Stan March - VP, IR Carlo Bozotti -President, CEO Carlo Ferro -CFO, EVP Tommi Uhari - EVP Carmelo Papa - EVP of Micro, Power, Analog Alain Dutheil - COO

Cody Acree - Stifel Nicolaus Sandeep Deshpande - JP Morgan Nicholas Gudva - UBS Tristan Gerra - Robert W Baird Simon Schafer - Goldman Sachs Jonathan Crossfield - Merrill Lynch Otto de la Parque - Cheuvreux Didier Scemama - ABN Amro Robert Sanders - Dresdner Kleinwort Francois Meunier - Cazenove Jerome Ramel - Exane BNP Paribas John Dryden - Charter Equity Research

Hello, and welcome to the STMicroelectronics' third quarter2007 conference call. (Operator Instructions) For your information, thisconference is being recorded. I would like now to turn the conference over toMr. Stan March, Vice President, and Investor Relations for STMicroelectronics.Mr. March, please go ahead.

Thank you, Vicky. Good day, andthanks to all of you for joining us for STMicroelectronics' third quarter 2007 EarningsCall. Hosting the call today is CarloBozotti, ST's President and Chief Executive Officer. Joining Carlo on the calltoday are Alain Dutheil, our Chief Operating Officer; Carlo Ferro, our ChiefFinancial Officer; Tommi Uhari, our Executive Vice President. Representing theApplication-Specific Product groups is Carmelo Papa, our Executive VicePresident for our Industrial and Multi-segment Sector, IMS. This call will includeforward-looking statements that involve risks, and you can find our list ofrisk factors describing these in the Press Release issued yesterday, as well asin our 20-F. At the conclusion of Carlo'sintroductory comments, we'll open the call to your questions. To allow for asmany of you as possible to ask questions, please limit yourself to a singlequestion and one follow up. It's in the interest of all participants. With that housekeeping concluded,I'd now like to turn the call over to Carlo Bozotti. Carlo?

