Earnings Call: Q4 2010

Jan 25, 2011

Morning, good afternoon, this is the Chorus Call conference operator. Welcome and thank you for joining the STMicroelectronics Q4 and full year 2010 earnings results conference call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. Anyone who wishes to ask a question may press star and then one on the touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star then two. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on the touch-tone telephone. At this time, I would like to turn the conference over to Mr. Tait Sorensen, Director Investor Relations. Please go ahead, Mr. Sorensen. Thank you for joining our fourth quarter and full year 2010 conference call. Hosting the call today is Carlo Bozotti, ST's President and Chief Executive Officer. Joining him today on the call are Alain Dutheil, Chief Operating Officer, Didier Lamouche, Chief Operating Officer Designate, Carlo Ferro, Chief Financial Officer, Carmelo Papa, Executive Vice President of the Industrial and Multi-Segment Sector, and Philippe Lambinet, Executive Vice President of Home Entertainment and Displays. This call is being broadcast live over the web and can be accessed through ST's website. A replay will be available shortly after the conclusion of this call. This call will include forward-looking statements that involve risk factors that could cause ST's results to differ materially from management's expectations and plans. We encourage you to review the safe harbor statement contained in the press release that was issued with the results last night, and also in ST's most recent regulatory filings for a full description of these risk factors. As a reminder, ST-Ericsson will host a conference call shortly after the conclusion of our call. Also, please limit yourself to one question and a brief follow-up. Now I would like to turn the call over to Mr. Carlo Bozotti. Carlo? Well, thank you, Tait, and thank you all of you for joining us today on this call to discuss ST's progress during 2010 and our goals for 2011. We held our annual presentation in Paris earlier today, and I want to thank those of you who also participated to that event. 2010 was a year of records. Record high revenues, the highest annual sales in ST's history. Record quarterly sales for two product segments, and a record year for the full range of our sense and power portfolio, advanced analog, and MEMS, as well as microcontrollers and automotive applications. 2010 was also a year of recovery after the 2009 recession. We achieved a turnaround of more than $1.3 billion in operating income compared to 2009. In these two special years, we made significant progress in improving our financial performance. As a result, we improved our net financial position by $1.7 billion. To achieve these solid results, we focused on four key priorities which I outlined with you at this time last year. First, market share. We said we would grow faster than our served market, and we did in ACCI and IMS, where in combination we grew 38% in 2010, or about ten points faster than the estimated market. Second, manufacturing. We said we would increase our total front-end manufacturing capacity in key strategic areas, and we did. In fact, we increased our overall front-end capacity by about 20% in comparison to the fourth quarter of 2009. We plan to achieve significant cost reductions in manufacturing and to better serve our customers after having substantially streamlined our manufacturing resources, and we did both of these. Third, ST-Ericsson. We said ST-Ericsson restructuring would be completed during 2010, and it was. Finally, our fourth priority was to start to get the value ST deserves from its products, and we are. As anticipated, 2010 was a very strong ramp of the gyroscope. During Q4, we shipped our billionth MEMS device. It has also been a strong year for microcontrollers, industrial, analog, and our automotive products. For example, we are proud to confirm that in 2010, we started volume shipments both of MEMS sensors and of 32-bit microcontrollers for consumer game applications to Sony Computer Entertainment. We started mass production of the three-axis digital MEMS gyroscope for the Samsung Galaxy Tab. Today, ST is a much stronger company. As a result of our actions in 2010, ST is significantly better positioned to achieve worldwide leadership in the two application blocks that are a part of our vision: sense and power and multimedia convergence. We are well positioned to address the four key growth application areas that we are targeting: energy management and energy savings, smart consumer devices, trust and data security, and healthcare and wellness. Now, let's move to our financial performance, where we delivered significant improvements all along the year in four major areas: revenue and earnings, financial returns, capital structure, and strategic initiatives. First, our revenues and earnings. We reached the highest revenue level in the history of ST, a record of $10.35 billion. Our two largest businesses, ACCI and IMS, have now set two quarters of record sales levels. Both ACCI and IMS achieved a key milestone in 2010, surpassing the $1 billion quarterly revenue threshold. At the bottom line, we delivered earnings of $830 million. Second, our financial returns. We had set key financial targets for 2010, and we met or exceeded them. With respect to ACCI, we were targeting an operating margin in the high single digits for the year end, and exceeded it in both the third and the fourth quarter of 2010, with double-digit operating margins. For IMS, the target operating margin was the high teens by year-end, and it posted 19.7% and 22.5% in the last two quarters of 2010. For ST-Ericsson, 2010 has been a pivotal year. The path has been more difficult due to the faster than expected decline in legacy products contribution, but nonetheless, it is progressing towards a sustainable financial model. Looking at ST in total, we moved into our target return on net assets attributable to ST. Here, I