STMicroelectronics N.V. (EPA:STMPA)

Earnings Call: Q4 2011

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Jan 24, 2012

Bonjour. Good morning. My name is Tait Sorensen. I am the Director of Investor Relations for STMicroelectronics. It is fantastic to see you all today, and thank you for coming. First of all, welcome to Paris, and again, thanks for coming to see STMicroelectronics Q4 and full year results. We will start off, just a little housekeeping item, the agenda today. We are actually joined by several members of our management team. We have, in particular, the speakers. I will introduce them. Carlo Bozotti, our President and Chief Executive Officer, Didier Lamouche, our Chief Operating Officer, and recently appointed CEO of ST-Ericsson. We also have Carlo Ferro, our Senior Executive Vice President and Chief Financial Officer, Carmelo Papa, our Senior Executive Vice President of the Industrial and Multi-Segment Sector, and Philippe Lambinet, our Senior Executive Vice President and Vice President of Multimedia Convergence and Chief Strategy Officer. With that, you can see that we have got some presenters up today, and we will also have a Q&A panel. We have also very robust and deep management team here. I would suggest that you not leave with any questions unanswered. We think you will have the opportunity. We will have a cocktail lunch that will be held out where the welcome coffee was. I will not try and pronounce that in French, but it is immediately in the glass area. The usual forward-looking statements. I know it is a little bit hard to read, but we do have that available. This event is being broadcast live over the web and can be accessed on ST's website. Today, we 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 full results last night, and also in ST's full recent regulatory filings for a description of these risk factors. As a reminder, and for those who could not attend today, ST and ST-Ericsson will host conference calls at 3:00 P.M. Central European Time and 5:00 P.M. Central European Time, respectively, today. Now I would like to bring up Carlo Bozotti, ST's President and Chief Executive Officer. Or excuse me, let me start that over. Bring up Carlo Ferro, our Chief Financial Officer. Carlo will conclude the festivities. Excuse me. Thank you, Tait. Good morning, ladies and gentlemen. Welcome to the STMicroelectronics 2011 year-end event. It is always a pleasure of meeting you again. It is also a duty to report on our results and our prospects. This event is now a tradition for ST, but this year is very special. It is special since ST enters the 25th anniversary from the merger that created the largest European semiconductor company. You noted from the movie a few minutes ago that we have entered this new future with a refreshed and dynamic brand. Life. Augmented is what ST stands for. It is our commitment to work every day on making the lives of everyone richer, safer, healthier, in order to bring benefit to all of our stakeholders, from employees to investors, from customers to society. Indeed, let me recall that for those of you that are less familiar with the company, it's an about $10 billion revenue company, employing over 50,000 employees, out of which 12,000 people in research and development. It's a large company. I will say that in the context of the current European economic situation, allow us to emphasize the economic and social relevance of ST. Let's now turn to the review of our fourth quarter and fiscal year 2011 results. No question that 2011 has been a very unique year, with many headwinds from the global economy and the semiconductor industry, from the natural disasters, on which respect our sentiment goes again to the victims and their families, to much uncertainties related to the sovereign debt in Europe. From the downturn of the cycle in the second half of the year to the sudden change in the business and plan of our largest customer. 2011 has been characterized by big difference between the first and the second half of the year. The first half ended with results substantially on track and with a significant focus on preparing for the future, a big effort in research and development, intense capital spending. The second half, with significant headwinds impacting profitability. We kept on track our substantial R&D effort, enabling for future growth, and we adapted our capital spending, returning the company to generate a positive free cash flow in the fourth quarter. Overall, in the year, ST reported a profit of $600 million on $9.73 billion of revenues and closes the year with a solid net cash balance of $1.17 billion as adjusted to take into account the 50% of ST-Ericsson debt. Also, we exit the year with a tuned organization, with changes among a few others that you can see in the chart. In sales and marketing, targeting a stronger focus on global accounts and better geographical coverage. In technology and manufacturing, aimed at increasing efficiency and flexibility. In product groups, focusing the businesses segment to extract from each of them their relative value, and also reflecting the dedication of our Chief Operating Officer, Didier Lamouche, to turn around ST. Let me welcome the new members of the leadership team who are present today, Benedetto Vigna, General Manager of Analog, MEMS and Sensors, Marco Monti, General Manager of Automotive Product Group, and to salute Paul Grimme in his new responsibility as the General Manager of the EMEA region. Focus has long been a priority at ST. New product segment will help to more specifically address our five core businesses: digital, automotive, analog and microcontrollers, power discrete, and through a 50/50 joint venture, wireless. Also, the creation of the new segment is aimed at extracting meaningful synergies. In the digital field, by all the wholly owned groups converging on one single effort around the multimedia processor platform, and in the analog and mixed-signal businesses, running under an integrated organization within industrial and multi-segment. Turning to the semiconductor market and ST's position. You know we are still await the final market statistic, but we are now in a position to base our current analysis on the WSTS data at the end of November. 2011 was a year of moderated growth for the served market. We estimate low single-digit growth on some. As you know, the industry entered the downturn cycle in the second quarter with a severe drop in demand across all applications in the second half. Towards the end of the year, we noted a recovery of bookings in most verticals, and we noted lower levels in the distribution channels. Those signs give us confidence to expect that the industry downturn has touched the bottom. Also, we want to be very cautious on the time and speed of the expected recovery, given the overhang of a number of macroeconomic uncertainties, particularly around the European economies and the sovereign debt situation. ST revenues in 2011 were $9.73 billion, $5.1 billion in the first half, $4.6 billion in the second half. You can imagine the diseconomies when shifting the manufacturing machine to operate on a $1 billion yearly run rate in revenues. Our second half results unfortunately speak to that, despite a significant improvement in flexibility with foundries and a reduced number of manufacturing fabs. There are two relevant factors on top of the softer demand that aggravated the revenue dynamic in respect to the $10.3 billion of the prior year: ST-Ericsson transition and the situation at our largest customers that significantly affected both ST-Ericsson and the wholly owned business as respectively concerned. Indeed, by analyzing the 2011-2010 revenues change, we see that the wholly owned business, say ACCI, AMM and PDP, grew year over year by about 1% with two businesses on which entering the year we have anticipated significant growth, substantially meeting expectation. Automotive grew by 18%, and MEMS almost doubled its revenues, while wireless went down by 30%. The performance of the wholly owned business translated, until November based on the available data, into an evident gain of market share when measuring the ST wholly owned business revenues against the served market, excluding wireless in the 11 months, from 5.6% to 5.8%. Here are the detail of our 2011 revenues by applications and ST positioning in the market in 2010. We are number one in automotive in China and number three worldwide, number one in set-top box outside the U.S.A. and number two worldwide, number one in printer heads, number three in industrial and other applications, while the effort is ongoing to rebuild a leading position in smartphone and tablet. Looking at our product segment, analog, MEMS, and microcontrollers are now about 30% of the total sales, while the others range between 10% and 17% each. Wireless is 16%, taking into account the joint venture participation is about half of that. Automotive, analog, MEMS and microcontrollers, you see on the percentage of change versus prior year, continue to drive growth also in 2011. I'm sure you have already read the financial results for the first quarter in the fiscal year 2011, since we issued our press release. For the quarter, I will not read all of them, you already made big effort on the looking forward statement on page 3 of the presentation. Revenues and gross margin are well delivering on anticipated guidance, despite several negative surprises prompted in the industry during the quarter. Operating income was positive by $89 million in the wholly owned business, and we have taken $211 million to recognize 100% of loss in wireless in our consolidated report. Free cash flow in the quarter reverted to a positive $47 million. For the full year, $9.73 million revenues, we have already discussed. Gross margin at 36%, starting the year at 39% in Q1, then declining through the year on the weight of a new capacity charges. Operating income positive by $933 million for the whole year business and $813, 100% loss for wireless. 6% operating margin attributable to ST. Net income of $650 million, which is true, include $380 million from the recovery of auction rate securities achieved in the second quarter. Nevertheless, without that and without other one-time item, we estimate a clean earning per share for the year positive of $0.41 per share. Free cash flow has been negative last year due to the extraordinary high level of capital expenditure and the use of cash at ST-Ericsson. So we have invested. Finally, $1.17 billion net cash balance at the end of the year. I will talk later about the solid capital structure of ST. These results are very different for each of the business segments. While all but wireless have been hitting revenues in the second half of the year, they have each shown a good, also different degree of resilience. ACCI. ACCI is the automotive, consumer, computer, and communication infrastructure. Is an about $4 billion revenues business, just one point down in revenues in a year-over-year comparison. Solid growth was recorded in automotive and imaging. On the other side, you may also recall that in the year we exited the hard disk drive system-on-chip. ACCI posted in the year 9% operating margin. The margin dropped on lower revenues given the R&D intensity and the ongoing effort in digital TV. However, it remained a positive 6% despite such low revenues in the fourth quarter. AMM. The analog, MEMS, and microcontroller is almost a $3 billion revenues business with 20% operating margin in the year and a visible year-over-year growth rate. As we said last year, our MEMS business grew over $600 million, as we remained the leader in accelerometer and gyroscope, having shipped in excess of 1.6 billion units. Also, you can see in the graph on the left, the significant resilience of margin that remain at about 18% in the fourth quarter despite lower revenues, but thanks to an enhanced product mix. Power Discrete is over $1 billion revenues business with 11% operating margin in 2011. Revenues went down in the year affected by the situation at our largest customer and low sales into distribution in the second half. Margin, thus significantly compressed in the second half, remain solidly positive also in a low revenue quarter. Wireless is focused on the introduction of new products, on proliferating design wins, and lowering the break-even point to prepare