and application strategy. Turning now to customer expansion. In terms of diversification, the progress is evident. Our mass-market initiatives have been very successful. Here, we increased the share of distribution to 32% of revenues exiting 2014 versus 27% one year ago. In fact, our design wins to distribution increased 50% year-over-year, and this is a very positive indicator. Clearly, our microcontrollers, automotive products, industrial power, and discrete products were major contributors to this success, and there are a number of opportunities to drive a larger part of our portfolio to many more customers. For example, many of our products contribute to enabling the Internet of Things. Turning to our major OEM customers, we were very pleased with the solid performance in the automotive, clearly visible, with APG growing 8.3% in 2014, thanks to our innovative products. On the other end, 2014 remains a year of transition with respect to some of our consumer and smartphone customers. Here, we anticipate the turnaround to come this year, thanks to the new products and functionalities we introduced to them during 2014. Let me now turn to our financial performance. In 2014, ST made solid progress on key performance and financial metrics. Despite lower revenues, we achieved a significant turnaround year-over-year, with operating income improving by $633 million, net income improving by $628, and free cash flow improving by $376 million. With respect to our mid-term financial model, we improved our gross margin and operating margins. Moreover, we reached our operating expense model more rapidly than expected. We also strengthened our balance sheet with the issuance of a $1 billion convertible bond. Overall, it was a year of sound operational and financial execution while maintaining our financial flexibility. However, we are not where we want to be yet. It is therefore urgent to make another step forward in 2015, and we will. I will now hand the call over to Carlo Ferro to go more in detail on our financial performance. Carlo? Good morning, everyone. Thank you, Carlo. As you mentioned, ST financial performance throughout the year 2014 was solid. We made real progress despite softer than expected revenues progression, and we met our financial outlook in each quarter of 2014. In addition, we began to generate a positive net income starting from the second quarter and a positive free cash flow starting from the third quarter of 2014. 2014 was a year of progress. Our net income had a significant positive swing, moving from net loss of $500 million to a net income of $128 million. To be fair, we received a 96 million pre-tax in R&D grants related to the prior years, but the swing is still quite remarkable. Our free cash flow increased to positive $197 million from negative $179 million. Our operating margin before restructuring and impairment improved to 4% and 3.2% in the third and fourth quarters of 2014, respectively, from negative in 2013. We will now accelerate our effort to increase revenues growth in 2015 and to move ST closer to the trajectory we want to be on, at or above $2 billion revenues per quarter. The good news is that despite lower revenues, we made improvement across the board in all the other key financial metrics during 2014. Looking at our product portfolio, our three largest groups, automotive, industrial and power discrete, and microcontrollers, memory, and secure microcontrollers, MMS, represent 70% of our revenues and serve applications that are currently enjoying the largest growth in the industry. In addition, they are delivering profitability margins well above the ST consolidated average. Our fourth group, analog, MEMS, and sensor, at 15% in revenues, experienced a year of transition in 2014, pressuring profitability. We are confident about the prospects of this business, as you will hear later on in our Sense & Power and Automotive review. Our fifth group is the new digital product group, which is the combination of DCG and IBP and represented 15% of our revenues in 2014. Revenues decline reflected, first of all, the ongoing phase out of ST-Ericsson legacy products, the market softening, and accelerated the phase out of DPG legacy products. This group is loss-making, and as you know, we made important decision last year, including the discontinuation of our commodity camera module business and the implementation of a $100 million cost reduction initiative. Turning to our results. Revenues in 2014 were $7.4 billion. In the fourth quarter, they were $1.83 billion, were in line with our outlook entering the quarter, even a bit better. As Carlo indicated, there were several areas of very good forward progress for the full year 2014. MMS, representing 20% of revenues, grew 10.2%. APG, at 25% of revenues, grew 8.3%, and IPD, at 25% of ST's revenues, grew by 3.6%. In AMS, revenues decreased 15.6%, while DPG, in the current perimeter, decreased by 43%, including $548 million reduction due to the phase out of ST-Ericsson products. We continue to expand our customer base. In 2014, our 10 largest customers represented about one third of the total revenues, and none of them exceeded 10% on an individual basis. Our large customers are important players in their industries. Bosch and Conti in automotive, Apple, Samsung, and Microsoft in wireless, HP, Seagate, and Western Digital in computer peripherals, Cisco in networking, and Delta in industrial. We are now in a different, less concentrated, less exposed model compared to 2010, when the larger customers represented about 14% of the total revenues. But we are having to recover $1.3 billion of revenues lost with Nokia since then. Distribution plays a more and more important role in the evolution of our customer base, not only because we can address a very diverse and large number of customers, but also because ST can capture higher margin on sales through this channel. In 2014, revenues from distribution increased about $200 million, and exiting 2014, they were 32% of total revenues. Looking forward, we expect total revenues in the first quarter of 2015 to decrease sequentially by about 5%, plus or minus 3.5 percentage points. This evolution is better than our normal seasonality, and take into consideration the fact that this quarter we don't have the one-time licensing we experienced in Q4. In Q1, it occurred the Chinese New Year holidays, and based on our accounting calendar, we have about 8% less days in Q1 versus Q4. Moving to our gross margins. During 2014, we expanded it by 140 basis points, thanks to manufacturing efficiencies as well as favorable currency effect. Unsaturation charges, largely related to our capacity in digital technologies, have been a drag to our gross margin. Unfortunately, unused charges will continue to significantly impact the first two quarters of 2015. In that regard, looking specifically at the first quarter, ST gross margin is expected to be about 33.2%, plus or minus two points, and reflect still high unsaturation charges. We estimate they will impact the gross margin this quarter by about 120 basis points. Jean-Marc Chery will shortly expand on all the actions we are taking to improve the loading of our 12-inch capacity. We continue to make progress towards our midterm gross margin target of 36%-38%, driven by the completion of the conversion from 6-inch to 8-inch in our front-end fab in Singapore, by the pruning of low margin products, including the phase out of legacy ST-Ericsson products and the discontinuation of our commodity camera module business, by the improved saturation of the manufacturing capacity and the related manufacturing efficiencies, and importantly, by currency, which I will discuss in detail shortly. In light of our progress has been with net operating expenses. Here we were quite pleased into moving in our target range, which is, as you know, $550 million to $600 million per quarter, earlier than planned. As the fourth quarter gross operating expenses were $611 million, and net of the normalized grants, they were $576 million. As we indicated last quarter, we are taking additional measures in our digital business to extract about $100 million of operating expenses and savings on an annualized basis, which will take effect as we move through 2015, particularly in the second half of the year. Turning now to the balance sheet. ST has maintained a solid net financial position to how the macroeconomic and the industry turbulences, the difficulties with the joint venture, the cost to exit the ST-Ericsson Joint Venture. This has enabled us to make the appropriate level of investment in capital expenditure. CapEx totaled $496 million in 2014, represented 6.7% of total revenues in the year, and average 6.3% of revenues over the last three years. Well within our target level. Finally, free cash flow in the fourth quarter of 2014 has been positive by $200 million, after $140 million positive in the third quarter. During 2014, we enhanced our liquidity by taking advantage of a very favorable convertible debt financing for the amount of $1 billion. At the same time, we protected our equity shareholders from dilution by completing a $20 million share repurchase program. Also today, I am pleased to note that our convertible securities are trading at attractive levels in the marketplace. So really a win-win for all. Finally, let me conclude this financial review with some comments on the currency exposure. As you know, we have seen dramatic shift in the euro-dollar rate, which today stands at about 1.30. We have not seen this level since 2003, and this is a welcome, a very welcome change. While a stronger dollar is certainly a tailwind for ST, please consider that ST hedges its cost. We use a combination of currency forwards and collar options. I am sure you are interested in the projection of effective euro-dollar rate for the next quarters. Maybe before a note, as the company has evolved its cost structure, a revised sensitivity analysis has slightly adjusted the quarterly effect of plus or minus one percentage point of change in the euro-dollar rate, and this is the effect on the cost structure before the short-term impact we experience on revenues. Now the sensitivity model is $4 million to $5 million on gross profit. This is not changed. $3 million to $3.5 million on the net operating expenses. I mean, a net of the grants. A total impact on the EBIT of ±$7 million-$8.5 million per quarter, per percentage point. You will see the benefit of a stronger dollar, but it will take a few quarters for the full effect to materialize in our financial due to the existing hedges. Additionally, please note that 14% of our revenues is billed in euro. Over time, normally, prices are adjusted to the U.S. dollar equivalent amount, but due to the sudden shift that recently occurred, it will take time to adjust. On the other side, the good news is that the effective rate for the cost structure is dramatically improving. Assuming the current rate, we estimate the effective rate for the next quarters to be 1.24 for Q1 2015, 1.19 for Q2, 1.17 for Q3, and 1.15 for Q4. On this positive note, I turn back to Carlo. Well, thank you, Carlo. Thank you for your comprehensive review of our financial results. Now let's turn to our product segments, beginning first with the embedded processing solution segment. This part will be covered by Jean-Marc. Jean-Marc. Thank you, Carlo, and good morning to everybody. Our embedded processing solution segment is now comprised of two product groups, microcontrollers, memory, and secure MCU, and the newly formed digital product group, where we combine our former DCG and IBP organizations to create more focus in the business and to better leverage synergies between them. Looking at the financial results for the EPS segment, revenues were $2.61 billion in 2014, down 20% compared to 2013. This is largely driven by the wind down of ST-Ericsson. Excluding this anticipated decrease, EPS revenues were down 4.4% as a result of two opposite dynamics within this segment. Turning first to MMS, the group grew 10% in 2014, continuing its strong expansion thanks to the general purpose 32-bit microcontroller families. As a reminder, MMS is composed of general purpose and secure microcontrollers, as well as EEPROMs. During 2014, we built on our 32-bit leadership with the STM32 general purpose MCU family, growing revenue over 50% year-over-year. We extended the product range with new low power and high-performance families, such as the industry's first microcontroller based on the ARM Cortex-M7, while strengthening the surroundings ecosystem with the launch of STM32 open development environment. We had success across a broad customer base, including important wins in sensor hub applications. In secure microcontroller, we maintain a solid secure element business, while in the banking market, we deploy the STPay program, boosting support for the U.S. switch to ID secure EMV chip payment cards. For 2015, we expect that MMS will benefit from our investment in product innovation and ecosystem to further expand the STM32 family across a full spectrum of applications, enabling us to expand further our customer base. In addition, we expect the deployment of new flash-based dual interface secure MCUs for banking and IDs, as well as new high-density EEPROMs products to contribute to our revenue growth. Let's now turn to DPG. In addition to the $548 million decrease in revenues from the wind down of legacy ST-Ericsson products, DPG has also saw a decline in the area of commodity image sensor product and in the set-top box business due to faster than anticipated decline of our prior generation products. During 2014, we have made the decision to discontinue our commodity camera module business and to focus on FlightSense proximity and specialized imaging sensors. Last quarter, we also launched cost reduction initiative targeting about $100 million in annualized savings. At the same time, we focus on ramping up new families of innovative products. These include the Liege family of broadcast set-top box products in 40 nanometer, 32-nanometer ASICs for networking, and our FlightSense proximity sensor, which went into volume production with a major smartphone maker. We also continued to focus our effort on innovation and new product to boost our future revenues. We introduced ultra-high definition HEVC enabled 4K2K solutions in our 28-nanometer Cannes and Monaco families and started shipping to lead customers. In addition, we won a number of important sockets with major operators, both for the area of cable and satellite. We demonstrated full speed DOCSIS 3.1 as key technology for cable operators. Our FDSOI technology progressed well, and we received first design awards in 40 nanometer for networking. In addition, we were awarded more than 20 new ASICs designs in BiCMOS, RF SOI, and silicon photonics. During 2015, key products we expect to drive growth includes the new product for set-top box and home gateway markets, as well as a broad range of ASICs in 32-nanometer CMOS, BiCMOS, and silicon photonics technologies. If we look now into the margin profile of EPS, we significantly decreased its operating loss from $399 million in 2013 to $103 million in 2014. The progress came first, principally, from the wind down of ST-Ericsson. Second, from the Nano2017 funding, including, of course, the catch-up fundings, sustaining our effort to develop our differentiated technologies roadmap. And third, from the benefits of 2013 cost reduction initiatives. Our EPS operating margin midterm target is confirmed at about 5%. We will drive improvement in 2015, thanks to new product introduction in MMS and DPG, strong improvement in the manufacturing performance, and of course, the already