mean taking into account the 50% of ST-Ericsson results, which actually belong to ST, well ahead of our expectation. In the third quarter, our RONA attributable to ST reached 19%, and in the fourth quarter, we were at 20.7%, compared to our target range of 16%-22%. Progressively improving operating results and higher net asset terms enabled us to achieve our target. Again, we did this while also managing through this exceptional period of investment in wireless research and development. Third, our capital structure. If you look back over this two-year period, ST managed through the downturn with a focus and strong cash flow generation. At the same time, we have been making important investments in new technologies, supporting ST-Ericsson product shift to a platform provider, expanding our manufacturing capacity, and returning cash to shareholders through dividends, all the while significantly improving our net financial position from a net debt position of $545 million at the end of 2008 to a net cash position of $1.15 billion at the end of 2010. This represents a positive turnaround of $1.7 billion. In 2010 alone, we improved our net financial position by $732 million. Based upon our cash position and investment requirements, we believe we can support an increase in our cash dividend in dollar terms. As usual, any decision regarding the cash dividend would be made by our supervisory board and will also be subject to approval by shareholders at our annual general meeting scheduled in May. Fourth, our strategic initiatives. We The divestiture of our flash business with the sales to Micron. During the fourth quarter, we sold a large portion of the Micron shares, further strengthening our financial position with net cash received of $319 million. At the end of December, we still held about 20 million Micron shares that are fully hedged. Now let's turn to a brief review of the fourth quarter and a discussion of 2011. We ended the year with strong momentum, with fourth quarter revenues coming in at the high end of our objectives and our gross margin above the midpoint of our range. Revenue increased 6.6% sequentially and increased 10% in comparison to the 2009 fourth quarter. ACCI finished the year with record sales. ACCI revenues increased 15% year-over-year and 4% sequentially. Automotive and telecom drove At the operating level, SCCI delivered a 29% sequential increase in operating income, leading to an improvement in the operating margin to 11.9%. So now two quarters with double-digit operating margins for SCCI. We came in well ahead of our single-digit goal exiting 2010, and I remind you that we are driving to a mid-teens operating margin over the midterm. Similarly, IMS also completed 2010 with record quarterly sales. IMS is benefiting from advanced analog and MEMS becoming an increasing proportion of the whole portfolio, as well as the success of its general purpose and the secure microcontroller families. During the fourth quarter, IMS revenues rose 30% year-over-year and 12% sequentially, with MEMS microcontrollers, power and industrial products up sharply. IMS delivered an operating margin of 22.5% in the fourth quarter, above the 19.7% achieved in the third quarter. Going forward, we see opportunities to improve the financial performance of IMS. Wireless net revenues increased 3% sequentially as legacy products decreased. ST-Ericsson is continuing to see very good traction for its new 2G EDGE portfolio, as well as initial HSPA+ modem sales. In fact, ST-Ericsson is seeing increased traction in the smartphone and tablet market with products such as their U8500 smartphone platform, which they plan to ramp up in the second half of the year with several tier 1 customers. Turning to our gross margin, we have progressively improved it in each quarter of the year. In the fourth quarter, gross margin was 39.9%, a 70 basis point sequential increase thanks to manufacturing efficiencies and contribution from new products. We are comfortable with our year-end inventory position. Inventory turns during the fourth quarter were 4.6. Turning to our capital expenditures, we increased our investments in 2010 to $1 billion, with a larger portion spent during the second half. Our investments were twofold in nature: adding capacity to meet the higher demand for new products already in volume production, like automotive, and secondly, preparing for technology shifts on ramping new products like MEMS and the U8500 smartphone platform. In order to support our innovative product portfolio and to fuel revenue growth faster than the served market dynamic, we expect to invest between $1.1 billion and $1.5 billion in 2011 based on revenue growth. Investments over the next several quarters are planned at levels similar to this past quarter. As we move further into 2011, we will evaluate the market environment and adjust our investment accordingly. We want to be fully transparent here, since our investment will have an important impact on our cash flow, in particular during the first half of the year as the spending plan is front-loaded. In summary, we have a number of very important product initiatives underway, and we also want to be positioned to respond to higher demand, which is driving our above-market revenue growth. Investments will continue to be focused on MEMS, automotive, and the U8500 smartphone platform, and coupled with increased sourcing from foundry in the suitable technologies. Turning to 2011, let me re-emphasize our four key priorities. First, we are focused on a number of breakthrough products. As a result of our strong commitment and increased effort over the past few years in R&D, we are for this first time introducing all in one year. System-on-a-chip for 3D and connected TVs, complex 32-bit microcontrollers for automotive applications based on the PowerPC architecture, twin MEMS, a combination of gyroscopes and accelerometers, but also active microphones and pressure sensors, and as well as best-in-class modems and application solutions such