for a sustainable turnaround in the future. This is taking longer than expected due to the situation with one of our very largest customers, accelerating the decline in legacy products, but also decelerating the ramp-up of the new products with this customer. As we will report in 2012, the product segments under the new classification and the new perimeter, I believe it is beneficial to present their revenues and profitability data restated on the new perimeters for each of the quarter of 2011. You noted that automotive ran last year at 14% operating margin. I said 2011 has been so different in the first and in the second half, so much affected by the industry changes. In the first six months, we have improved the operating income of the wholly owned businesses to 14.7%, compared to 13.1% in the prior year. You can see volume, manufacturing efficiency, and product mix, all have positively contributed. In the second half, the only positive note, and this is very important, remain the positive contribution of the product mix, while unused capacity charges, volume, price, and exchange rate push the operating margin of the wholly owned business down to 7.6%. With the euro and the US dollar at about 130, the currency environment is somehow easier for ST. However, still far from a rate fully favorable to the large manufacturing and R&D effort of ST in Europe. About 44% of our costs are incurred in Europe, which translates into a sensitivity to EBIT of about $8 million-$10 million per percentage point of change per quarter. An improvement for a stronger US dollar, a deterioration for a weaker US dollar. This year, we have made significant change to mitigate the exposure going forward by purchasing and carrying the new asset of our European fabs under a US dollar-based structure that prevented them from currency exposure in the future. We have also introduced in our currency hedging a more extensive use of zero cost collar options that offer more flexibility within a given range to take advantage of favorable currency rates. I promised to talk about the capital structure. The capital structure remains a strength of ST despite the poor cash flow we experienced in 2011. Indeed, we have improved the net financial balance adjusted including 50% of the ST-Ericsson debt to parity by over $1.7 billion since the end of 2008, to a balance of $1.17 billion at the end of 2011. Significant improvements have been made in 2009 and 2010, while in 2011, we kept this balance substantially flat with an extraordinary high level of capital expenditure, funding our portion of the losses of ST-Ericsson, and distributing in 2011, $327 million of dividend to shareholders. The charts are focused particularly on the evolution in the last two years with over $1.1 billion cash generated by the ST wholly owned businesses in the two years, the positive contribution of the sales of Numonyx and the successful recovery from Credit Suisse, the dividend distributed to shareholders, and the ongoing funding of repositioning the wireless business. So we closed 2011 with $2.3 billion of available liquidity. Going forward, we plan to redeem our outstanding debt by a combination of available cash and already available outstanding committed credit facilities. I see some shareholders here, maybe many others are following on the broadcast, so let me address the point of dividends. As I mentioned, in 2011, we paid $0.10 per share or a total of $327 million in dividends. Our dividend currently is about 5.5%. While of course the dividend based on the 2011 revenues will be submitted to our shareholders meeting by our supervisory board, management still considers the dividend as an important vehicle in returning wealth to shareholders. We are now entering 2012 with a guidance for the first quarter, which shows better than normal seasonality for the wholly owned business, but remains affected by a low level of fab saturation and ST-Ericsson short-term situation. We anticipate for the quarter total revenues to decline sequentially between 4%-10%, with the revenues for the wholly owned businesses expected in the range of a very light decline at the midpoint of the guidance, as bookings have started to recover, and after we have substantially undershipped to distribution in the last six months. In particular, we expect, again, at the midpoint, automotive and multimedia convergence to increase sales, analog microcontrollers and power discrete to also slightly grow, while imaging and ASIC in the quarter are anticipated to go sequentially down. While as ST-Ericsson has anticipated in their press release, expect a very significant sequential decline in the net sales, resulting from a combination of higher inventory of some of their customers, further weakening of legacy product sales, the reduction in the short term of new product sales with one of its largest customers, as well as the seasonal effect in the first quarter. Gross margin for Q1 is expected to be about 33%, plus or minus 1.5 percentage points. It reflects charges for unused capacity in the range of four percentage points of the revenues. This is reduced in respect to Q4, but still very significant as we currently plan manufacturing volume by remaining prudent in respect to the first half, and we intend to continue to control inventory. Looking forward to the full year, we are encouraged by the prospect of value drivers through 2012. Let me recall six of them among several others. Revenue growth in the whole business, driven by the expanded customer base and new products. At the end, Philippe will talk respectively about that. The product mix, which will continue to improve as we push through faster growth in the extreme analog, high margin products. Further manufacturing flexibility that, coupled with recovery volume, will benefit the fab utilization and the cost efficiency. Cost synergies from the reorganization of the ST's digital businesses, consolidating around one single application processor platform development. Number five, we are reducing capital expenditure and after the F-14 2011, we expect a limited need for capacity expansion. Coupled with inventory control, these will translate in the year into a positive free cash flow for year 2012, starting from the current quarter. Of course, the most relevant area of focus is the wireless business. Recognizing that it will take longer to revert the quarterly losses of ST-Ericsson, ST-Ericsson is focusing this year to build a strong roadmap to profitability based on improving execution, delivering volume-leading products, and lowering the break-even point with the full support of both its parties. To conclude, we believe that ST is positioned to expand the value, and we continue to push for improvement in all the businesses. We have opportunities for improvement in all the business with a relentless sense of urgency towards Life. Augmented. Many thanks for your time. I am now glad to invite on the stage Didier Lamouche, Chief Operating Officer of STMicroelectronics and recently appointed Chief Executive Officer of ST-Ericsson. So recently that Didier, in his presentation, will present about ST: a year of achievement in marketing, technology and manufacturing. Thank you. Good morning, everybody. Good morning, ladies and gentlemen. Very proud to be in front of you today. Last year when I came in front of you, it was the first time in my new role. This year, it is also the first time in my new role. Make no mistake, I do not intend to continue like that. Hopefully, next year will be a year of stability. Of course, if it is not, will mean other things, probably. Carlo, you afraid me. You scared us when you forgot the first line of your value creation, right? Initially, we thought you forgot the value creation behind ST-Ericsson turnaround. So you thought we are not putting too much confidence into that, but in fact, it was to keep the best for the end, right? Thank you, Carlo, anyway. Yes, as Carlo said, I will focus mostly on 2011 on ST-Ericsson, and of course, next year, the color of the chart will be different. Okay. If I could summarize this year by one chart, it is this chart. What a year. We clearly entered in a year where all our customers, prospects had a very good and bullish outlook. We have summarized on this chart six or seven major events, or virtually every other month we had an event, which was something that you live only once in a lifetime. Of course, I am not going to go through that, but you clearly recognize what I mean here. Of course, Japan, terrible catastrophe, the flooding, and also the event in the country in North Africa. Of course, that impacted also indirectly our factories around the Mediterranean Sea. But also a severe economic downturn, severe economic pressure due to the euro. One element which maybe has not been highlighted enough, the severe increase in the gold price, more than 40% between January and September. When you know that 60% of our cost in the back end of the factory is driven by material cost, of which gold is clearly the number one driver, you can imagine how much pressure we got, and you will see later on that we have taken huge improvement in order to minimize those increases. Of course, the last but not the least I will not name the customer, but I am sure you realize that this customer operating in the wireless business, and the health or the problem that this customer got, really translated into severe revenue loss for us this year. And all of that, we had to absorb in a year, or in less than a year. I think the financial reserve that Carlo showed before clearly shows the resilience of this company. Let me go through numbers. This company is showing a revenue which is pretty well-balanced in terms of geographical footprint. With almost 30% coming from U.S. customer, a little bit more than 38% coming from EMEA, and 33% coming from Asian customers. Of course, up to now, we report also mostly by shipment location, and you see that almost two-third of our production goes into Asia, but only one-third is coming from Asian customer. In this, we have accumulated Japan, Korea, which is roughly representing 17% of our sales, and China and the rest of Southeast Asia representing 16% of our sales. Of course, the well-balanced footprint goes also with a footprint which is well-balanced also in terms of sales and customer support. We have 78 sales office in 36 countries, and you see clearly that, again, here, we have a pretty even balance between U.S., between Europe, and between Asia. On the front of marketing this year, the top 10 customer list has not changed much from last year. One change, though, I should mention, you see coming in the top 10 list, the Sony/Sony Ericsson group, which is in fact replacing one of our long-term hard disk drive customer. We had focused initially in the year, our growth on one side, targeting 20 new top account. And you see on this chart that we did pretty well, because on the back of a very solid 2010, for which the revenue generated through these 20 top new accounts was 40%, we increased again our revenue from those customer list by +19%. At the same time, our mass market penetration grew by 6% as far as our revenue is concerned, also on a very solid 2010 year. Of course, ST is a company dedicated to innovation. Innovation means R&D. R&D for us is two streams: basically, technology, silicon technology, for which the geographical focus is essentially in Europe, but also with our partners in the ISDA Alliance in North America. The second stream is clearly our design centers, close to our customer. And again, here you see clearly, you recognize the same type of footprint and the one we show in terms of revenue, with, of course, a very heavy presence in Europe, in the U.S., and also a growing presence in Asia. Two more charts on technology. As you know, we are one of the only company sustaining competitively, two main investment in two different streams. The first stream, we call it the More Moore stream technology, and for that, we have two basic platform. The flagship platform is the CMOS logic. This year, we have introduced 32 nanometer prototype, and probably the best example Philippe is going to mention, it is the Orly chip, which is really a chip which is probably the most powerful, Philippe will talk about it today, most powerful video decoding chip in the industry today. It's a 32 nanometer technology