announced cost reduction initiatives. Since I just mentioned strong improvement in manufacturing performance, let me conclude here with our manufacturing strategy. Our Crolles 12-inch fab is engaged in an important technology diversification strategy to better balance and optimize its capacity loading with a significant payback and much reduced unsaturation charge for the second half of this year. Indeed, over the past two years, we launched a set of action in Crolles to better balance them with our current product portfolio and, of course, to mitigate the short-term underloading situation. The exposure to advanced logic has been reduced, and embedded flash for microcontroller and automotive has been qualified and start production. Therefore, we are now at a time where Crolles is under transition, and we expect to see progressive improvement as we balance and optimize the loading of the site. Well, thank you, Jean-Marc. Now I would like to move to our Sense & Power and Automotive product segment. I think we are well-positioned here from a technology perspective, from a product portfolio perspective, and from a customer expansion perspective. In short, we have many opportunities for growth. Looking at our results last year, we saw excellent revenue growth in APG, well supported by IPD. Moreover, we saw very significant improvement in the operating income and operating margin of SP&A on overall flat revenues. In AMS, where ST has shown strong leadership, we have the opportunity to return to a positive momentum in 2015. So let me ask Georges Penalver to join us to review the results and plans for SP&A. Georges. Thank you, Carlo. Good morning, everyone. SP&A represents about 65% of ST revenues with the three product groups. It is managing our four manufacturing sites, including our mega fab in Singapore that we are currently converting from 6 inch to 8 inch. SP&A revenues were $4.77 billion in 2014, flat compared to 2013. APG grew over 8%, broadly based across all applications. IPD grew also close to 4%, despite a softening in the second part of the year reflecting the market conditions. AMS revenues were down 16% due to low-margin product pruning and product transition. Excuse me. In AMS, microphones and touchscreen controllers, two recently added product families, both recorded very strong growth, becoming significant contributors to AMS sales during 2014. The group also pursued expansion in key customer and application diversification with a leadership position in MEMS for wearable devices, expanding from motion to environmental sensors with a ramp of MEMS for automotive and the first design win for a combo motion MEMS for active safety. On a regional basis, it recorded strong growth in China, where ST MEMS were adopted in over 60 new phone models from 12 companies during 2014. AMS also launched the Open.MEMS initiatives toward the mass market, providing easy licensing for sensor fusion software. The group continued to innovate, introducing new technology such as piezoelectric for micro actuation, where we announced a partnership for a new smartphone autofocus application, and importantly, setting new benchmarks in motion MEMS with a new generation of six-axis motion sensors with ultra-low power and leading noise performance for the consumer market. As well as the industry's smallest six-axis sensor qualified for non-safety automotive applications. Revenues for 2015 are expected to return to growth, boosted by this new generation of six-axis motion MEMS with key customers, and by continuing to ramp up automotive MEMS. We expect further expansion of the touchscreen and microphone businesses together with a wider adoption of environmental sensors. Our STM32 open development environment and open software solution initiatives will help us address mass market and Internet of Things applications with products like our Bluetooth Low Energy solution. Let's turn now to IPD, where we recorded solid growth in a number of applications in LED lighting, digital and analog solutions, motor control ICs, IGBT and intelligent power modules for appliance and industrial applications, and the field effect rectifier diodes to leading mobile phone charger manufacturers. We also ramped production of high voltage rectifiers and transistors at a leading electric car manufacturer. Among the many innovative, best-in-class technology and products brought to the market by IPD last year, I would like to mention our power management chipset for servers, the galvanic isolation technology for industrial applications, and our 1200-volt silicon carbide transistors. The group also expanded the automotive product portfolio with rectifiers, with IGBT, silicon carbide diodes, and thyristors. Revenues for IPD will continue to grow in 2015 through customer-based expansion with important initiatives in distribution and mass market, as well as through a wave of new leading products such as advanced low voltage trench MOSFET for industrial and server applications, intelligent power modules for industrial, AMOLED power supply and power management ICs for smartphones, various components for RF applications, and silicon carbide Schottky diodes for servers, telecom, and automotive. Turning to the automotive product group, revenues in 2014 were strong, thanks to growth across all customers, including distributions and across applications. From a geographical perspective, we expanded our footprint with KOAM, whilst also strengthening our leadership in China in engine management, body, and audio applications. Our independent manufacturing strategy and secure supply chain helped us continue ST's strong momentum in Japan. APG success leveraged ST technology leadership in power with VIPower and BCD products and expanded the portfolio of 32-bit microcontrollers, doubling shipments as design wins started to ramp. In the infotainment area, APG introduced industry-leading digital radio, class D audio amplifier, and global positioning products. In the very promising ADAS vision processor product family, the group reached production maturity of the third generation and is now developing the fourth generation in FDSOI. In 2015, APG will continue to benefit from its broad-based portfolio strength, and particularly from active safety products, thanks to growing penetration and new products in that market. As well as from gaining market share in 32-bit microcontrollers and growing in infotainment. We also expect to further leverage our capability to support full system development to broaden the customer base with distribution. From an operating margin perspective, SP&A had a year of great progress, reaching a 9.4% operating margin from 5.7% in 2013. This was driven by improvements across a number of product families. Entering 2015, the segment is pursuing further progress towards its operating margin target in the range of 10%-15% by improving its product mix, by continuing expansion in the mass market and distribution, and by improving manufacturing efficiency. Now, before turning the call back to Carlo, let me comment on ST's effort in the mass market. One of the ways to increase mass market penetration is to expand our customer base by growing the number of channel accounts. Another key effort is on promoting leading applications and products through initiatives such as the STM32 open development environment, exploiting our success in microcontrollers. More than 80,000 STM32 Nucleo development and expansion boards were shipped in 2014. In 2015, we will further develop these initiatives and in addition, among our actions, expand our online presence with enhanced support capability for mass market customers. Thank you, and now let me give the floor back to Carlo. Thank you, George, and let me just add that our mass market initiative spans across all the product groups and leverages the multiple synergies among them to serve growing