as the U8500 and thin modem from ST-Ericsson to serve the smartphone and the tablet market. Second priority, we are anticipating a recovery of ST-Ericsson starting from the second half of 2011, and everybody involved is working hard toward this goal. Third, we will continue to make well-targeted investment in capacity for MEMS, automotive, and the U8500, and we will be placing additional focus on expanding our fast-growing, higher profitability advanced analog and MEMS product portfolio. And fourth, alongside our product strategies, our marketing encompasses expansion of our customer base, with an additional emphasis on Korea and Japan, where we see excellent opportunities for ST. Before concluding my remarks, let me outline our first quarter outlook. In line with normal seasonality, the high exposure to the New Year holidays in Asia and the accounting calendar, we are anticipating a sequential revenue decrease by about 7%-12%, which at the midpoint equates to a 10% increase when compared to the year-over-year period. As a result, and based on prices entering the New Year contract, gross margin in the first quarter is expected to be about 39%, plus or minus one percentage point. While ST-Ericsson conference call will follow after hours, I would like to highlight several points. While the first half of 2011 will continue to be challenging, we think the company is well on track to ramp into volume production with the U8500 in the second half of 2011. We believe the U8500 platform continues to strengthen future opportunities and is better positioned today than three months ago. In summary, as we look to 2011, we anticipate a good year ahead for ST. The semiconductor industry is expected to grow with our served market increasing approximately 5%-8% based upon the most recent industry data. Similar to 2010, we expect 2011 to be another year where ST grows faster than our served market by continuing to support our innovative products portfolio and moving forward with our marketing initiatives. Equally important, we are focused on further advancing our financial performance by improving our quarterly operating profitability and clean earnings. Now my colleagues and I would be happy to take your questions. Thank you. Excuse me, this is the Chorus Call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star then one on the touchtone telephone. You hear a tone to confirm that you've entered the queue. If you wish to remove yourself from the question queue, you may press star then two. Anyone with a question may press star then one at this time. The first question is from Mr. Janardan Menon, Liberum Capital. Please go ahead, sir. Hi, thanks for taking the question. The first question is, into your Q1 guidance, can you give us a little bit of clarity as to which divisions will see the bigger fall and which will be relatively strong between the wireless ACCI and the IMS? Along with that, can you also just clarify how many accounting days you had in your Q4 last year, and how many do you have in the current quarter? Just to put that decline into perspective. Secondly, what was your utilization level in Q4 last year, and what are you targeting for the current quarter? The last question, if I might, is can you just remind us once again what is the latest feel that you have on your currency sensitivity for every percentage change in the EUR-dollar rate to what you expect on your gross profit as well as your EBIT line? Thanks. Okay. It's a good package of questions, and I think Carlo Ferro will start elaborating on the Q1 guidance by division and also on the impact of the calendar and also on the sensitivity on the EUR-dollar rate while Alain Dutheil will cover where we are in terms of fab utilization. Good morning. Good afternoon, everybody. Let's start from the calendar. With some housekeeping, we sort the point through all the year 2011. Fortunately, in 2011, the calendar is quite even quarter after quarter. In Q4 instead, as you know, we have experienced a longer quarter. The difference in days between the Q1 number of days and the Q4 number of days is a reduction by about 5%. Then your most important question is about a trend of revenues for the quarter by product groups. Here at the end, we experience a substantial normal seasonality on average when you consider the calendar and you consider that having 64% of sales shipped to Asia, we are exposed eventually more than the average of the industry to the Chinese New Year. Looking at by product segment this quarter, the industrial and the multi-segment are expected to perform better than the average of the company. I would tend to say once again, this is very much boosted also by increasing MEMS, but is generally across the board on the industrial and analog applications. Overall, the ACCI segment also is expected to do somehow better than company average in general, and here we have a significant booster for automotive. For automotive this quarter, by the way, sales should be higher than the prior quarter, and all the rest and all the balance is on wireless that eventually, due to ongoing transition from legacy product experience in Q1, more than seasonal pattern in respect to the prior quarter. The third of your question is about the exchange rate sensitivity. Here, the rule of thumb remains substantially the same. One percentage point of difference in exchange rate affected the operating margin in a range of $8 million-$10 million per quarter, and this is obviously both sides. In order, at the end, to ensure the health you are modeling for the current quarter, please also consider our hedging policy. At this stage, we have completed the hedge for Q1. About 60% of our euro-denominated expenses and cost are hedged at a rate which is very similar to the 1.32 of the reference point that you have mentioned we have associated with the guidance in our press release. Okay. Alain Dutheil, I'm going to comment on the utilization rate. In fact, you may remember that in Q3, we were about 90%, and in Q4, we have