Hello and thank you for joiningus on this call today to discuss our financial performance, business highlightsand outlook, and I appreciate your interest in ST. To summarize, let me share somekey highlights of the quarter. First, we came in at the high end of our revenuerange due to better than anticipated wireless volumes and strength in computerperipherals. Second, gross margin, excludingthe one time charge, came in at the middle of our range. We could have donebetter in capturing the higher revenue performance if not limited by the weakindustry conditions in Flash memories. Third, ASG posted very strong sequentialgrowth in revenues, and improvement in operating margin, lifting it over 10%. Fourth, we are strengthening ourposition in wireless, and believe we are very well positioned in this market incomparison to other competitors. Fifth, the cash flow fromoperations continues to grow, and is up significantly from the year-ago threeand nine-month periods. And finally, RONA, return on net asset, in total was10.4% and excluding Flash, RONA was approximately 14% in the third quarter. Now, I would like to begin with adiscussion of the results for the Flash Memory Group, and an update on keysteps to completing the divestiture of our FMG Group. FMG sales increased 6%sequentially, a good performance. The operating margin loss increased to 9.9%from 7.6% in the second quarter, reflecting some underutilization of capacity. Also the third quarter FMGfinancial results do not reflect a significant impact of suspendeddepreciation, as most of it is currently in inventory within the assets heldfor sale category. Obviously, this suspended depreciation policy only impactsFMG. Turning to the divestiture ofFMG, we have cleared some of the most important gating factors. Last week,regulatory clearance was received in US adding to the European Union regulatoryapproval which was received earlier. We are working now with our partners tostand up Numonyx and bring the transaction to completion. As Intel indicatedlast week at the time of their earnings call, we expect to conclude by yearend. Now, let's shift our focus towhat ST will look like after January 1, and how our ongoing businesses aredoing. Turning first to our Application-SpecificGroups. This segment will account for about 63% of our total sales compared to54% today. Looking at the performance in the third quarter, ASG's revenuesincreased 7% on a sequential basis, and on double-digit wireless and computerperipherals growth. More specifically, we had a verystrong demand in our wireless segment. Wireless sales increased double digitssequentially on strength in several areas, including radio frequency, powermanagement and connectivity. In addition, we have started toramp-up a 3G digital baseband business at Ericsson Mobile Platform licensees.This product ramp-up is basically progressing in line with the plan that wehave articulated at our analyst day in May. In fact, current volume estimatesfor 2008 are looking more robust than what we saw back then. For the medium and long term, asyou know, we have entered into a strategic 3G digital baseband sourcingagreement with Nokia on August 8. In connection with this transaction, atalented team of design engineers, about 200 in total, will join ST from Nokia. Turning to Computer Peripherals,sales were up double digits sequentially on strong unit growth led by datastorage, with sequential growth of our hard disk drive business as the keyfactor. Sequential strength alsobenefited from the second quarter comparison where, if you recall, we wereimpacted by quarter-end shipment shifts. But comparables aside, it was avery solid quarter for Computer Peripherals. And as we look to the fourthquarter, we will begin volume shipments of our proprietary system on a chip forthe data storage market, a significant accomplishment for us, and a revenuedriver in this segment for 2008. And on top of that, we were recently awarded adesign win for our next generation 65 nanometer System-on-Chip, again, basedexclusively on our own intellectual properties. Consumer revenue was upmid-single digits sequentially on continued strength of our set-top boxofferings, and deployment of our high-definition enabling solution. Historically,the third quarter was the highest quarter for our consumer segment sales but,just as we experienced last year, we anticipate growth to continue in thefourth quarter of 2007. Our recent announcement withKorea Telecom for high definition IP set-top box products is an example of ourcontinued success in this competitive global market. In Automotive we saw the normalseasonal weakness on a sequential basis, but year-over-year Automotive revenueswere up 4.5%, and we expect the growth to restart in the fourth quarter. Tworecent design wins, a next generation worldwide airbag platform, and ourpenetration of the portable navigation device at Garmin, point out ST’ssignificant capabilities to not only serve existing global customers, butexpand into new markets as well. From an operating marginperspective, the sequential swing was quite dramatic, with operating profitgrowing about $90 million. We benefited from a more favorable product mix andmanufacturing cost improvement. Manufacturing delivered asignificant improvement in the second quarter, the quarter when the productssold in Q3 have been primarily fabricated with improved logic technologyenhancement and improved efficiency. Product mix in the third quarterwas favorably impacted by our MMC Group, which grew faster than our othergroups in ASG. And within this group, Application-Specific products increasedmuch faster than the camera modules. In the fourth quarter, we anticipatehigher unit sales of camera modules which should have a moderating influence onASG's product mix. So overall, looking to the fourthquarter, we expect to see good sequential top-line growth in our ASG segment. Turning now to our IMS segment,sales increased both sequentially, and year over year, with MEMS products inwireless and gaming applications posting the largest growth. Our product design wins in MEMSare continuing with these applications, as ST accelerometer products offercustomers enhanced functionality and flexibility. We also benefited from good growthin industrial, power conversion and advanced analogue products, where wecontinue to add design resources for these important product categories. IMS accounted for 31% of netrevenues in the quarter and will represent about 37% of the Company, post thecompletion of the FMG transaction. Finally, in the third quarterthis year IMS was able to demonstrate good leverage translating the salesperformance into operating profit. In the Press Release we discussedthat, following a comprehensive review of employee benefit programs within ST,we have revisited the accounting for a seniority recognition programs at one ofour large affiliates. And this had been in place since 1986. Historically, we have expensedthe costs when incurred, and they are now accrued over the service period ofthe employee. In connection with the revision,we incurred a one-time, non-cash charge for the past periods of about $21million pretax. More than $7 million were chargedto cost of goods, more than $8 million to R&D and nearly $5 million inSG&A expenses. Our gross margin for the quartercame in at 35.5% without the impact of that one-time charge. Excluding FMG, ourgross margin was 39.1%, posting a very significant progression from the priorquarters. However, entering Q4 this performance will be challenged by thenegative effect of the currency. Operating expense control allowed us to reachour target of expenses being less than 28% of net revenues. In Q3, SG&A and R&Dcombined, represented 27.8% of sales, and 27.3% excluding the one-time charge. Inventory, excluding FMG,increased by $33 million in total, and included a currency transactionadjustment of $29 million. Indeed, levels remain substantiallyflat with a 6.1% sales expansion, which accelerated inventory turns to fourtimes, excluding Flash. I cannot say I am happy about that performance, butwant to note the move into the right direction. Now, let’s move to a discussionof our outlook. At the end of the second quarter we indicated that we expectedto see sequential growth in both the third and fourth quarters. We alsoindicated that we expect to see about 20% growth in ASG net revenues from Q1 toQ4 of this year. In the third quarter, we came inat the high end of our 2% to 7% range. For the fourth quarter, based upon ourbacklog and order visibility, we are anticipating a higher sequential growthopportunity in the range between 4% to 9%. And we are also confirming the ASGgrowth objective. For the gross margin we aretargeting 36.5%. The factors influencing this outlook are mix and currency. Thesignificant negative move in the dollar since the end of the second quarterwill be fully visible in Q4. Currency is the largest single reason for thelimited leverage. While manufacturing improvements have been realized, theywill not completely offset currency impact. To address this most recent movein the dollar, we are now focusing additional efforts on aggressive productportfolio management within our division , identifying for action those productfamilies that are underperforming and are more vulnerable in this currentscenario. We will continue to implement these and other actions to offsetcurrency effects. Looking ahead to 2008, industryanalysts are forecasting semiconductor industry growth in the mid to highsingle digits. While it is too early for us to comment precisely on this, as weare completing our budgeting for 2008, we are ready to share our capitalexpenditure plan. We believe that following the separation of FMG, we can growfaster than the industry while targeting to keep our CapEx to sales ratio below10% for next year. At the outset of 2007, we set aCapEx budget of about $1.2 billion and anticipate coming in at or below thatfigure. Our guidance for 2007 and 2008 CapEx also assumes that we will purchasetools from Crolles 2 as they are needed for expansion of our own capacity for 300millimeter logic. Net operating cash flow reached $255million in the third quarter, and $652m for the first nine months of 2007. Forthe 2007 year to date, net operating cash flow was 9% of sales, and clearlyshows the implementation of our lighter asset policy and the figuresdemonstrate that we are well in line with our goals. And with our plannedfurther reduction in capital spending, we will further boost cash flow in 2008. Overall, this was a very solidquarter for ST. We have made significant progress since the start of the yearin strengthening and improving the performance of our largest business segment,ASG. In particular, our core Wireless business remains strong and recentdevelopments will further improve our positioning. Recall, that ST is home to Europe's largest and, we believe, best positionedwireless semiconductor supplier. And as we look to 2008 we see continuingwireless sales growth. As we approach the last quarterof the year, ST is much stronger than at this same time in 2006. While on thesurface net sales and earnings look similar, we have engineered a significantrebound since the start of this year. After a difficult first half, we arepositioned to end the year growing in 2007 in line with the industry estimatesand to see further market share progress in 2008. Now, let me stop to take yourquestions. Thank you. Stan March Hello, Vicky?