applications to many more customers. The results were evident already last year, making us a leading player present in many, many devices, such as in the Internet of Things, as you can see on the chart here. Before closing, let me share a few final comments. First, allow me to thank all our employees. It is their talent and determination that have enabled ST to come through the difficult transition in 2013 with the energy and the drive to turn 2014 into a year of good progress in terms of product leadership, operational improvements, and financial performance turnaround. We have a developed process technology leadership second to none, introduced many new flagship products across our product portfolio and built on expanded customer base. We see opportunities to continue to expand in automotive, in the mass market, where our design wins increased very significantly during 2014. I am optimistic that this year we will see positive steps forward also with major consumer and smartphone customers. Our path going forward is clear, a return to growth and reach the cost structure that we have outlined in our financial model to continue to achieve year-over-year improvement in our financial performance. My colleagues and I would be happy to take 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 the 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 Mr. Sandeep Deshpande from J.P. Morgan. Please go ahead. Thanks for letting me on. I have a couple of questions, if I may. My first question is regarding analog and MEMS. You have a major customer there which has had a very good quarter last quarter, whereas you seem to be seeing essentially flatlining sales in analog and MEMS. Can we try to understand the project, rather revenue trajectory in that business, and how that development will continue this year? Secondly, in your newly merged digital conversions group, the revenues are lower than they were than the disappointing second quarter of last year. This was a revenue business which was expected to more than double the revenue. Can we understand the project trajectory here as well? Thank you. Thank you, Sandeep. I think, we already described during the course of 2014 and even today, 2014 was a year of transition for our AMS business. On one side, we had some reduced revenues in the area of our traditional motion MEMS. On the other side, the introduction of new successful products, like the microphone MEMS and our new touch solutions. Moving on in 2015, we want to be successful with major customers with the new products and with our traditional products. I think we have all the ingredients to be successful here. Clearly, we see AMS as an important driver for growth in 2015. We also want to be successful in our diversification effort. I have mentioned before that we have won for the first time, a very critical MEMS device for safety applications in the automobile. We want to be successful, of course, also in the diversification strategy in China, in the more fragmented smartphone market. We also want to be successful in the Internet of Things. I think I want to mention here, for instance, our Bluetooth Low Energy, where we had a very important win with a significant customer in the U.S. on Internet of Things applications. Clearly 2014 was a year of transition. Many new products. This year will be a year of growth, and this will be on our traditional products of the past and on many new products and, of course, continuing to differentiate and drive the diversification. If we move into the DPG part, we believe that the cleaning and the pruning of the products is almost completed. We need to go through some more in the area of what we have announced last year in the commodity camera modules. For all the rest, we expect good growth. We expect growth with our new FlightSense, the proximity and other applications that we achieve with our FlightSense technology in the smartphone, but also in the industrial market. We see good growth with our ASICs, particularly in the area of 32 nanometer this time. We have several products here for communication infrastructure applications. With all the new set-top box products, the decline was really on the legacy products, on the previous generation products. The new family is very successful. We are expanding on the 40 nanometer that is more for a fragmented base of customers, but also with the new technologies, the 4K, with new for us, major operators and customers. Clearly we are hitting the bottom and I think we already described this, but in our model of $2 billion per quarter, the contribution of DPG is around $300 million. So we will have another and final effort to prune on the camera modules, but then all is done, is about new products and starting to grow again. Thank you. Thank you, Sandeep. Also we have Carmelo Papa, who is our General Manager of the IPD group that is joining us for the Q&A session as well. We will move to the next question, please. The next question is from Mr. Gareth Jenkins from UBS. Please go ahead. A couple if I could. I just wondered, gentlemen, you obviously laid out the currency movement for this year, which is very helpful. I wondered if you could give a sense of your OpEx guidance that you have given historically, under that new currency regime. Obviously, it is going to be impacted, so I just wonder whether why not lower your OpEx steer at this stage? Then just secondly, on FDSOI, I wondered whether you could give a sense of whether you are licensing out that beyond just ST products, and if so, who you have licensed, beyond the obvious foundry agreement with Samsung. Thank you. Okay, Carlo will take. Good morning, Gareth. I guess your first question is about the currency impact. Hopefully, in the chart that you have now on the website and in the presentation, we offer you all the detail at the end. We have outstanding currency contracts. We have an opportunity at that level. Ultimately, what counts is the effective rate, including the current hedging and assuming the currency level remains at the current exchange of 113. You see that we have some advantage, but not so significant in the first quarter at 1.24 expected effective rate. Then progressively, we will start to take benefit in the cost structure with 1.19 for the second quarter, 1.17 expected for the third, and 1.15 for the fourth quarter. The second half, we'll take advantage of that. I've also mentioned, and this is important as at the end, not always the model is the same depending how sudden the change has been in respect to the revenues impact. 14% of our revenues is built in euro. In a normal trend, there is some progressive realignment of pricing to the dollar equivalent. In a sudden trend, this takes time, and as you can expect, being a part of semiconductor industry, customer resilience to price increase is much higher than customer pressure on price readjustment when it goes on the other way. This is another reason why we tend to be prudent on the short-term impact given these revenues implications. To make short on your question for the operating expenses on the current quarter first. On the current quarter, at the end, we have a number of positives. The currency we have mentioned. We have a shorter calendar. Tough, maybe a bit mitigated by the fact that there is less vacation in Q1 than in Q4. We have a further step of progression on the restructuring of EPS. On the other side, last quarter, to be candid, in OpEx, we have reported about $6 million that has been a one-time recovery of patent maintenance costs associated with the sale of some sale of patents by ST-Ericsson. This, of course, is no longer in Q1. Then there is some inflationary impact on the labor cost issue also. At the end, I would expect both gross and net operating expenses to go down sequentially in the range between $10 million to $20 million in Q1. They will move the net operating