slightly decreased the loading of our fab, just in order to control the inventory and in order to anticipate also the Q1, which, of course, we were knowing that there will be some seasonality effect. So the utilization rate of Q4 was about 85%. I just want to remind you that this 85% refers to what we call standard line capacity, which is a kind of ideal situation. In fact, we never reach 100% with this computation. So it's about 85%, and if we look at this quarter, Q1, it's going to be about the same, about 85% also. By the way, we have also slightly decreased our demand during this time period on the subcontractors. Okay. Thank you very much. Thank you. Thanks, Janardan. Next question, please. Next question, Mr. Didier Scemama from RBS. Please go ahead, sir. Good afternoon, gentlemen. Thanks for taking my question, and quite frankly, congratulations on 2010 results. I just have a couple of questions. I just like to start on the MEMS business, and in fact, on the broader sense and power franchise you are talking about. Looking at 2011, you have got a number of new MEMS products and touchscreen controllers, as well as a NFC chipset coming to market. Can you maybe give us a sense of the sort of incremental revenues you expect from the new products coming in addition to the sort of gyroscopes and microcontrollers that you already sell, as well as accelerometers? That is my first question. Secondly, with regards to your fab capacity, is there any plan to build a second manufacturing line, either in Europe or in Asia for MEMS manufacturing, please? Well, thank you for the question. Again, I think Carlo and Alain will cover. Carlo will cover, of course, the prospect in terms of growth, and Alain, the manufacturing strategy. Didier, your question is not so easy to address with straight quantity answers, since we're not providing guidance on the full-year total sales for the company. It's even more difficult to be specific on a single block of product. But obviously, this is very important for us, and you have rightly mentioned the opportunity of expanding in term of served applications and in term of products for the MEMS business. How should I say? I cannot give you a guidance, but your sense that this is going to be very material to the 2010 to 2011 revenues dynamic is absolutely correct, and, of course, very material on our level of revenues could be hundreds of million of dollars, of several hundreds of million dollars of additional sales. This is a great opportunity for MEMS to very substantially grow from 2010 into 2011. Didier, about manufacturing. This is Alain Dutheil again. On MEMS, you may remember that our major front-end manufacturing site is Agrate, so our fab close to Milan. In fact, what we are doing today is creating some space there. Not to increase, let's say, the square meter to start a new line, but some space in a present fab in order to increase the production. The way we are doing it is by moving some of the production, which was in Agrate, to Singapore. By the way, by the same token, in Singapore, we are moving also our production from 6-inch to 8-inch. To answer direct to your question, we don't plan to start any new fab for MEMS. We are going to do it in Agrate, but we are taking all the steps to make sure that we have enough space there to grow the MEMS production. Great. If I may have a quick follow-up. In terms of just zooming in on the MEMS business, just focusing on smartphones and tablets. When I look at accelerometers and gyroscope, it seems like you're getting about $3, maybe $4 of content altogether per device. Can you give us a sense of the blue sky content per device you could get if you were to ship the pressure sensor, the compass and the MEMS microphones, in addition to the two I just mentioned, please? This is Carmelo Papa speaking. First of all, we never said that the content of the silicon for MEMS is $4. I don't remember this. This is your guess. Anyway, each time you add a new sensor like a compass or a pressure sensor, the order of magnitude in the range from $1 to $2, depending on the volume. So this is the kind of order of magnitude with the present price on the market, and therefore the arithmetical addition is easy to get. At the end, I'm sure what counts here are margin, and on this respect, in any event, the MEMS came in with margin much better than company average. Great. Many thanks. Thanks, Didier. Next question, please. Next question, Mr. Tristan Gerra from Robert W. Baird & Company. Please go ahead, sir. Hi, good afternoon. Could you give us a quick update on the demand outlook? As a number of companies have talked about lead times normalizing, is that something that you see for your products as well? What is the risk of potential cancellations associated with lead times normalizing? Perhaps also a little bit of color on your order visibility, post the Chinese New Year. Thank you. Well, I think in general, I would like to underline here that we really have three blocks of products. First, let us start from ST-Ericsson here. The challenge that we have is definitely not the market. Here we are making impressive effort in product and system R&D. As I said, 2011 is the year of the transition from the old products, which were very much customs and ASICs, into the new products that is very much solutions and platforms. As I said, the impact will be material in the second half. So here is really up to us. It is new products. There is a strong endorsement from customers. There is a stronger and stronger endorsement from customers worldwide. What we need to do is accelerating, of course, the introduction of all of these new products. There is a second block of products in ST, where we are still in pretty much stretch supply chain situations. Everything that is in APM, our analog power and MEMS, is still under pressure. We have demand that is very strong, and the same is for automotive. In fact, during the last two months, we had to increase manufacturing resources devoted to automotive because we are seeing