(Operator Instructions). We haveour first question from Mr. Cody Acree, Stifel Nicolaus. Please go ahead sir. Cody Acree - Stifel Nicolaus: Thanks, and congrats guys on agood quarter and a good outlook. Can you talk about the Wireless growth?Obviously, we have the Ericsson baseband that is starting to contribute. Howsignificant is that into your fourth quarter guidance? What can we expect?Maybe any details you can give for 2008. And then outside of the Nokiaannouncement that sounds like it's maybe more of a 2010 event, what's thebridge between here and there that continues to add to Wireless growth betweenthose two major OEMs?

Well, I think that Tommi willcomment on that, Tommi

Right. This is Tommi Uhari. Sooverall, on Wireless we are seeing a continued growth into Q4 and into nextyear. It's true what we are seeing in our Nomadik family. It's true what we areseeing also at the digital baseband. And I think those together with the, let'ssay, high volume that our customers are able to get for their products, thoseall contribute to the continued growth in 2008. Cody Acree - Stifel Nicolaus: Maybe you have handicap Nomadikversus digital baseband growth for 2008?

I think that we see strong growthin both areas. I think that when we are further into next year, we can commentmore on the -- we can see whether it's possible to comment more on the detailedperformance of each product line. But overall in the digital area, thiscomprises the two of these. We see a very strong growth into next year. Cody Acree - Stifel Nicolaus: Okay, very good. And then lastly,on the storage side, you talked about a significant design win with an OEM.When can we begin to expect to see revenue from that design win? And then anycolor on future projects, and what you expect for 2008 for that storagebusiness?

Cody, it's Stan. On that, we'llsee sales from the proprietary SoCs beginning in Q4. This is for the first 90nanometer solution. The 65 nanometer, obviously, just a recent award, andobviously we've got some work to do in some period of time before that. Butwhen we talked about growth drivers for 2008, we were specifically talkingabout this proprietary SoC, that's the 90 nanometer version, that'll beginshipping in the fourth quarter. Cody Acree - Stifel Nicolaus: And Stan, is that 65 nanometer,is that an '08 revenue driver or is it ?

No, the 65 nanometer will not be.The 90 nanometer will be. Cody Acree - Stifel Nicolaus: Okay, great. Thank you.

Vicky, next question, please.

The next question is from Mr.Sandeep Deshpande, JPMorgan. Please go ahead, sir. Sandeep Deshpande - JPMorgan: Yes, hello. Good afternoon. Acouple of questions. Firstly on your ASG, I mean you had a very strongperformance on your ASG. But what was very surprising was the flow-through ofthe margin. Your revenues in ASG sequentially grew by about $98 million, --sorry, the margin flow-through was about 98%. And we possibly can't be lookingto see this kind of flow-through going forward. Was this due, to some extent,due to some highly under-utilized Fabs which caused this flow-through to be sogreat? Or was there a major mix shift within the revenue base in ASG itself? And you said, Carlo that we'regoing to see more shipments of camera modules into the next quarter. So howshould we be looking at this margin flow-through going forward? And I have afollow on. Yes. I think Carlo Ferro willcomment on the financial performance of ASG.