expenses towards the low end of the range in a quarter, which is the advantage of a shorter quarter. Then going forward, the only thing we can add is at the end of the day, we continue to execute our plan, and we will take benefit of the currency impact on the expenses and clear direction from Carlo in this respect is that any penny of savings in the currency environment will translate into operating income for the company. Your last question was about the licensing Yes in the fourth quarter. These On an FDSOI license. Yeah. No, more on FDSOI, actually, just in terms of licensing out beyond, rather than the one-off in Q4. Yeah, I would say that at the end, Q4 has marked another opportunity in respect to our licensing strategy. There is, I would say, nothing particularly relevant to report on this respect. To help you on modeling, please consider it mostly a one-time effect. The next question is from Mr. Francois Meunier from Morgan Stanley. Please go ahead. Yes, thanks for taking my question. A question about the unsaturation charge you are still having on your gross margin. I do not know, Carlo, if you could give us maybe the level of sales you need to achieve to have zero impact on gross margin from those lower utilization charges in the factories. Yeah. Well taken. Maybe, Francois, I hate to say it sometimes, answering that not necessarily the answer could be meaningful in respect to the question at the end. The problem we are currently facing in terms of unsaturation is spotted on a limited number of technologies and the fabs. Unfortunately, perhaps those that are the most expensive in term of fixed cost. At the end of the day, it's not so much related to the overall revenues of the company, it's related mostly to the loading of our 300 mm fab. In this respect, at the end, there is an evolution associated with revenues in the DPG area that we have been talking, but there is more important, and Jean-Marc, I believe, explained it before. There is an opportunity with growing revenues in new product and new technologies that are now qualified in Crolles 300 for embedded nonvolatile memories by group like MMS and APG. At the end of the day, the step we have to do is to increase the loading of Crolles 300. This is going to take a few more quarters. All the actions are in place. We may expect, and you should expect, please, still some significant news, lower than Q4, but still significant in this current quarter and in the second quarter. It's a bit earlier now for talking about Q3, but Q3 for sure will be much less than that, and we will update quarter after quarter. Mm-hmm. Okay, understood. Very clear. Thank you. Thank you, Francois. Next question. The next question is from Mr. Andrew Gardner from Barclays. Please go ahead. Good morning. Thank you for taking my question. Perhaps following on from that last one, if we go back to your midterm targets that you had set out, $2 billion in quarterly revenue, and you mentioned again, Carlo, that of that, $300 million is from DPG. Previously, you had been aiming at that for the second half of 2015, but have recently acknowledged that is going to be a bit of a challenge. I am just wondering if you can give us any sense as to how the pipeline is building and how close you might be able to get to that level in the second half of 2015 or whether it really is more of a 2016 target at this point. Thank you. Well, of course, as you said, there is a degree of challenges in getting to this level of sales during the course of this year. But we are all focused, and I would like to make a comment here, trying to position in terms of customers and markets rather than products. We had, last year, I believe, a great performance in the area of mass market. This has worked out very well, particularly in America and in euro. And a solid performance in the automotive. Some significant product pruning in the area of AMS. Now, as I said before, the remaining product pruning is on the digital camera modules from DPG and the remaining tail that is still going down of ST-Ericsson. But then we are done. And we expect that this product pruning is completed by Q3 this year. But of course, this has been driven by us. Then there is a fourth portion where I believe last year was not good, and this was particularly in the area of consumer customers and in general in the smartphone. We expect to have, thanks to all the new products that we have introduced last year, a very significant improvement in general in the area of consumer customers and smartphone customers with all our new products and technologies. So what we want to do this year, of course, is to complete the product pruning. This is driven by us, and I expect that for us, this will become the past starting from Q3 this year. So we will not talk any longer about wireless or camera modules or everything that is about the past. And we want to continue this year to be successful in the area of mass market. We have launched in Munich at the electronica show, our new system based on the STM32 Nucleo board with an increasing number of expansion boards with many other peripheral products to be used together with our microcontrollers. We want to expand the customer base and the distribution. This is a very important priority. To continue with our solid progress in the automotive with the automotive customers, and to turn around what was the weak spot last year in the area of consumer and the smartphone customers. The products are there. I think we have successful new products, wider range, and this is valid for the set-top box, is very valid for all our sensors, the touch, et cetera. We expect this to be an important ingredient to our growth this year. We need also to consider that there will be some negative effect in terms of euro-dollar rate, but of course, more than compensated by all the benefits that we have in terms of cost and expenses. It is challenging, but we want to drive this strongly. We know what is the area of focus and what we need to do in terms of turnaround, as I said, and we are very motivated. As Carlo said, we will not leave any penny on the table that is coming from the advantage of the euro-dollar rate and very motivated to clean what we need to clean still and to go back to growth. Thank you for that. Perhaps just quickly as a follow-up, it sounds like you. If I can phrase it a different way, you sound very confident in terms of the customer engagement and the contracts. It is just perhaps a question of end market volume where the uncertainty lies. Is that fair? Absolutely. It is clearly the case. I think we sometimes, not this time in my script, but three quarters ago, we made an example of very important basic for us that we are on time. The execution in terms of R&D has been working well, but there is a postponement. This is material, but it will happen. All the evidence, and this is a very important program that we have. I think is also the number of new products that we have introduced last year that is giving us confidence. But as you said, we also have some risks in terms of customer and PAPAL on some of these new products. Understood. Thank you. Thank you. Thank you, Andrew. Next question, please. The next question is from Amit Harchandani from Citigroup. Please go ahead. Good morning, gentlemen. Amit Harchandani from Citigroup. Thanks for taking my question. A couple, if I could. Firstly, my first question is on the broader bookings and backlog trends that you have seen during the quarter. If you could shed some more light on what you have seen across the various segments, how it trended during the quarter, and what are the other potential dynamics underpinning this above seasonal guidance that you have for Q1, and just a perspective on the broader demand environment as you look forward to the next 12 months. Maybe that's the first one, and I have a follow-up. Yeah. So I will