an increasing requirement in the demand from our customers. Finally, there is the third block, where we are experiencing flattening with some softness that are visible. As I said already, this is very much related to the consumer business, for instance, the set-top box business, but also the communication infrastructure business. So you are right, indeed, there are some normalization, particularly on consumer products, on standard products, with lead time that are being reduced. On the other end, there are still blocks of the company that are stretched in terms of supply chain. Of course, the paradigm in ST-Ericsson is a completely different one for us. Okay, then just a quick follow-up. By how much are you planning on growing your front-end capacity this year following the 20% growth last year? Look, you have seen that we gave a range in term of capital investment. This is to give us the flexibility to increase if needed. But frankly, we don't have a very clear picture or very precise picture on how much we are going to increase the capacity. It depends mainly on the market condition. But of course, we are ready if needed to increase the capacity. So last year it was quite obvious, quite easy, I would say, to plan on capacity increase because the market was booming. The need was absolutely clear. So we could say we are going to increase by 20%. Here we will adjust with the market condition. There are areas where we are increasing a lot, particularly on these new products. For instance, before the electronica show in Munich in November, our visibility for automotive was to grow 15%. Now we know that this is not enough. Of course, here the capital investment is more on the smart power technologies that we need for automotive applications. Of course, MEMS is booming, and here what we want to do is absolutely to follow the demand of our customers. There are different angles we can look at that. There is the angle of the expansion of the gyroscope business. Last year, only 10% of the tablets and the smartphones had a gyroscope, and this is continuously increasing. Another angle is what has been mentioned before. So there are new functionalities for tablets and smartphones like, for instance, the active microphones or the compass, et cetera. But we also have new applications, for instance, industrial applications or healthcare applications. And it is very important for us not only to innovate in this area and maintaining the lead in terms of new products and new technologies, but also to make sure that we can follow the demand of our customers properly in terms of manufacturing capacity, both in front end and in back end. So it is very focused on automotive, on MEMS, on the Montblanc, on the U8500, is, of course, also to prepare 2012, and it is focused products and focused technologies. But big, because we see good prospects, of course. Great. Thank you. Thank you. Thanks, Tristan. Next question, please. Next question, Mr. Simon Schäfer from Goldman Sachs. Please go ahead, sir. Yes. Thanks so much for the question. Actually, also had a follow-up question on ST-Ericsson. I understand that perhaps it's difficult to predict an exact size or slope of the ramp that you're expecting for the new product. There is obviously still a significant portion, which I think you yourself have described as legacy, some of the ASICs that are rolling off. Would you be able to give any sort of color as to how quickly you would expect that run rate to disappear for some of those legacy products? Listen, ST-Ericsson has a conference call that is about one hour. What time is that? 5 Central European. 5 Central European time. There will be many interesting questions and discussions on the ramp-up. We have clear visibility. We have visibility at this point from the customers. We are preparing manufacturing plan. This is part of our budget. It is part of our manufacturing budget for the ramp-up of these products and these technologies. We cannot disclose these figures. We know exactly what is the expected ramp-up of these new products at this moment. It is a pretty steep ramp-up, and we also have the visibility of the decline of the legacy products. We cannot communicate all the details of these different pieces of businesses. Understood. Thank you. My second question was just on the core industrial business. TI last night was clearly saying that maybe lead times have come in, which I think is a favorable thing. It probably means that the risk of double ordering is not as pronounced, perhaps. I was just wondering on your perspective as to what is happening with lead times. Is this now a more comfortable situation, as it were, rather than this, what seemed to be maybe a slightly somewhat overheating period that we saw at the end of last year? Any color on that would be very helpful in the core industrial area. Carmelo will take this. For the industrial, I would say that you have the OEM industrial, which is typically following the seasonality, and the industrial which goes through distribution. Here, there is a variety of technology and products. On some, we are still under pressure. For instance, some high voltage analog drivers for lighting application are under pressure. Those that come from BCD technology in particular, or most of themselves, IGBT devices for automotive and consumer application, not typical industrial, are still under pressure. So it is a composition of many things, and overall, this will allow us to have a seasonality better than normal in Q1 for all the industrial and overall IMS, I would say. Got it. Thank you very much. Okay. Thanks, Simon. Next question, please. Next question, Mr. Gareth Jenkins from UBS AG. Please go ahead, sir. Yeah. Thanks. Similar question, I guess, just on the auto side. I think you mentioned a growth rate potentially of 15% this year, and I just wondered what some of the parameters are within that. So what are the unit volumes that you're expecting for the industry overall? What content growth do you expect for this year? So