chip, and we plan to introduce in 2012, 28 nanometer and 28 nanometer FDSOI technology on that platform. I insist on that because this is a key element for recovering our competitiveness and leadership, essentially in the wireless business. I intend, as the CEO of STMicroelectronics, to push a lot that technology flavor. For that, ST has clearly a leadership vis-à-vis the rest of the industry. The second main stream, of course, is our CMOS analog mixed-signal. Basically, two to three years behind our CMOS logic introduction roadmap. Finally, last but not least, our CMOS embedded non-volatile memory, on which our STM32 technology and design platform are based on. We have introduced this year the first 80-nanometer product, and we will push in 2012, the first 55-nanometer based product. The second stream, probably the one on which we are clearly today an undisputed leader, is what we call the More than Moore technology. Again here, three main critical platform. Some years ago, only two, now three. Clearly, you see appearing the MEMS one. The first one, very traditional, on which ST is clearly the leader of the market, our BCD platform technology. Next year, we will introduce our first 110-nanometer product for the automotive industry. You see clearly here, coming on the horizon, the first 65-nanometer milestone, for which we start to elaborate some technology step in order to meet this milestone. The second one, as I mentioned before. On this one, we are clearly, by far, in term of business and in term of technology, the undisputed leader of the industry. The reference is clearly not here. The node size, it's more EP, poly thickness, aspect ratio. If you need to know more, we have the best experts of the world here, Benedetto Vigna. I'm sure he will be able to answer a lot of questions on how do we push the technology limit on this platform. As you see, we have ahead of us, clearly, a very strong roadmap. Last but not least, our power and discrete product line for which, again, you see here on the horizon, appearing now the new material, new three-five compound, gallium nitride, which is currently developed in our facilities in Catania. Of course, all those technology need to be put into production, into manufacturing. I would say that our manufacturing footprint has not changed too much compared to last year. We have pretty much consolidated our asset base. In fact, last year, we finished the last step of our consolidation by the divestiture of our Phoenix factory in the U.S., and we believe now we are pretty much complete in order to grab additional market share with this tremendous manufacturing setup. Manufacturing goes obviously with capital investment. Capital investment was a difficult point to manage this year. Clearly. Why? Simply because, if you remember Q4 2010 and even Q1, we had a very aggressive and very bullish outlook from all our customers in term of technology introduction as well as capacity needs. We started the year with an outlook which was much, much higher than the one that we closed the year with at the end of December. Finally, we had to put the brakes heavily starting in March or April, and we finished the year at a little bit over $1.2 billion investment. Where did that money go? Clearly, that money go in two areas, in our proprietary manufacturing first, and also in investments targeting our strategic growth businesses and key product ramps. Those are the following. First, by far, growing our MEMS capacity 2X in Agrate was clearly one of the main objective of the year, and we completed that ramp. We believe now we have installed the necessary capacity in order to fulfill the need of our customers. I remind you that we were the first one to invest heavily with an 8-inch MEMS capacity. So we have now a very strong manufacturing machine between Agrate and a backup site starting up in Catania. We have also invested in renewing and refurbishing the tool sets of our Singapore fab. As you know, this factory is the largest 6-inch factory in the world. We have started some conversion in order to improve efficiency. Of course, we manage the ramp in order to optimize the profit and the return on investment. But clearly, this is a strategic direction where we want to go. We have also improved through investments, the wireless mix improvement at our factory Crolles and Rousset. As you know, those two factories have been severely hit by our wireless business, which in turn has been impacted severely by one of our major customers. So we had to take some actions in order to make those factory less sensitive and more immune to this customer. It's not the end of the road yet, by far, but we have taken significant steps in order to improve the situation, as well as introducing 28 nanometer in Crolles, ramping 300 millimeter analog also in Crolles, and as I said before, completed the Phoenix fab restructuring. Back-end has also consumed some of our investments. You see it on the pink part of this diagram here for a few reason. First, in order to adjust the capacity to our customer needs. In order also to grow our MEMS capability in Malta, which is done now. And also, one thing which is essential, and here we invest for the future, I told you before, we had to do significant investments in order to convert our back-end capacity and tool set from gold to copper. This has driven, again, significant investment, but here, the ROI last year, given the fast rise of the gold price, was extremely appealing. So that's the reason why we decided to go ahead, and we are pleased to see that some of our competitors are also going in the same direction. But of course, we believe that we have taken the lead in this conversion. This year will still be a year of intense conversion because of course, it takes for some products, especially in the automotive segment, it takes years to qualify, not necessary to put in place the process, but to qualify the product in the field. So what about 2012? The key priority in manufacturing is this one. As Carlo mentioned, you have seen that our financial performance last year has been significantly impacted by underloading charges or underutilized capacity. The remedy to that is to clearly improve the flexibility of our manufacturing tool set. Clearly improve. We are going to do it in a few ways. First, while we stay committed to an asset-lighter model, which means that we are committed not to spend more than 10% in term of CapEx to sales ratio over a cycle. We stick to that. We intend to fully load our existing capacity. We want to continue to utilize, of course, outsourcing, but we need definitely not only to target, but to meet or even exceed 20% of overall manufacturing production, which could be outsourced and repatriated if the volume is fluctuating. This is absolutely essential. Today, we are below this mark, and we believe that we need to go to that level in order to increase our immunity to the fluctuation of customer demand. This is a key program for this year and the year to come, while we intend to continue also to outsource roughly 60%-70% of our advanced digital CMOS volume production to partner foundries that Jean-Marc is working on at the moment. Finally, the third point, very important, in order to improve not only flexibility but also our efficiency, as I mentioned before, we want to start carefully but strategically our conversion of Ang Mo Kio to larger diameter in order to improve flexibility, but also efficiency. Finally, this year, when we talk flexibility, we most of the time mention front-end. We want to focus on the back-end. We believe we don't have enough flexibility in the back-end. Our back-end toolset is extremely efficient, extremely productive, located in the Asian part of the world. But we need to improve the flexibility, meaning by that, the capacity to repatriate offload from partners when we have underloading in our existing facility. That is not existing today sufficiently, contrarily to what exists in the front-end. This is not the same impact financially than in the front-end area, but it's still an impact which is significant and that we want to tackle. Finally, this year will also be a strong year of sales focus. Here, the name of the game is clear. We want to continue to gain market share. We are acknowledging that there is rapid changes in the marketplace, the way the customer manages their supply chain, the way one customer grabs market share compared to other customer. We recognize that, and we need to adjust our sales force accordingly. As Carlo briefly touched, we have decided to put an increased focus in managing our global accounts in a global way, meaning increasing the strength, I would say, of the leaders in our sales organization, managing global accounts and giving them the full empowerment to manage those accounts. This is what meaning behind global accounts responsibility. At the same time, we want also to focus on the potential growth accounts that are coming on the market that are not necessarily the leader of today, but who will become the leader of tomorrow. Those accounts who are not necessarily big today, but who will become the leader of tomorrow. In order to do that, we need to instill, I would say, hunter behavior through the mindset of our sales force. And we want to do that to focus even more on the regional aspects and the regional focus of our sales force. This is the organization set up, which is in the way and for which we will give you more information going forward. In the meantime, as you know, I must focus my time and my energy, I would say, in turning around ST-Ericsson. For the moment, all the regional managers will directly report to Carlo. And of course, as I said before, we will have a targeted focus on new accounts and new marketing initiatives. Thank you very much. This is completing the end of my pitch. As I said before, I will not show you any chart for the moment on ST-Ericsson, but I will be, of course, willing to take all the questions you have on ST-Ericsson during the roundtable session. Thank you very much. Let me introduce you now, Philippe Lambinet, who is going to give you more color around our product strategy. Philippe, stage is yours. Yeah, it is still morning. So good morning, ladies and gentlemen. I will focus this presentation on our product strategy, new product introductions, and strategy for growth. Quickly, I will show the major achievements in 2011, then looking forward, some of the key growth drivers for 2012 and some industry trends looking forward. Is this working? Yes. As you well know, our product strategy fundamentally based on two major pillars. We focus on multimedia convergence and on sense and power, and we want to be leaders in both of these segments of the world market. And more and more, our job is to deliver complete solutions, complete applications to our customers and partners. In the area of sense and power, we focus our leadership efforts on MEMS sensors, on analog, advanced analog, MCUs, and power management solutions. We have leading positions on those key products. We have a broad portfolio of technologies and broad system know-how, and that allows us to basically address all the major markets, from automotive, communications, computer peripherals, consumer, and industrial. So that is our big strength in sense and power. We also, as you know, develop products to be leaders in the multimedia convergence field, where we are already a very strong leader in digital set-top box, automotive entertainment, and we develop our solutions now to grow our business in digital TV and monitors with ST-Ericsson on smartphone and tablet, and as you well know, also on imaging solutions, where we focus our efforts on optical sensors, but also image processors that take the video information and treat it for further analysis by processors. So here we have, as Didier presented, the assets of our low-power CMOS roadmap, including 32 nano and 28 nano this year. We have leading position in the main markets. The broad system know-how we built over the years allows us to completely serve those markets and deliver full solutions, including software, which is a very important aspect in the multimedia convergence field. Talking about multimedia convergence, some of the key achievements, here I would like to apologize to some of my colleagues because we had to make a selection. The list of achievements and growth