cover maybe bookings, and then Carlo, you cover Q1 guidance. In Q4, we have experienced a significant improvement of the bookings conditions when comparing to Q3. It's not yet at the level that we had in Q2 last year, but definitely it was a material improvement of the bookings during the course of last quarter when we compared to Q3. It was across the range of the products. I think it was for both Sense & Power and Automotive, but also in the area of microcontrollers and in general in EPS. Geographically, of course, we see America very, very strong. But again, I think bookings compared to Q3 improved on a global base, and this is giving us, of course, some encouragement in the fact that, for instance, and now it's turning to Carlo, the guidance that we have been given for the first quarter is based on our historical results is better than seasonal. In fact, with a billing per day that is higher than in Q4. Carlo? Carlo, maybe I start from this point. At the end, you may have your own track record or statistic. In our statistic, at the end, normally a Q1 is weaker with respect to a Q4 by about 7%. Another way of addressing the question is, at the end, we have the cutoff on December 31st. This makes Q4 longer, Q1 shorter, and when you compare the two, you take the combination of the two, and this makes an 8% difference in the number of days. So if you run the math, expecting a sequential decline of revenues at midpoint at 5% associated with a shorter number of days by 8% at the end makes a quarter which is in the shipment per day higher than the prior quarter, somehow significantly higher. So these revenues are moving in the expected direction in this respect. Then how to characterize the guidance? At the end, we have had maybe some group that had a particularly weaker Q4 for some reason, like automotive. For automotive, for instance, in Q1, despite seasonality, we do expect some revenues in the positive sign, with a positive sign. We expect no major changes for the AMS group, which is another indication at the end that on what Carlo said earlier about the trend in AMS, which is against the average of the company and against the seasonality. Then eventually in the area of EPS, perhaps DPG had in Q4 some one time, and we will see the effect in the Q1. By the way, let me to take the opportunity to specify that this license that has contributed to the fourth quarter revenues did not came as a surprise in respect to our initial guidance. To the forecast. Yeah. Great. Maybe as a follow-up, just if I could go back to the automotive division, if you could just talk a little bit more. We have heard a lot of positive commentary around demand on the automotive side, and you two seem to have enjoying a lot of strength over there, at least over the past 12 months. Could you maybe give a brief comment on how do you see the various areas within automotive shaping up as you look towards the next 12 months, and where do you think you will make gains versus competition? Thank you. Yeah. Well, first of all, I have not mentioned this today, but it is in our press release, I am sure you have read. We had a little glitch, a manufacturing glitch, and I think in Q4, we have left on the table about $10 million of billing. That, of course, is a temporary delay, so we are catching up. For the rest, I think, our core business remained very solid. Everything that we see coming from our, for instance, German customers is pretty solid. Same in the U.S. We see some softening in Japan. If we talk about China, some areas in China that is softer, which is more the infotainment part of the more of the automotive business. So I think for us, of course, the core is very much centered around the performance of our German customers. I think there is a solid demand. As I said, U.S. is performing well, and some softening in Japan. But we also have many new products here. And this I mentioned before in the text, there is the expansion of our 32-bit microcontrollers business. Last year, we doubled this business with our 32-bit microcontrollers for automotive, and we want to make another important step this year. Thank you. Thank you. Thank you, Amit. Next question, please. Next question is from Adithya Metuku from Bank of America. Please go ahead. Yes. Good morning. Most of my questions have actually been answered. Just a couple. Just one, to be honest. If you could just give us your views on CapEx for next year, that would be great. Well, at this stage, and with the usual caveat on the modularity of CapEx, depending on demand, we see for the year a level of CapEx in the range of $600 million for the full year. It is expected to be a year of growth, it's a year of investment for expanding capacity to support the growth and also to support the technology changes in an important fab, as we have already talked, and this will justify, I believe, a level of CapEx higher than the prior year and still very well within our financial model. And of course, we will see the evolution of the business. We were talking about the $2 billion before, so it depends a lot on the way the business will move. Yeah, sure. Thank you, Adi. Next question, please. Next question is from Stephane Houri from Natixis. Please go ahead. Yes, good morning. Actually, I've got one very quick question and a follow-up. The first question would be to understand, I'm sorry, I'm going to make you repeat why the impact of the dollar is lower. You were talking of a range of $8 million-$10 million per quarter for each percentage change. Now you're talking of a lower range. Could you just remind me why is there this lowering? Well, not too much indeed, because in the past it was $9 million per quarter, and it was about 50/50% on the gross margin and 50% on the expenses. I think in the gross margin, we have not changed. I think what we are giving today is in the range between 4 to 5, right, Carlo? Yeah. The expenses, in the meantime, we managed to become a little bit smaller, particularly of course with the exit from ST-Ericsson, et cetera, and this is the root cause of this. I think that the average that we are giving today that you can read on the table that we have left to you, I think the average is $7.75 million per point per quarter. This is really very much related to the expenses and the fact that we have in these quarters and years, we have reduced our base of expenses. Is that right, Carlo? Absolutely, Carlo. Maybe what I missed, Stéphane, to highlight when presenting before, based on the chart you have now on the website, is that the euro exposure has a bit decline to 46% of the total cost. This is thanks to initiative of cost reduction, of course. As you can expect, there is also a mathematical effect that at a lower euro/dollar rate, the cost structure balance changes. I would not make that. The other important point is, given now the attention and the focus we want to have with you in respect to the net operating expenses, to monitor quarterly our ability to stay in the target of EUR 550 million to EUR 600 million on net operating expenses, net of the grants, I thought it was appropriate to give you the sensitivity net of the grants as well. As you know, the grants are in euro. That's the reason. It's mechanical. Frankly, I would not expect it has a major change. The key point also we wanted to pass, which is important, is that while in a normal and smooth evolution of the exchange rate, we believe that the impact on revenues could be absorbed in a couple of quarters. With this sudden change in a direction against customer resilience on pricing adjustment, of course, may take a bit long. Understood. Very clear. The other question was about the notification to IBM of the intention to end the participation to the IBM alliance. Could you come back on the reasons of this choice, and if it has a consequence, I would say, to your implication, to your