that's the first question. Just related, I just wondered whether you could give an outlook for the 32-bit microcontroller market into autos, and what you see there. Thanks. What we see today is that the 15% growth in automotive is not enough to support the requirements of our customers. So with our customers, we are working on plans to move up the bar, and we see a very important driver coming from China. We have Western customers that are particularly successful with their high-end cars in China. On those high-end cars, the content of electronics is increasing enormously. In fact, I can say that many of the high-end cars that are being sold in China today have 100% of the optional. This is a very important driver. We are participating. I think this is, of course, very good news, is not only the demand per se coming from Asia, but is also, of course, the content of electronics that is continuously increasing. There are also some technological changes. For instance, the traditional lamps in the car, the technology is changing, and we are moving to power LED for lighting in the car, and this is calling for much more electronics. So, important drivers is new technologies in the car, but very much from Asia, and a continuous increase of the electronic content. The 15% growth this year over last year at this point is not adequate to support our customers. So we have prepared a more aggressive plan that is now formalized. The second question was 32-bit. Well, this is an effort in R&D that we started in 2006. We did not have an offer for 32-bit microcontrollers for the automotive. Of course, I'm talking about car electronics, excluding car radio, where the car multimedia systems are based on ARM processors. All the rest is not ARM, and this is going to be the first year we start selling our new 32-bit microcontrollers for automotive. It is based on the PowerPC technology. We are expanding the number of designs with our customers, and this is a new area that, of course, will pay off in the next years. It is an important area because our present offer on the microcontrollers for the automotive electronics is based on 16-bit and is quite old products. So this is a new, interesting area for ST, and we'll start from this year. It is one of the breakthrough in terms of new products for 2011. Thanks. Can I just follow up just on that? The more than 15%, can you give us a sense of actually what you're planning for? Then just another follow-up on CapEx, the kind of $1.1 billion-$1.5 billion, is that seen as a multi-year CapEx number, or should we bring that down in future years, or will you grow into it in terms of capital intensity by growing your revenues in future years? Thank you. Yes. Well, on the automotive, we are today working on a plan of 25%. Increase. Increase, of course. It is at this moment, the visibility that we have from our customers. We have been working in the months of November and December to make sure that we can deliver on this upside. We are focusing, of course, particularly on the smart power technologies, where we see this demand growing. As far as capital investment, I think this is a very special year. It is a very special year because of the MEMS. It is a very special year because we are preparing the U8500 ramp-up, not only for the second half of this year, but even more importantly for 2012, of course. It is also a special year for what I just said, for this continuous growth in the automotive. I believe that structurally, with the manufacturing infrastructure that we have, with our strategy to continuously increase outsourcing, we are below 10% of CapEx to sales ratio. Thanks, Gareth. We will move on to the next question. Next question, Mr. Peter Knox from Société Générale. Go ahead, sir. Yeah. Thanks for taking the questions. In terms of the actual rationalization program at ST-Ericsson, I think you mentioned that most of the cuts or actions for cuts being taken in place. Can you quantify how much is actually left in terms of unrealized savings to actually come through in H1 this year? Yeah. Carlo Ferro is taking the question, obviously, again, during the ST-Ericsson call, my friend, Tim Lucie-Smith, can be more specific on the answer. However, there are two important points. One is the plan in term of execution has been completed at the end of fourth quarter 2010. Most of the saving came in into the Q4 2010 result, as the plan has been completed during the quarter. There is still a tail of some few million dollars per quarter savings to come, and to be visible from Q4 into Q1. Okay. Thank you. Just as a sort of follow-up. In terms of R&D spending and OpEx spending, I know Q4 was particularly heavy in terms of the number of days. But could you give us some guidance as you see, OpEx to sales, in particular, R&D to sales moving forward? Yeah. I will say that at the end, the sequential dynamic, as you said, from Q3 into Q4, has been very much driven by the number of days. By the way, I believe when we talk three months ago, we have anticipated this dynamic for the current quarter. As a mirror, you may expect the operating expenses in absolute USD to go down from Q4 into the Q1 of 2011. Of course, Q1 is a quarter impacted by seasonal pattern. So in term of OpEx to sales ratio, you may instead expect some slight increase as normal from the Q4 into Q1. Make sure that the calendar impact that have affected the Q4 will not affect the Q1. On a full-year basis? On a full-year basis, of course, as the time horizon of the question is longer, my answer has to be more general. Right? You will understand about that. What can I say? The current level, the one, the Q4 at 32%, I believe is something that overall, on a full year, is something I would not expect a big surprise in this respect on modeling. What is important is, at the end, this is, of course, very much affected today by the situation of ST-Ericsson. As in the second half of the year, the ST-Ericsson revenues will increase ramping the new product, and their OpEx to sales ratio is