drivers is very long for each of the main segments. We took a selection of the most relevant achievements and new projects. In the area of multimedia convergence, a very important milestone was reached in 2011 by the introduction of DisplayPort connectivity accessories, which we have managed to design in several applications, including, with a famous consumer brand, a 3D head mount display for gaming. That is definitely not the highest volume application, but it is one of the key new areas where we put our focus. The 3D type applications, high resolution 4K by 2K screens, is an area of very strong growth. Didier already mentioned that we introduced last year our Orly set-top box processor, which is by far the most powerful set-top box chip in the world. It is probably 1 and a half generation, 2 generations ahead of anybody else. It offers processing power and video processing power way ahead of anybody in the industry. It has already recorded very significant design wins, which I will mention later this year, and will generate some pretty relevant sales in 2012. We have launched the mobility DisplayPort technology. DisplayPort started as a PC interface. Now it is moving into smartphones and tablets. Again, it started with very important design wins in 2011 and will generate very significant sales in 2012. If you look at the growth drivers for 2012, clearly digital TV, where we started to re-enter, is an area of growth, with the FreeMan family, which is in production now, and the NewMan family, which we introduced at CES. Set-top box, already mentioned Orly, but of course, continuous growth on the rest of the portfolio. DisplayPort already mentioned. In high-end monitors, we have introduced last year a very important product called Athena, which has also recorded some major design wins with high-end monitor customers, again, also in the 4K by 2K type resolution. In the imaging and ASIC field, again, very important to note that we recorded very major design wins with our new 32/28 nanometer process family. Very complex ASICs targeting mostly advanced printers, but also networking applications. We started the diversification of our imaging business, going more into image processors, where we have recorded some design wins outside of the traditional phone makers we used to cover. Like ST-Ericsson, we are expanding our customer base towards new customers, and also using that same technology into new applications outside of wireless, in particular, in gaming and other consumer applications. If you look at the 2012 growth drivers, networking ASIC is an area of growth, and of course, the imaging diversification beyond our traditional customers. In automotive, in 2011, we had a very good year, as you have seen already. We also recorded very important design wins that will drive future growth in power steering, in chassis. And one very significant event is we started the production of our Power Architecture MCU family 32-bit microcontrollers for automotive applications, which of course will be a very significant growth driver in 2012, together with other types of applications like power amplifiers. There is quite a lot of success in automotive in the past two years, but that success will continue over the coming quarters and years. In the important field of analog, extreme analog, including MEMS, a lot of achievements around the mixing of MEMS and analog together on some applications. You have all heard about gyroscopes and accelerometers. It is very important to notice that in 2012, we will start to record significant sales of more complex applications. We have talked about 3-axis, 6-axis, 9-axis. Again, Benedetto Vigna can answer all the questions on how many axes this business will generate. But we are now introducing modules that mix together several types of MEMS sensors and analog chip on the same module. And, of course, we will introduce this year, in higher volume production, things like pressure sensors for altimeter applications, for indoor navigation, MEMS microphone, also a very important new applications, and fingertip touch sensing applications, which mix, again, analog and MEMS in the same system. So a lot of growth drivers in that analog and MEMS field. In microcontrollers, we have recorded very important successes in the areas of smart metering, for example, and we have introduced a new generation in our STM32 family, based on the Cortex-M4 core. So we can claim the fastest 32-bit MCU product family on the market with the F4 family. And clearly, that is going to be a very important growth driver this year, together with secure applications like NFC, of course, and still innovation in our EEPROM business with the dual interface EEPROM. So those are some of the key drivers for growth in 2012. In industrial and power discrete, again, many design wins, particularly in the areas of energy conversion, particularly solar energy. And in 2012, we have introduced new families of products, IGBT, power management for AMOLED screens, and new generations of process for very high voltage PowerMOS, MDmesh, FDmesh V technologies. So again, another areas of growth. Didier Lamouche did not mention many of the design wins in ST-Ericsson. This is a short list of some of the design wins and products that are already announced and in production. There will be more announced, of course, at the Mobile World Congress in Barcelona in February. But a lot of design wins for our Nova, our Thor, and NovaThor products, which are now in many products in productions. Some of the important facts that, for example, our U8500 family is being used by HTC in an Android phone sold in China, and also that our new LTE modem, M7400 family, has been an innovation winner in CES and will end up in products. That is growth drivers, LTE mostly for 2013 and beyond. But that is a very important achievement also for ST-Ericsson. Beyond products, I think it is very important to look at which applications ST is focusing on. That chart shows the two axes are growth rates on the vertical axis, and the horizontal axis is market size. So where you want to be is, of course, the top right corner, high growth, big size markets. The coding on this slide is very simple. If there's a text, it means ST is in this market. If there is no text, just a little icon, and that's it, no text, that means ST is not on these markets. You can very clearly see that we focus on the high growth, big markets, because you see a lot more text on the top right side of that slide. That's a slide from iSuppli, by the way, not something we've cooked. It's very clear that ST Group, including ST-Ericsson, focuses on the high growth segments and on the big tons, big accessible markets. Very important. I will now cover a few of these high growth, high size markets, which will drive growth towards 2015. When we think of mobile phones, smartphones, tablets, we think ST-Ericsson. Well, of course, ST-Ericsson is on that slide. You can see it on the right. But those new applications drive very significant sales in ST already. You all know the MEMS success. But those applications drive and will drive growth in many other segments of our product portfolio, which I've listed here. I don't have the time to list all the potential applications we have in RF, in power management, in imaging, in various sensing applications, human interface, battery management, and so on. There's a lot of growth coming from those markets, not only in ST-Ericsson, but also in ST. Smart grid, very important new application. Here, again, it's an application for the whole of ST, not just one segment, MCU or power or set-top box chips, all of them. We have the fundamental technologies, and already the design wins, by the way, to address this emerging market, which will drive our growth much further than 2015, in fact, but already in 2012. The next 10 years, this is a very important application for ST, and we have a very broad portfolio that addresses all the elements of this market. Healthcare and wellness. Again, that's a market where we already are, but that's a market which will drive growth in the next decade. You can here, again, see a list of applications. When you see pedometer, it doesn't say much. But if you think of an analog chip in every shoe, or in many sports shoes, then you can start thinking about the kind of volumes and the kind of revenues this can drive for ST. Again, we all know the cost of healthcare is a very important factor in the modern economy, and we all know there will be applications for ST products to manage healthcare in a better way. In consumer, clearly, a very important effort has already been achieved. A milestone has been achieved. We've introduced NewMan Orly, which is one single platform for both TV and set-top box. It's, of course, very important for us to leverage synergies and have only one development to address two markets or three markets when we talk about mobile and other applications further down the road. But it's very important also for our customers. The name of the game here is software ecosystem. Clearly, our customers don't want to have to develop software for their set-top box products, software for their TV products, software for their multimedia players. They want to have one platform on which they can leverage their investment. That's a trend we have both for the return on investment of our customers and our own return on investment. We've managed to converge the platform into one chip. That's what we call our class 4 products, which we have already sampled and on which we have a lot of design wins already. We provide that platform, not only the chips, but also a lot of software pre-integrated so that our customers can go to market very quickly. We started sampling Orly, for example, at the end of last year. We're already going to have some customers in production in September this year, which is a very, very fast cycle time. Nine months to go to production for that complexity of product is quite an achievement. That's because silicon comes together with pre-integrated software platforms. If you want to remember three things out of this presentation, all these design wins, all these new products, all these new applications, we have a fantastic pipeline of new products with already some great design wins on these new products, which we've introduced last year, and we focus on the right application. The growth of these key markets will help drive ST growth. I would like now to ask Carlo Bozotti, our President and Chief Executive Officer, on stage, and he will present his vision and strategy for the future. Thank you. Good morning, ladies and gentlemen, and thank you for joining us in Paris to discuss about our progress in 2011 and the goals for this year. Just one year ago, right here in Paris, we were looking back at our performance in 2010, our record year, and we were looking at 2011 with optimism. All the basics were there. Industry forecasts were indicating a 2011 growth rate of the semiconductor market in the range between 5% and 8%. We had an outstanding pipeline of product breakthroughs ready to be launched and sold to customers over the course of the year. ST-Ericsson was expected to begin to deliver the new platforms in high volume in the second half of 2011. I do not want to revisit the past now, since you already had a very good overview of the year from my colleagues. Clearly, 2011 has been a play in two acts. Part of the first half reflected the spillover of the optimism from 2010, and then a number of headwinds, some of them totally unpredictable, that made the life of our industry and our lives more challenging. From the unprecedented disasters in Japan and in Thailand to the more volatile economic, social, and market environments, including the dramatic change in the business and plans of our larger customer and the severe downturn of the semiconductor industry. However, as you have seen, our annual results show overall the solid performance of our wholly owned business and a strong financial position. If I can take a key lesson out of this special challenging year and turn it into a keyword that reflects one of the ST's core assets today, it is resilience. To me, ST's resilience is apparent in its ability to successfully cope with unpredictable changes in our fast-moving industry, manage to keep a solid financial structure, a compatible level of investment in new products and in