involvement in the FDSOI development process at 10 nanometer as you had suggested in Q3? Okay. Jean-Marc, I will answer the question. Our agreement with IBM provide us the right to end the participation in this alliance under certain condition. We made the decision during the quarter to exercise that right. Of course, I cannot comment more because the term of the agreement are confidential. Nevertheless, okay, I would like to say we will continue to work closely with IBM, and the other members of the alliance on ongoing projects until we leave the alliance. Today, we are in discussion with IBM to plan for a smooth wind down of our participation in this alliance. Now about technology. If you remember, in the fourth quarter of 2014, ST has reviewed the application to our process technology following the announcement by IBM and GlobalFoundries. Our technology review remain ongoing. We anticipate our process technology roadmap, especially in digital, will continue to focus on our differentiated and strong know-how, like CMOS FDSOI, so 2014, RF SOI, embedded non-volatile memory for microcontroller, and specialized camera sensor, our FlightSense, and Bi-CMOS and photonics. We are, let's say, convinced that it will enable innovative solution, providing consistent payback over several market waves. This decision is independent of our technology roadmap, and we confirm, okay, we focus on this specialized technology. Does it have an implication on the R&D spending level over the full group? But this part of the model that given and, of course, we cannot comment on details. But this is part of the model, and I think we cannot provide more information here. Okay. Thank you. Thank you. Thank you, Stéphane. Next question, please. The next question is from Günther Hollfelder from Baader. Please go ahead. Thank you. Two questions. First one, any guidance for restructuring charges in 2015, what to model in? The second one, a follow-up on the IBM question. You said continue to focus on differentiating technologies. Are there any advanced CMOS technologies you used in the past from the alliance, which, in future there could be potential to outsource these technologies to foundries, maybe also with a positive impact on capital intensity and R&D? Thanks. No, I think, today we outsource, of course, a part of our CMOS. Clearly, if it would be possible to insource this quickly, we would have done because we had still a material loading cost in Q4. I think there is today, if we look at the CMOS, our outsourcing is more than 20%, something like this. There is and there will be an effort to outsource a part of our CMOS. I think we have announced, for instance, an agreement with Samsung on the 28 nanometer FDSOI, and Samsung would play a very important role in this respect for manufacturing these products. Of course, this is also an opportunity, as you said, for us to mitigate our capital investment. If we now go to the other point, Carlo. For example, on the restructuring, Günther, I would recommend to model about $30 million-$40 million restructuring charges to the P&L to go for the next three quarters of the year, mostly concentrated in the second and the third. Great. Thank you. Sure. Thank you, Günther. Next question. Next question is from Ben Gardner from RIT. Please go ahead. Good morning, gentlemen. Thanks for taking the call. I wanted a couple of questions, if I may. Firstly, on distribution, the revenue there looks to be up 8%-9% year-over-year. Looks to be mostly in line with market growth. Can you tell me, are you driving increased range of existing products amongst distributors, or are you broadening the range of distributors? Do you think that there's further potential for that distribution channel to grow in 2015, and what sort of order of magnitude would that be? Yeah. Well, yeah, it's true, maybe a line, but consider that we had also some material product pruning. This, of course, is impacting particularly distribution. If we exclude this part, I think our performance was very material. I also believe that in distribution, I think we had a faster increase of the point of sales compared to the billing that we report and you are referring to. Yes. This is an area where we want to push more. We want to push more, and maybe I underline what are the key initiatives. The first one is our target accounts. This we are doing with our distributors. We have 1,006 customers that are target accounts that we want to focus on, supporting our distributors to develop these customers. The second target is really the number of channel accounts. So we are talking about many accounts here, thousand and thousand of accounts. It's important that we have the opportunity to expand the number of these customers. I think we are also making a major effort. There will be a new generation of ST online, during the course of this year. This is another effort that is instrumental to what we do in distribution. As I said before, in Munich, we have launched this new system of development board is centered around our STM32 with a Nucleo board, and a number of expansion boards or shield boards. So these are boards including many other products from sensors to power to, for instance, connectivity products. It is a kind of Lego approach, and all the software is compatible, and our customers starting from the Nucleo board for the microcontrollers, they can plug in the other boards and develop their applications, in a way that is very effective. I think, also our product portfolio, I think is more and more intended to what we want to do in the mass market. So indeed, this is a very important priority for ST, and there is nothing special that we want to do in terms of channel or changing our channel. I think we are working with the leader today, and they are major American and Asian companies, and we will work with these companies. Okay, thanks. Can you talk a bit about APG? I was interested in your comments around the softening Japan infotainment market. If you look at your fourth quarter numbers, shows a significant slowdown in terms of year-over-year trends. Is that related to that sort of seems to be underperforming the rest of the infotainment guys, Maxim and TI and so forth. Can you tell me if there's something specific at your customers or is there market share loss, or is this currency related, and do you expect that to recover in the first quarter? Yeah. Well, as I mentioned before, in APG, we had a manufacturing problem in Q4 that has impacted our sales by about $10 million. In the year, we grew 8, I believe 8.3%. I think it's a solid growth, likely better than the market, despite this little glitch in Q4. What we see a market softening today is in two areas that are specific and also may be a little bit less material for us, thanks to the fact that our core business is really centered around the major German industry. The first one is in general in Japan, this is what I said before. The second is part of the business in China, where we are number one in the automotive, and this part is the infotainment in China. So this is the situation. I think in Q1, we expect to grow in APG, despite a significant short quarter. I think what we see is that we have overall a robust demand in this business. So we are confident that will be another year of good growth and good financial performance. Okay. Thank you. Thank you. Thank you, Ian. Next question, Maya. Next question is from Achal Sultania from Credit Suisse. Please go ahead. Thanks. Just a quick one on APG long term. Can you just give us some sense of have you seen a significant improvement in the semi content that goes in automotive for 2014. If you look back last few years, we've seen 2%, 3% content growth. Has that pace significantly increased in 2014? How should we think about this trend more longer term, if you look out two, three year out? Yeah, I think there is a continuous