expected to improve. We believe that we may exit, and we target to exit Q4 2011 with an OpEx to sales ratio lower than the one we experienced last quarter. Okay. Thank you. Thanks, Peter. Next question. Next question, Mr. Gunther Holzfelder from UniCredit. Please go ahead, sir. Yeah. Hi. I was wondering about your manufacturing technology. You already mentioned it, whether you could provide some more details concerning the process shrinks you're expecting here for 2011, but also maybe for 2012. And maybe as a follow-up, also, whether you can say what percentage of total production you will be responsible probably in 2012 or second half of 2011, coming from ST-Ericsson. Thanks. Yeah. On the process technology, of course, a large part of our production is not on the leading-edge technology because it's not needed or like, for example, on MEMS, we don't need to follow Moore's law. But what we are doing in the only plant where we are really following Moore's law is on our Crolles 300. There, the 45 nanometer technology is in production. I don't know if it's what you are looking for. We have installed the 32 nanometer as a R&D tool. That's where we stand. But of course, we have also developed some outside sourcing at subcontractors for this advanced technology. They are ready to start also on 45 nanometer, for example. Mm-hmm. Could you say with the 32, when you would go into production or volume production? Next year. Yes. Next year, we'll be in production, volume production, of course. We have started to install a tool, then we'll be in volume production next year. It's one generation per year. Last year was the 45. This year is the 40, 45, and next year will be the 28, 32. Okay. Concerning this ST-Ericsson, can you say anything how much of its output you think you will produce as a foundry going into second half of 2011 or 2012? In fact, of course, we are working very closely with ST-Ericsson, and we are making decision on where to do what. A large part of our production is going to be inside, especially on some proprietary technology. We still have some production, which is coming from our NXP, but this is decreasing. So all in all, probably 50% from us and 50% from foundries. Yeah. In general, if you take the advanced CMOS, we have about two-thirds of the activity that is outside and one-third that is inside. But it's obvious that we outsource also some proprietary technologies, not all proprietary technologies. For instance, we do not outsource any MEMS. But overall, ST-Ericsson is in the range of 50/50% inside and 50% outside. Okay. Very helpful. Thank you very much. Thanks, Gunther. Next question, please. Next question, Mr. Jerome Ramel from Exane BNP Paribas. Please go ahead, sir. Yeah. Good afternoon. Could you help us to give some granularity on the EBIT margin on ACCI, and maybe to quantify the impact on the EBIT margin once your fab in Phoenix will be closed? Thank you. I think question Yeah. Yeah, Carlo Ferro is taking your question, Jerome. At the end, I should say, or maybe my colleagues at ACCI should say thank you for the question since this gives the opportunity to highlight that ACCI met in Q4 and also last quarter, already met with exceed the overall profitability target that we shared with you in June at the Analyst Day in London. You may remember that at that time we have target midterm operating margin for ACCI in the mid-teens and anticipated ACCI to exit the year in the high single digits. Indeed, now it's two quarters in a row that they perform at 11.7, 11.9% last quarter. So it's an overall 12%. How to characterize it in respect to the product group? I would say that at the end, here we have the computer and communication infrastructure group, which is already in the mid-teens. We have the imaging business that has reached some level of profitability, which is nice. Of course, imaging is less important in size on the total and is not targeting profitability equal to the average of the business. Here we have two good opportunities. One is for automotive, and the other one is for the digital consumer. I would say that today automotive is similar to the total of ACCI, to the average of ACCI. However, manufacturing, including, as you have mentioned, the closure of Phoenix, but overall, I would say across the board on different fabs and technology still has to provide a significant contribution of improving for APG. Also, of course, leveraging on growth, and Carlo just mentioned about the growth opportunity of APG into 2011 will further boost margin for APG. The other one is the digital consumer. Yeah. Digital consumer, last quarter posted an operating margin slight below the average for ACCI. You know, here, set-top box deliver very nice margins with a high gross margin. Digital TV is currently an investment in respect to the P&L of the group. Of course, all the opportunities on growing revenues in digital TV and DisplayPort are the most important booster for the profitability of HED. Yeah, absolutely. In ACCI, this year, we are going to enjoy the first material revenues on two important new product families. This is today still R&D investment. The first one is the digital TV, the high definition 3D internet connected TV. The second one is the 32-bit microcontrollers for automotive applications that, as we said, is PowerPC-based. This is very important because this has been intense R&D effort for the company for a few years. This year will start paying off in terms of sales, and we start from here, and we believe this will be very important opportunities for us to grow in the future. Finally, the imaging, again, I think imaging now we are back to some good profitability, and we have decided not to focus any longer on the wireless. We are redeploying resources from wireless into other sectors. I'm talking about imaging. We are going to target much higher margin targets in terms of new product introduction. On imaging, first of all, now we are profitable. Number 2, there will be some redeployment of resources, and number 3, we