new initiatives, widen our market reach and expand our customer base. In a nutshell, our resilience enabled us to push through the main objectives that we had set at the beginning of last year. The first objective was gain market share, and based on the first 11 months data from WSTS, we did it for our wholly owned business, thanks to the very good revenue performance of key areas such as analog, MEMS, and automotive. Second, maintain a strong financial position. We did that, too, with $2.3 billion of financial resources at the end of the year, and a net financial position of over $1.17 billion when taking into account the 50% of ST-Ericsson debt. Third, the launch or start in production of some breakthrough products. Just to name a few, as we heard in consumer, we did it with Orly, the most powerful 32 nanometer set-top box system on a chip on the market, which is now sampling to leading customers and receiving excellent reviews. We did it with advanced DisplayPort devices, where we have achieved several important design wins. One of these was for the world's first high-definition 3D head mount display being developed by a leading consumer electronics manufacturer in Japan, which uses our Vega chipset. We did with our complex 32-bit Power Architecture microcontrollers for automotive applications, where our 32-bit micros from our joint development project with Freescale helped bail out several major customers in powertrain and in safety applications, who were suffering supply problems that threatened production stops as a result of the Japan earthquake. In analog, we continue to expand our extreme analog portfolio with a number of great products, among which an innovative new high-performance, low-power digital top port MEMS microphone, and the benefits of this device are quite evident by the quick acceptance in mobile devices and in PCs, some of which are already on the market and used by many of us. We began customer evaluations of our new fingertip touch sensor technology. This is a huge opportunity, which combines ST's know-how in analog front-end technology, DSPs, and MEMS to give users unprecedented fingertip control of their applications. We introduced a complete family of near-field communication related devices that are now being developed on most popular mobile platforms such as Android, Windows 8, and others. To build upon our continuous effort in energy management and savings, we launched a new generation of smart grid products, such as new smart metering chips for the next generation smart meters, including a new power line communication platform that has already been adopted as the core of major smart metering infrastructure deployments in Europe, in China, in Japan, and in U.S. All the above show the progress of our wholly owned businesses. As far as wireless is concerned, 2011 has clearly been another very challenging year for ST-Ericsson. Their shift from a legacy portfolio to a new product roadmap has proven much more challenging than expected due to the dramatic changes in the business environment at a large customer that have greatly reduced demand for legacy products and are delaying the ramp of new products with that customer. While there are some positive signs, as ST-Ericsson is already engaged with seven out of the top nine OEM manufacturers, they have announced new wins also during the last quarter of 2011. The results of the company are still very distant from the financial prospects that we are envisioning. For this reason, ST-Ericsson main focus today under the new leadership of Didier Lamouche is on improving execution, significantly lowering its break-even point, and reviewing its roadmap to sustainable profitability. We do believe so that wireless still remains for us a very relevant opportunity for ST's value upside. Now turning to 2012. During this year, we will build on the hard work done and on the foundation laid by our people and on their achievements during 2011. We believe that bookings bottomed in the fourth quarter. In the first quarter, we expect billings to bottom as we see stronger than seasonal billings for our wholly owned businesses, offset by a significantly weaker revenue performance from ST-Ericsson. We believe there will be a recovery in the semiconductor market, but we prefer to remain cautious on the speed of such a recovery, given the uncertainty of the macroeconomic situation in Europe. This is why we prefer to take a prudent stance and plan in the near term to continue to maintain reduced levels of loading at our facilities and put additional focus on improving flexibility in order to mitigate the impact of underloading. Continue to focus on capital management, both in inventory levels and capital spending. Ultimately, our primary goals for 2012 are three. First, as I just said, the new ST-Ericsson management will focus on improving execution and significantly lowering the break-even point. Second, overall, we will continue to focus on free cash flow generation, as we have done for many years now, and as we plan to generate positive free cash flow this year. Third, our ambition is to continue to grow faster than the market that we serve. We will support our market share priority by persevering in our strategy commitment to innovation and getting more from technology with a strong focus on our four targeted application areas: energy management and savings, trust and data security, healthcare and wellness, and smart consumer devices. More specifically, in terms of products, continuing to serve the wave in extreme analog, including MEMS, thanks to high performance standalone accelerometer and gyroscopes, integrated sensors in iNEMO modules with smart processing functions, and by boosting sales of new pressure sensors and active microphones, and a wave of new advanced analog products for sense and power applications. In the VLSI domain, ramping up volume for the design wins we already have and to proliferate additional design wins with Orly. As I said, the most powerful 32 nanometer system on a chip on the market. With our ARM microcontrollers for industrial, healthcare, and other general purpose applications, and with our Power Architecture MCU family for automotive applications. Let me conclude by highlighting a few important points. We are one of the leaders in an industry that is becoming more and more pervasive in other industries, opening new opportunities in exciting markets. We know how to grab these opportunities and get more from technologies. Our many successes in extreme analog are just some of the many examples. We've been the company to open new markets for MEMS, from healthcare to fitness to consumer electronics, and this has translated into greater benefits for people and society, as well as into greater value for us, and as you can see from our outstanding results in 2011, we are nearly doubling our business on MEMS. We know that through our innovation and our complete range of solutions in sense and power and multimedia convergence, we can systematically increase people's quality of life, enhancing the intensity of individual experience and building on the world's potential for social improvement. Let me close by saying that all of our employees are working every day, and this since 25 years, to make everyone's lives safer, easier, healthier, richer, and fuller. To allow our stakeholders to get more from technologies and to get more from life. To help transform these tangible and intangible value opportunities into profitable growth and into shareholders' value. That is why, starting from today, we proudly say that ST stands for Life. Augmented. Thank you very much. Thank you, Carlo, and if we could have the panel members come up, we'll engage in a Q&A session. For the benefit of those on the webcast, if you have a question, if you could wait for the microphone to be passed to you, that would be much appreciated. Okay, I think we'll take our first question. Looks like Kai, you've got a microphone. Yeah. Thanks for taking the question. I had a couple on ST-Ericsson, unavoidably. The first one was, Carlo, if I sort of looked at the indications for all the other verticals you gave in terms of Q1 guidance, it looks like ST-Ericsson's revenues could be down north of 20% in Q1. Is that the right way to think about it? That's my first question. The second one is just on the strategic review that DG is probably now working on at the moment. My question here is, other than restructuring and cutting costs, what would be other options for the joint venture? My third one is, if I look at the cash balance, I think end of December, it was at close to zero, so presumably over the next couple of quarters, the parent loan exposure would exceed $1 billion to fund the losses in the first half. I'm just wondering, is there a pain threshold for you, maybe in an absolute amount or size, at which you just say enough is enough, we'll close it down? I know it's a harsh scenario, but just wondering if there's such a scenario. Thank you. Thank you for your question. Again, I won my bet because we said with Carlo which one will have the first question. Anyway, we said Q1 is going to be very significantly down. We didn't give any number. If for you very significantly down means -25%, so it's -25%. But for me, it's very significantly down. Now, you need to consider a few factors. First, there is the seasonality factor, our seasonality factor. So if you go back in history, you can start from that base, and you will see that base is already -15% to -18%. Okay? On top of that, you need to consider that one of our main customer, our main customer, is not doing better than before. They're worse. Okay? Third element, clearly, end of last year, Q4, we had some pull-in from some customers, and their inventory is a bit One customer has a bit high inventory. So you need to take into consideration those three factors in order to put a number behind very significant. Okay? The second question was what's beyond restructuring and so on. Let me tell you how I see the near future. The near future, my first goal is within a few weeks to be able to give to my shareholder a three years roadmap, which is solid and heading towards profitability as fast as we can. Okay? That's the first goal they gave me. In order to do that, we're going to go in three steps. First step, obviously, is between December and January to do a full review of our strength, weaknesses, including a product portfolio, including customer engagement, okay? Get that finished by the end of this month. Then publish, reset the organization, clearly. Leadership team. Work with them on a plan, which I need my shareholder to approve. That will take us through basically end of March. Then after that, the third phase would be to put that into action. Okay? Until then, I cannot give you more details. I am sure you understand. Of course, the goal which will drive this roadmap, first, restore profitability as fast as we can. Second, execute. This business is extremely challenging. The way the customer work is very different from one customer to another. Some are engaging with you long in advance. So you have to invest. They commit with you, but you have also to believe that their volume is going to be here. Until they put phones in the market, you do not really know if the volume is going to be here. Some other customer, they do not engage with you until the very last minute. So you need to make some bets. Then when they go with you need to be able to run very fast. That is why maybe sometimes difficult to understand why we have such a volatility, but that is a business in which we are in. That is why also execution is critical. You cannot afford to lose one month, and I think that is probably one that was one of the weakness of the company, the execution. Third, as you said, also lower the break-even point. For me, it does not mean only restructuring. It means more transforming the company. Transforming in a way where people are more accountable, more responsible, driven by their objective, and not necessarily having to go around the world in order to get the product done. So probably more focused geographically. You see? If you look to our footprint today, it is clear that we have a very wide footprint, which is not justified by our size. Is it restructuring? I am not sure it is only restructuring. It is simply only transformation. But if it is