process and improvement here. Of course, there are important drivers or important new drivers. One important driver that I would like to mention is about the so-called ADAS, that is the advanced safety, everything that is there to assist the driver in the driving, and even the autonomous driving. This is an area where ST is very strong. We have partnerships here. As I said before, we have our third generational products, and we are developing the fourth generational products that is in FDSOI, by the way. So this is one area where we see a very important trend, evolution, and growth. Another area, of course, is the electrification of the car, and here it is about the smart power products, but very importantly also about many power discrete products, both rectifiers but also IGBT products. So this is another trend. I would like also to mention the fact, of course, that electronica is more and more pervasive also in the low-end car, and this is also very important to us. We want to cover all. There are very few things that we are not doing in the automotive. I mentioned before, last quarter, we won our first major MEMS for a safety application. This is a big program, is a big win, is a very complex device. Of course, is a custom device for a major customer, and this will be a significant business in the future. It will take some time because times in automotive are a little bit longer. We cover pretty much everything in the car with the exception of two things. We do not have the 3G modem, and we will not have that. What we do not have is for the very high-end, the major application processor for car infotainment. For the rest, we cover all. From LED lighting to RF radar solutions, powertrain, MEMS, discrete products for the electrification, the most advanced products for safety applications. It's very broad. We are very encouraged by the pervasiveness and the increase of semiconductor content in these applications. Thank you. Thank you. Thank you. At this point, we will take two more questions, please. Next question is from Gianmarco Bonacina from Equita. Please go ahead. Yes, good morning. Basically, I see that in Q4, your pro forma sales for the new digital group is about $260 million, if I add the imaging and the old DCG. Can you tell us, please, how much of this $260 million is represented by the legacy ST-Ericsson and by the commodity camera business which you are going to discontinue? If these sales, we can expect basically to be close to zero by the end of 2016? Thank you. Yeah. If we look at this $260 million of business, and you mentioned the remaining part of ST-Ericsson and the activity related to the modem and the camera modules. I think overall it is about 50 million. Okay? 50 million is a lot, but please consider that the margin is very low and is not really contributing to the gross margin of the company. Typically, there is almost no contribution. We expect to clean it up. As I said before, to start finally very clean and focused by Q3 this year. This is what we want to do and complete this phase. Of course, we want to replace this business and then grow with many new products in the area of ASICs, in the area of the Time-of-Flight sensors, in the area of the new set-top box solutions, and grow from there. Thank you. Thank you, Gianmarco. Next question, please. Today's last question is from Johannes Schaller from Deutsche Bank. Please go ahead. Yeah. Hi there. Thanks for taking my question. You mentioned some good momentum in some of your silicon carbide products earlier. Could you just maybe talk a little bit more broadly about silicon carbide and also gallium nitride, just how you look at this market, if those are better margin products for you than, say, traditional IGBTs? And then also- for both is strong in your view and how that will develop. Then also quick follow-up on China automotive. The weakness you are seeing there, could you just be a bit more specific? Is this factory fit or aftermarket, and is it right to assume that this is mostly with the local brands? Thank you. Yeah. Carmelo, we have not introduced, but Carmelo Papa, that is managing IPD, is here with us. Well, first of all, we are very pleased about our power MOSFET and IGBT business, and I think we can do better in terms of top-line evolution, but is a very important contributor, very good products with an excellent financial performance level. So Carmelo- Yes comment on the silicon carbide and what we are doing there. Yes. Aluminite, right. The first thing that I would like to say is that at silicon carbide, we are now in the third generation of the 600 and 650 volts diodes. We are at the first generation of the 1,200-volt diodes, and we are at the first product, the only one on the market now dealing with 200 degrees of temperature, of junction temperature. It's the only one on the market that is making very important inroads. I'm referring to power MOSFET. This is the first one on the market, guaranteed at 200 degrees of junction temperature. This will enlarge enormously the range of application that we can cover today with MOSFET high voltage and also IGBT. Because it can work at very high frequency, and it improves enormously the, let's say, the efficiency of high-frequency converters, and the likes. We have all the weapons that the market requires to be competitive, and we are producing at 6 inch, which is. Don't be amazed. This is true power. We are talking hundreds of amperes and hundreds of volts. Working today, the state-of-the-art is between the 4 and 6 inch. You will never reach a 12 inch. We are moving it into 6 inch to be in the forefront of the market. And the first preliminary feedback we have, in particular for the MOSFET, which is new to the market, from some major customer and from small customer of the industry are excellent. I hope that with this and with the full range of low-voltage MOSFET that are adding to the high voltage, the new trench field IGBT, I think we have all the ingredients, including the manufacturing capability that we have at 8 inch in Singapore, to be competitive this year. I expect that our market share this year will grow. We are happy about the silicon carbide. Yes. I think we are very strong. We are in production with rectifiers, and we have now this- MOSFET 1,200-volt MOSFET. It is a great device. And we have also very structural and mature in manufacturing. That was well-structured and mature in manufacturing, that is one of the challenge, in this business. So we believe it is becoming more and more a real industrial program, and of course, the benefits are evident. That is helpful. If I can add one more point, there will be new applications for power that traditional technologies cannot afford today. Yeah. Because of the frequency and everything. Also, in terms of cost reduction, we are making some major steps here. It's going to paying off. On the automotive, you're right. I think this is really more the aftermarket, the fragmented market in China, in car infotainment. But maybe we spend too much time here. We are still very pleased about the backlog that we have in the automotive. It's a very solid backlog, even for Q1. We had this little glitch in manufacturing in Q4. We left on the table $10 million, and now we want to grow in Q1. We see solid demand, particularly from U.S., from Germany. Some softening in areas that are a little bit less important for us, like Japan. Overall, we see a good trend. That's very helpful. Thank you, gentlemen. Thank you. Thank you, Hannes. At this point, we'll go ahead and close the conference call. Thank you for your participation, and please note ST's next event will be at the Mobile World Congress on March 3rd, and we'll send out details shortly. Thank you very much. Ladies and gentlemen, the conference is now over. Thank you for choosing Conference Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.