are reconverting the business, moving from wireless into higher margin application targets. Thank you. This is for ACCI. Thank you, Jerome. Next question, please. The last question comes from Mr. Sandip Deshpande from JP Morgan. Please go ahead, sir. Yeah. Hi. Thanks for taking my question. Just a quick question on. Given that you've already done your restructuring, the restructuring of ST and ST-Ericsson is over in the latter half of last year, are there any remaining effects of the restructuring on costs this year? That is, there are further cost cuts which are still to be factored into your numbers in 2011. Secondly, given that you're already at 12% margin in ACCI, 22% margin over in IMS, this is at your target margins, essentially. And given that you seem fairly bullish overall with the MEMS trends and other end market trends in 2011, are you saying at this point that this is where the margins will stay, or are you saying that your OpEx will increase or something? Or are you going to say that actually margins will go up this year? I take that? Yeah, Carlo will take, and maybe I will comment also. I will start from the restructuring initiative. At the end, there has been a very intense effort. There has been intense for ST manufacturing, in the ST infrastructure, and moreover, in ST-Ericsson in these two years. The plan is substantially complete. Obviously, you know about the 8-inch manufacturing in Phoenix that will finally phase out in this quarter. By the way, the last wafer start was already launched, and this may offer some margin improvement to the automotive product group, which is today the sole client of this fab and is the one that is somehow currently paying the heavy cost of wafer due to the phase-out of the fab. Apart from that, there are no significant or major initiatives either in ST or in ST-Ericsson. However, of course, both ST and ST-Ericsson will continue to streamline towards efficiencies, towards some focusing, and this, of course, will keep a constant control on OpEx, while of course, devoting some appropriate R&D effort on the core areas of growth. Carlo has mentioned about the strategy for imaging. Obviously, the key ingredient of this strategy is that this business does not need any longer, going forward, a specific or derivative of CMOS technologies, and this will be, of course, an area of savings in the P&L of imaging. The redeployment of the resources at the end should go in a threefold direction. One is supporting the penetration of new applications other than wireless. The second one is going eventually to for some redeployment in areas like analog or digital consumer, instead of adding resources on the total, obviously. The third one, which of course, is the one going bottom line to the P&L of the company, is some net savings on the overall basis. Yeah, fine. This is on the cost, right, Carlo? Now, on the prospect, of course, we are not satisfied. Sorry, the other was on Carmelo's. Yeah, I think we are not satisfied. I think IMS has done good progresses. I believe we can do better. We can do better, for instance, driving a much stronger mix in IMS. I think we will have a portion of the IMS business that is composed by analog, MEMS, and microcontrollers that will grow at accelerated pace. In fact, this morning, we presented this block that in the presentation in the morning, we define as AMM, that is analog, MEMS, and microcontrollers, right? And we have posted for Q4 on this block 24.4% of operating profit. And you can see this, of course, on the ST website, is in the presentation that we gave this morning. And this is an area where we see opportunities for accelerated growth, and frankly, not only MEMS, also on the more traditional analog products. This is a very interesting opportunity that we have in IMS. But the same is for power discrete. We have new technologies for power discrete. But for sure, the portion on analog and the portion on microcontrollers, the portion of MEMS will grow at a much faster pace. I would not comment on ACCI because I already described before what are the three most important initiatives. Again, the digital TV, the PowerPC, and the redeployment and the reconfiguration of imaging that should drive the improvement. Of course, it's a continuous improvement process, and we are not yet satisfied of what we are doing. On top of this, there is the major turnaround on ST-Ericsson. So what you are saying is if your revenues keep growing, your margin should grow. You are not saying that you are about to be hiring a lot more people to increase your operating expenses, for instance? Well, I think we have been very cautious, and last year we have invested $2.35 billion in R&D on a consolidated basis. But we need always to keep in mind that there is a good $500 million that, from an economic point of view, is of competence of our wireless partner, the Ericsson Group. I think we see leverage, if this is the question. We see leverage in IMS, we see leverage opportunities in ACCI, and of course, we see the potential of the turnaround in wireless. Thank you very much. I think at this point, we will close due to our time limitation. Carlo, any closing comments? No, I think we have covered most of the things. Maybe one closing comment, rapidly. We went through these, let's say, two very special years with 2009, that was a strong collapse of the demand, disruptive from many point of view, and then a strong rebound in 2010. I would like to underline the fact that ST, after these two special years, is much stronger than the ST of two years ago. Not only from the point of view, of course, of the financial performance. They are visible in the numbers. We are much, much more solid from a capital structure point of view. We are much stronger in terms of delivering better and increasing earnings performance. But we are also much stronger in terms of product portfolio. We can address important areas of applications with tremendous growth opportunities. We are confident of the next steps. Thank you very much.