restructuring, of course, you can admit with me that it is not in front of this assembly that I will give you any news. I owe that to the people, to our customer, to our shareholder first. So give me a little bit of time. I do not know if I answered your question. Then I think for the cash question, maybe Carlo, you can help me on the cash question because I came with my banker today, at least one of my two bankers. So I prefer my banker to answer the question, right? Yeah, will do, Didier. It's working? Yeah. Okay. As you know, ST-Ericsson has been so far financing by a combination of independent financing source, mostly based on working capital financing and a parent line funded 50/50 by Ericsson and by ST. The amount outstanding end of 2011 was $800 million, which means $400 million for Ericsson, $400 million for ST. I would say, Kai, that you are absolutely right on expecting, anticipating that we will continue on expanding this line in order to support the current transition at ST-Ericsson. The amount for the next round has not been defined and agreed with in the amount with Ericsson yet, so at this stage, I prefer not to disclose the amount. It will be several hundred additional million dollar overall all together. I would say that eventually at the presentation of the overall plan that Didier has anticipated, we could be more specific on the overall need of funding. Back in the back. Hey, Jake. A couple of questions. Firstly, on your TV business, the FreeMan and NewMan platforms. We have been hearing about this ramping up in revenue for a few years, and this business has been negative to the bottom line for a while. A bunch of your competitors in the past 12 months have actually gotten out of the TV business. At the same time, we have seen that in the application processor business, some of your application processor competitors have got into TV and have got success in the TV market. Why is there a reason to have a separate TV business? Why not merge it with the application processor business of ST-Ericsson to some extent, given that that is what is happening in some of the other customers, that might help you save some cost. Are you looking outside the box to be able to reduce cost on the TV business or to turn it around quickly? Sure. We are. I have one follow on. Oh, we're looking outside the box. That's a very good thing because we've been doing box business for a long time, so we're looking outside the box now. No, seriously, we've already merged the R&D efforts on application platform between TV and set-top box, as I presented. It's a pretty obvious thing to look at whether we can go further. Didier and I are looking, and that's part of the strategic investigation, let's say, strategic planning investigation that's ongoing at the moment. That's something that looks simple on paper that may not be so simple, but we'll definitely, of course, not let an opportunity like this go. That's even more true that the software ecosystem is actually with the entrance of Android in the TV space, it makes one more reason why we should definitely look at the possibility to do this. It's under investigation. We're interested. Now, the comment you made about some people exiting and some people entering. The people exiting gives us opportunities, to be honest. Some of the key design wins we've recorded in 2011 are actually because people like Zoran or Broadcom exited. That's really good for us. Those sockets don't typically go to our Taiwanese competitors. They typically come to us. So that's a favorable thing for ST. The entrance of guys like Marvell and Qualcomm, I consider very interesting because it basically vindicates our analysis that the TV is moving to smart TV. Take the phone as an analogy, and again, that's a convergence with phone. Phones went from phones to feature phones to smartphones. TVs went from TVs, dumb TVs, to connected TVs, and will go to smart TVs. Now, smart TV, there is smart and there is TV. Marvell and Qualcomm, they have the smart. MStar and MediaTek, they have the TV. We're the only ones to have the smart TV. We're the only ones to have a one-chip solution called NewMan, which is both smart and the TV. So we're extremely well-positioned today to serve the needs of the OEMs. In addition to other strategic considerations which you've hinted at and which of course, are on the table. Well, indeed, I think is an important opportunity. I just want to go back to the previous questions. Didier is reviewing product roadmap and of course, is reviewing the path to sustainable profitability in details, and everything is taken into consideration from product scopes, potential partnerships, extracting synergies from cooperation between ST-Ericsson and the partners. The one that you mentioned is a very important one. In fact, today, potentially we could converge because all our digital consumer activities are ARM-based. In the past, was not like this. But another area that I would like to mention is G&A. It's obvious that this is another area where potentially we could extract synergies from a cooperation between ST-Ericsson and the two partners, and major drives in terms of focus and simplification. It's a broad review of the roadmap and the point I'm making this because what part of the previous question, what else you can do. Of course, to respond to you, this is a very important opportunity on the application processor because we see, of course, increasing synergies between digital consumer, the set-top box, the smart TV, and the tablet, and the IMU, the smartphone. One more question. We just talked about Android. We've seen over the last year or so that the lead partners of Android, such as NVIDIA and TI, have seen a huge boost to their application processors when they were the lead partner with Google on Android. We've not heard anything from ST-Ericsson on such a development. Is ST-Ericsson working with Google on such a development to be a lead partner on a future version of Android so as to get yourselves a boost through that partnership? Clearly. The answer to your question is not enough. In all honesty, I don't think ST-Ericsson could chase all the targets that it was wanting to have initially. I think probably that's an area where we need to put some more focus. Maybe not independently, but through a partnership, not alone. Clearly, yes, we need to put more focus on that space, definitely. To complement what Carlo said on what we should do better, stronger, faster. On the cost, obviously, we have synergies with ST and Ericsson on the G&A side. On the technology, look, who are my competitors today? The strongest competitor are Qualcomm, Broadcom, NVIDIA, all fabless companies. Those guys, for example, they are all dependent on basically one technology platform, which is a TSMC platform. They are dependent on this roadmap. If they have new ideas, bright ideas, they cannot implement it. We have this asset in ST, that ST has a broad portfolio of platforms. For example, I was mentioning before the FDSOI, which is a proprietary technology that nobody has. That is very powerful in term of power envelope, and power envelope is the name of the game in the smartphone market. Nobody has access to it. We have access to it. So that's a synergy, potential synergy, maybe that we have not enough exploited in the past, that I want to push on it. Same on the Ericsson side. Ericsson is probably the most successful network infrastructure provider today in the world. They know exactly where the market is going. They know which phones are going to sell. They know which standards are going to ramp up in which country. We need to benefit from that, and I am not sure that in the past we have enough exploited that. Those are all the synergies that we need to put in place, including the one you mentioned. Let us go to Francois right here. You want to raise your hand, Francois? Thank you. Yeah, it is Francois from Morgan Stanley. I have got several questions, if I may. First one for Didier and Carmelo. You have been talking about moving some of the manufacturing capabilities in the big Singapore fab from 6-inch to 8-inch. It looks like you are not the only one to do that at the moment. Obviously, from 2009 to 2010, pricing in analog, in general, was pretty good. As more people are moving to bigger wafers, do you expect ASPs to be under pressure? That is my first question. Thank you. The second one would be on CapEx. If you could potentially give a range for CapEx for 2012. Obviously, I understand it depends on revenues development, but that would be quite interesting. In terms of gross margins, obviously, they have been under pressure. They are still under pressure. When do you think they should return to a more normal level? Finally, if I can. Thank you. On ST-Ericsson, obviously, the modems are doing kind of okay compared to application processors. It looks like the size of ST-Ericsson could shrink, if I translate what you have been hinting recently. Does it mean that you will only concentrate on modems on connectivity and give up application processors, or is it too far? Pricing, we see some. You hear me? Can you hear me? We see some pressure on prices, but it is not worse than it was in the past, in the last year. There is no deterioration. There is still pricing pressure that we try to leverage and diminish with the new products introduction that try to improve things. But still, there is a price pressure. Our manufacturing machine is competitive. The real problem is the unused capacity. We are trying also to alleviate by going after every order, chasing everything. And the good point is that with the diminishing stocks at the distributors, in particular in Asia, we are in a good position to see a revamp. Not at a very fast pace as we expected, but we see that things bottomed in Q4 and the stock is building up. There is a price pressure, there is a stock diminishing in Asia, in particular distributors, and our manufacturing machines is waiting for new orders to be as competitive as we expect. Francois, related to the capital expenditure and the loading for. The question, I guess, was for the full year, of course. We have a very clear and solid visibility on the first half. Second half will be very much modulated based on demand and forecast for the second half of the year. We are committed at the model of capital expenditure below 10% of revenues over a cycle. Last year, we needed capacity for businesses that indeed have a significant growth, like the automotive and the MEMS. This year, we are not incurring on a similar need, and the need of additional capacity is very limited. Of course, there is maintenance, of course, there is a lot of technology upgrade, and we remain very much committed on the technology R&D evolution of the company, and we will invest in R&D for the 20 nanometer. In this respect, what I would anticipate is a first quarter CapEx, very moderate. Very moderate means similar to the prior quarter or maybe a few tenths of million USD plus or minus, but very similar and a very low first half for this. The second part of the question is about the loading of the silicon fabs at ST. You have noted from the presentation that Q1 remains very significantly affected by unused capacity. We exit the fourth quarter with an overall ratio of loading as low as about 60%. We expect to run this current quarter in a range of 75%. These triggers unused charges that hit the margin for the first quarter in a range of the four points, which obviously is very well embedded in our 33% ±1.5 points gross margin guidance. When at the end, you exit a quarter with a 75% of unused capacity, it is very unlikely the quarter after may be at full speed. We cannot anticipate a second quarter at full speed. We see at this point a loading for the second quarter much better than the one for the first quarter. But I have also eventually to anticipate on the possibility that really the first quarter this year of full functionality loading and efficiencies of our fabs will be more likely the third quarter. One second. Can you hear? Yeah. One more comment here. We are taking a prudent stance, a prudent approach. We have seen better bookings during the last few weeks. It is broad, so it is not just one product sector. It is pretty broad. I would say that all product family except ST-Ericsson in Q4 had better bookings than in Q3. You have seen the guidance. I think, looking at the bookings, conceptually, could have been possible to be more aggressive to load the fabs in Q1. But we decided to take a more prudent approach because, of course, there is a general concern on the macroeconomic situation and the uncertainty related to the macroeconomic situation. We have decided to be prudent and to keep a level of loading that is pretty low even in Q1, slightly better than Q4, but pretty low, just to be prudent and make sure that the focus for some more time is on cash flow, on free cash flow. Of course, we expect that this trend of bookings will continue, and this will give us more confidence to go back to much stronger loading in the second quarter of this year. Also, the question on ST-Ericsson, Adriana, right? The last question on- On the booking. Maybe the emphasizing application processors. One word from ST first and then from ST overall, we in ST, we cannot give up the application processor. This is clear. We have a very strong activity. If you look at our NewMan is a super application processor. NewMan is running four high-definition TV, four high-definition streams at the same time. With NewMan, you can show one stream on a big TV screen. You can show a second stream on a tablet. You can show the third screen on a smartphone. So it's a very powerful application processor. This is our set-top box business, and we'll never give up. This is an healthy business. Now, having said that, of course, I leave to the DA for ST-Ericsson. First question was, you implied will ST-Ericsson shrink? Don't jump to the conclusion. Depends what you mean by shrink. Clearly, the size we are today in revenue, it's not the appropriate size for such a company. So the intention is certainly not to shrink in revenue. Absolutely not. Getting more efficient in term of number of resources, the way we do things, yes, certainly. But I don't translate that automatically into shrink. I want to be very clear into that. Second It's confusing. Sorry. What's a bit confusing is according to Gilles, there was no more fat to be cut in the company. So that's why I'm a bit confused. So when you say being more efficient, if you want to retain application processor, does it mean that actually you will sell fewer customers? I tell you one thing. When you want to get more healthy, one strategy is to remove the fat. Another strategy is strengthen the muscle. That's always what my wife tells me when she wants me to get more healthy. You know? So you need to do both. Remove the fat, strengthen the muscle. Do you like this one? Second thing is, you said, well, modem company only. When you see the market, in order to do an efficient platform for cell phones, you need basically three, four key components. You need the connectivity, you need the modem, you need the application processor, and you need the software that goes with it, whether you're Android, Windows, et cetera. When you look now to the modem-only market, it's relatively small. That's an essential piece, but the market is relatively small. I don't believe, I don't draw a conclusion, but I don't believe this is a wise strategy to focus on that only. Application processor only, this is not the mission of ST-Ericsson to be an application processor-only company, but we need desperately an application processor, which is powerful and efficient in order to be efficient on the market. We need both. Now the question is, how are we with the means we have? How are we more smart, clever, efficient in order to get both and paying the least cost? That's it. Everything is important. We don't want to focus on each of those, but we need everything, and we need to make sure that we don't trade our resources chasing all kind of possible platforms. That's all I can tell you for the moment. What can you do to improve, basically, if the products are as good as they are, and if I'm listening to what maybe Gilles was saying compared to Qualcomm, what's missing today or what was missing yesterday to get the socket? Because apparently you were very close to get the socket, maybe 10, 5% from the mice. Is it just a question of sales and marketing? It's just a bit surprising for me. I think I gave you a part of the answer, okay? Between words and execution, there is a big gap. You said before, close to win the socket. But you said it all. The key point in sales is closing. It's not chasing the customer, it's closing the customer. If you have been a sales guy, you know that it is the most difficult thing to do, is to close. So when you say to somebody, I'm very close to, it means you're nowhere. That's the difference. That's what I call execution. You chase, you hunt, you close. That's execution. Well, I think from a shareholder point of view, it's clear that ST-Ericsson with, let's say, hundreds of millions of USD of reduced revenues on Nokia compared to the expectation, hundreds and hundreds of millions of USD, needs to do something different because this is a dramatic change. We need to face that it is what it is. We may like it, we may not like it, but it's a fact. Okay? This will drive this activity to review the roadmap because it is very material. If I go back many years ago, Nokia was more than 20% of ST. If I go back in 2010, Nokia was 14, 15% of ST. Today, Nokia is going to be less than 10% of ST, so it's going to be an important customer, like many other important customers. If we look at the prospect for this year, there is a huge difference with what we had seven months ago. We need to take this into consideration, and because you see that there is this difference, because it is already in the numbers that you saw. Because there is this difference that you already see, we need to take more aggressive actions on many fronts, from the product scopes, partnerships, extract the synergies from cooperation with the shareholders, focus, simplification, G&A, R&D. But we must do, because the condition that we had is not there any longer. This block is not there any longer. Of course, we need to react, and we are reacting, and we say that there will be an aggressive plan to compensate for this. We'll try and get some more questions here. How about Simon? Simon Schafer with Goldman Sachs. I wondered outside of ST-Ericsson and perhaps the TV business. Can you speak up a little bit, Simon? I was wondering outside of ST-Ericsson and the TV business perhaps, what are the other areas that might be subject to strategic review? Because I think we had a lot about growth aspirations and market share, as we have done for a number of years, I guess it's fair to say. So outside of ST-Ericsson TV, what are the other subjects of maybe strategic review and cross synergy perhaps on R&D and scale and so on. No, I think what is good here is the convergence on the digital that you have noticed, we have changed. The question is coming from where? Because we cannot. Oh, thank you. We have restructured the product groups and in ST, we have moved all application processor activity for TV, for the set-top box, for the car navigation, including ARM-based MPUs, all in the same organization that is what is now defined as a multimedia convergence platform. So we expect synergies from the merging of R&D activities in the area of VLSI of ST. Of course, the most important is in between the set-top box and the digital TV. It was evident in the chart that Philippe presented before that the two things are merging. The two things are becoming almost the same thing. In fact, in our vision, there will be a signal processing, the same single processing unit, to drive the two applications with a differentiation in terms of peripheral device. So this is an important opportunity for synergies, and this is just an initial step because as we discussed before, then if you take this block, I expect to see very important synergies opportunities if we would cooperate with ST-Ericsson on this front. So this is the bulk of what we do in ST. In ST, I think we have a digital ASIC business, and we have an imaging business that is potentially. Imaging today is a good business. Our profit in Q4 on imaging was double digit, right, Carlo? So it was a good business, and of course, in ASIC, I believe we have opportunities to do better. I think we have a good momentum. Last year, if I remember well, we have won an impressive number of ASICs in the microlithography generation of 32, 28 nanometer. So here there is not much to do. But in the area of the application processor, in merging between TV, in merging the R&D between TV and the set-top box, and ultimately make another step and as much as possible cooperate and merge the R&D effort between the application processor for ST and what is needed in ST-Ericsson. I think these are all opportunities that we have, and this is clearly an area of priority for the company. That's great. My second question is on manufacturing, actually. It goes back to this previous question about pricing pressure. How aggressive do you intend to be on your 12-inch ramp on analog? Well, I think it's not the first time that we discussed this, but we have three categories of products. We have mature products where our focus is to manufacturing in Singapore. We have smart power devices and MEMS where we focus on 8-inch manufacturing, particularly in Italy. MEMS is very advanced. I think in MEMS, we have a very advanced manufacturing machine today. The capacity is 5.5 thousand wafers per week, fully dedicated to MEMS, is an isolated manufacturing unit for MEMS, is quite unique. You go around, typically all of these MEMS activity is embedded in other things in terms of manufacturing. Then there is a third block that is the most advanced analog activity that is, for instance, analog CMOS, 0.13 micron CMOS with analog functionality on top, where we have both 12-inch activity in Crolles, and we have a part of the capacity in Crolles that is dedicated to this activity, that is the older part of Crolles 300. A part of it is in 8-inch, and a part of it is even outsourced. I think what we have in Crolles is flexibility to grow either here and to grow also, of course, in the advanced logic technology. Depending on the market evolution and depending on the demand that we see, we will decide how to structure this growth. But the technology is already in production. The products are in production. The products are for both ST. The companion chips of MEMS is a very good example. If you take a gyroscope, in the gyroscope, there are two pieces of silicon. One piece is the micromachinery per se, and the other piece is an advanced analog that is on this technology that I was describing. But we have other products on this technology, like the radio frequency from ST-Ericsson or the power management from ST-Ericsson. So we have the products, they are qualified, they are in production in 12-inch in our Crolles facility, and we can modulate the ramp-up between this one and the logic depending on demand. Thank you. We'll move to But it's not all analog here, as I said. Analog is many things. You have very mature analog in Singapore. We have MEMS in 8-inch, and we are particularly happy to have this 8-inch fab on MEMS. Then we have the most advanced part of the analog that is also 12-inch. Good. Hello. Good morning. Stephane with Natixis. Two quick questions, if I may. One, coming back on ST-Ericsson. Second one would be on automotive. For ST-Ericsson, don't you just think that there is too much player in the field? You've listed some of them, Qualcomm, Broadcom, NVIDIA, Intel's coming, MediaTek, whatever. That the obvious solution would be to find a partner. So the question would be, is there an obvious partner according to you to do what you've done with Numonyx, for instance? The second question on automotive is, after two years of very strong growth, what kind of growth do you see this year? Will it be equal in H1 and H2? If you could split a bit with the different end markets. Thank you. Thank you. Thank you for your question. First on partnership, all the names you mentioned. You mentioned Qualcomm, you mentioned Broadcom, you mentioned NVIDIA, you mentioned MediaTek. There is one who has a differentiating factor compared to the others. It's Qualcomm because of the very advanced modem technology. The second one is us. I mean by that, none of the others, the Broadcom, the NVIDIA, et cetera, they have the modem technology that or Qualcomm have. This is the key differentiator. All the ones you mentioned are coming from the application processor space, which is an important part of the platform, but not the key to the door. So that's our differentiating factor, okay? We need to explore that and push that faster. When it comes to the next generation, the battle is going to be win and lost on the LTE. We believe now Qualcomm is the first one on the market. We are going to be surely the second one, probably with a more advanced product. It means we are going to be the first one for the next generation LTE. It's one that's capable to do, I'm not deep into the detail yet, but what they call carrier aggregation next year. We will be the first one. That's where we will have the opportunity to get back in the race heavily. Yes, we are discussing partnership, but not in the way you describe it when you describe Numonyx. More technology partnership, how to share and to be more efficient in the R&D investment, more that kind of thing. Okay? I don't know if I answered your question. Very well. For the automotive, we have the occasion here to ask Marco Monti that he's very recently appointed a new General Manager for the automotive group. As you know, at the same time, Paul Grimme, where is Paul, has taken all our regional activities, sales, marketing activities for Europe, Middle East, and Africa, but of course, also driving certain cross-functional activities worldwide for sales and marketing. I would like to, first of all, congratulate Marco for his promotion, and second to ask him to tell us that also this year, the automotive market is growing 18%, Marco? I don't think so. Thank you, Carlo, and thank you for the question. Let's say, for sure, in 2012, we think we'll continue to grow market share. It's a little bit difficult to understand how the market will evolve in the automotive industry. Let's say, for sure, we think we'll grow at least 8%, and most probably the growth will be a little bit different in the first half and the second half. We count on, let's say, the generation of the market growing in China as we did in 2010 and 2011. Again, for sure, will be still a strong growth. The minimum we can grow will be 8%, a little bit more in the second part of the quarter. Honestly, about the application, I think we'll grow homogeneously. We think we'll boost our sales in digital with our microcontroller. For sure, we'll grow and we gain market share. We are already market leader in smart power technologies. Also, I would say in the general power, let's say in the power in my organization, in the power of the organization of Carmelo will keep growing, profiting of the extended sales of the hybrid vehicles and electrical vehicles. Thank you, Marco. We will move to the next question. It looks like Jerome. Yeah. Jerome Ramel from Exane BNP Paribas. Carlo, STMicro is one of the only company now having both analog and digital. Most of your competitors made a choice, either analog or pure digital. Why do you think STMicro might be successful, and what is different from STMicro to stick to that strategy? Well, I think, first of all, our mission is we have a vision to be a global player focusing on two pillars. One pillar is analog. Power and microcontrollers. This pillar is, of course, for several market segments, including automotive, that from an organizational point of view is separated, but is obvious that we see all this block with common denominators and the technology indeed is common. So the analog technology, the power or smart power technologies, the microcontrollers technology for many applications. So this is one big block of the company, and I think we have done good progress in this block. We have done good progress in microcontrollers. We did not have a microcontrollers business. Today, we have a very competitive microcontrollers business, of course, in industrial and general purpose, managed by Claude. Together with the secure microcontrollers, this year is a $1 billion business. Right, Claude? Yeah. And then we have started a few years ago, I think five years ago, a cooperation on Freescale on a new microcontroller family for automotive. This is, I believe, a good achievement. Another good achievement that I would like to mention, of course, is the one of MEMS, where we went from basically nothing to $600 million, and we see tremendous opportunities to grow further in MEMS. Benedetto, that is here, of course, is driving this and is driving the new applications also, medical, automotive. We are not yet a player in the MEMS, in the automotive field. But of course, we are going to target all of this. There are blocks where we've been very successful. I would like also to mention that Benedetto, in the frame of IMS, is now focusing also on what we call extreme analog, and you see that there will be a lot of new things coming here that are not necessarily micromachinery technology, but very promising in terms of market. This is one block of the company. Of course, the smart power. We have recently win with the most demanding customers in the automotive, a major program on BCD, for instance. I cannot tell you who is the most demanding customer. It is, of course, a big win on our BCD9 technology. That is the new generation of smart power technologies. I mentioned this thing because we believe that, fine, of course, there are up and down a lot of cycles, but this is a very healthy block of our business, and we have done great progress in microcontrollers, in sensors, and in smart power. The extreme analog is coming soon, and I really trust Benedetto that he will do here the same success story that he has done in MEMS. Then there is the second block. The second block, frankly, there are not many synergies with the first block. There are not many synergies in terms of manufacturing because the manufacturing facilities is separated. There are not many synergies in terms of technologies because the technologies are different. There are not many synergies in terms of applications because the applications are different. The second block is what we define as multimedia convergence, that in other words, is digital consumer and with ASICs also and wireless. Of course, this is the most challenging part. We would not have this conversation today on this part if we would not have had a billion-dollar problem with Nokia. The conversation would be a different one. But we are convinced that despite this problem, that unfortunately we could not control, we have the ingredients to succeed. Otherwise, we will not move on. The ingredients to succeed is, for instance, the IPs that Didier mentioned on very advanced broadband modem. The IPs is our only, what I was mentioning before. We are committed to this. Of course, we need to make sure that we are in a business that is very competitive, and we need to make sure that we tune the R&D effort in this block of activity that is mostly modem and application processor in a way that is compatible with the evolution of the revenues, that it is not what we expected because unfortunately, we have a big problem with a major customer that has changed their strategy, and also in terms of demand. But we are convinced that we have all the ingredients to succeed. Now, the priority of this year is to make sure that there is a good alignment between the effort that we are doing overall, focus, simplification, partnerships, product scope, and the evolution of the sales that we have in this block of products. But of course, this is just reinforcing what I am saying, that we are committed to this block of business, and we want to be successful not only in the first area, but also in the second pillar of the company. I would suggest we take one last question, we can adjourn for lunch, and then we have another Q&A session for our conference calls later this afternoon. Your questions will get answered. Please go ahead. Thank you. Bernd Laux, Cheuvreux. May I raise two questions, please? The first one is on your- That is a good idea. The first one is on your power business. If I remember correctly, you wanted to climb the value chain and move more also into modules out of only being in discrete. What's the status here? Have you made any progress? The second question is on the MEMS business. With the increasing traction of combo chips, how are the value dynamics with respect to cannibalization? Is it a real advantage for you to provide combo chips? Do you make more business than just selling the standalone product? The other point in terms of MEMS is, how about the MEMS digital microphones? How much business can be expected from that new type of product, please? Thank you. Thank you. I think we kind of know the answer. Go. I'll take the power portion, then I'll move it to Benedetto for the MEMS and related things. For the power, I have very good news for you. The first time we have a module business, we have two lines for modules, one which is in Europe, which is capable of handling 300K. We call it a pre-production line, but it's 300K units a year, so it's very good. The other one in China for larger volumes. We have the technology that, until now, did not allow us to enter this business. Technology is mostly 100 IGBT for large dice paralleling that we call non-punch through. It is available. We are qualified, making important inroads at major customers. So this year, together, IGBT discrete and module will be very visible business and good margin, always related to the area of discrete, of course. This is good. It's the first time we have. On top of that, we are launching developments, continuous development in the area of silicon carbide and gallium nitride. In some cases, it may be discrete, some other cases, we can go into modules as well. So we have our foot in there, and we have tangible things that can make us confident that we will make progress this year for the first time in our track record. Yeah. For the MEMS, I would like to give the word to Benedetto. I think you know Benedetto, but now I also want to congratulate Benedetto, not only for the results on MEMS, but also because he has been appointed as the group manager, reporting into Carmelo on MEMS and analog. Benedetto is driving a business that is now almost $1.5 billion. Please now respond on MEMS Thank you. and focus on extreme analog. Thank you for your question. I like this meeting because NBO, I do not always get fixed there. No, I think in MEMS, you are right. There is this kind of a trend of integration. I have to say that we as a company, we have the three ingredients of this kind of a module. iNEMO is the trademark that we created a few years back. There are three ingredients: accelerometer, gyroscope, and compasses. We are now in the position, and we have already on the market some products that are done in this way. We are already producing modules that are a combination of at least two elements of these three. I think now, let's say 2012 is going to be the year where, let me say, the market will expand in a way that the cannibalization you were referring to is not going to affect the growth of the market. What I want to say is that there are some competitors that are pushing some integration of some modules. We are offering different kind of combination, accelerometer and compass, accelerometer and gyroscope. But also recently, we have been the first one to launch an important product, is a dual-core gyroscope, where the gyroscope get embedded with the camera module. So we are really opening new kind of application, a new kind of market. The other point is digital microphone. We have a goal. The goal is to be the number one by January 1, 2014. The world is going to be digital in the microphone, not anymore analog. Why? Because analog, the signal get too much scrambled, especially when you have a different microphone, a different radio signal. Our goal is, because of some strong IP, because of a good traction, is to be the number one by January 2014. It's an aggressive goal, but I think we can make it because of our expertise in MEMS, in analog, and also because, let's say the world is moving to digital. I hope I answered your question. Well, thank you, Benedetto. On behalf of Carlo and STMicroelectronics, I'd like to adjourn the plenary session. We can go enjoy some lunch, so just go right out these doors, take a right, and it'll be in the Jardin de Hevre. Thank you

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