Good morning, good afternooneverybody. Yeah, Sandeep thanks for having captured this performance. I'll sayit's really a significant leverage in our numbers overall and those of ASGespecially this quarter. There are various factors. The most relevant are two. One is the efficiency of our Fab.Through the inventory cycle we are taking in the cost of goods sold of Q3, theadvantage of significant manufacturing improvement incurred from Q1 to thesecond quarter. This is very important. Manufacturing continues to improve. Iwould not expect, sequentially, a similar kind of progression. The mix in Q3 has been veryfavorable for ASG, with some important growth in various areas, especially inthe area of the multimedia and communication. I would say that also we see inthe portfolio in multimedia and communication some higher growth in theapplication-specific product and the [ASIC], in respect to the camera module haspositively contributed to the gross margin dynamics. So those are the positivefactors. And you may have also noticedfrom our report about the effective exchange rate that, thanks to hedgingactivity, the current environment has started to deteriorate in early July thisyear has not affected yet the third quarter result. Since the change from the1.33 of Q2 to the 1.36 of Q3 is, is I would say, negative, but somehow minor inrespect to what is, unfortunately, awaiting for us now when moving from 1.36 inQ3 to 1.41 for Q4. So on this basis, frankly, wecannot at this stage anticipate a similar progression or ability of completelykeeping very short term the current level. While the key ingredients on the productportfolio and on the mix improvement, manufacturing improvement will continueto be a significant boost through 2008. Sandeep Deshpande - JPMorgan: Okay, thank you. And in thefollow up, I want to talk a little bit about the strategy in your Wirelessbusiness. You're now clearly ramping up with EMP. Longer term, Nokia comesthrough. And now you seem to becoming a major player in the baseband market.But there are still too many players in the baseband market. Do you intend tobe a consolidator in that market, or do you intend to continue in this organicstrategy? And secondly, in relation tothat, there is a lot of cash generation in your business. Is that going to beused for some of these acquisitions, or is some of it going to be returned tothe shareholder base? Thank you.

Well, I think I will take this.It's Carlo Bozotti. I believe that we are focusing on organic growth in theWireless domain. And I think, of course, the opportunities here are products.The move to digital for us is significant. We were not digital. So we had a lotof products with other frequencies, or power management, other, let's say,complementary functions. But today connectivity is growing very rapidly. Ithink that connectivity will continue to grow. And in addition, there is the core,the digital core of the phone, the digital baseband, and the applicationprocessor. So, this is from a product point of view. But I think also from acustomer point of view we have more opportunities. So, of course, it's clearthat next year the growth of Ericsson Mobile Platform licensees will be verysignificant, and very material. We'll see. But in parallel, we are working withother customers to expand our customer base in the Wireless domain. Now, concerning the acquisition,I think that we will be more aggressive on product portfolio in two ways. Ithink that we will be less tolerant with those families, and I'm talking about,of course, now product divisions, not major groups. They are not yet performingproperly. And they are more impacted by the very unfavorable dollar rate. Thereare some families who are paying but is more significant [and that] we will beless tolerant on this respect with these families. But at the same time, growth inactivity is getting -- [some] activity taking strategic initiatives. But, atthe same time, I think we'll be also looking at opportunities to add flavor toour products -- to our product portfolio and complementing it with properly interms of application, application products, looking at the [radio]. So this isgoing to be more important for us in the future after the very intense ninemonths that we had in 2007.

Alright, if you'll allow me toexpand a little bit. So basically, overall, our strategy in Wireless is reallybased on working with industry leaders in the area of the modem technology, soboth with Nokia and Ericsson. And I would characterize the deal that we havewith Nokia as much more than organic. So, it is really a step forward in ourcapability to provide overall system solutions. And I think it positions usextremely well for the mid and long term. Sandeep Deshpande - JPMorgan: Thank you.

Okay, Vicky, next questionplease.

Next question from [Mr. NicholasGudva], UBS. Please go ahead, sir. Nicholas Gudva - UBS: Yes. Hi, very good afternoongentlemen. Just the first question on Flash; we obviously haven't seen theflow-through yet of the depreciation reduction in Q3. So should we expect thatto accrue in Q4? And would this be enough in your view to turn FMG breakeven orplus going forward? And I’ve got a follow up after that. Thank you.

Let me take the question. HiGudva; first of all congratulations and good luck on your new position, andit’s the first time, I guess you are asking the questions from this new firm. Theanswers to your two questions are yes and yes. Indeed the effects of assetsheld for sale accounting is not evident yet in the performance of our Flashbusiness, given a heavy start of accounting for assets held for sale in earlyJune, and approx four month inventory cycle for this category of products. These are will be very evidentand much more evident in the fourth quarter, and also as a result of that, inaddition to leveraging on a higher sales and also some expected othermanufacturing cost improvement, we do expect our Flash business could be apositive contributor to the operating profit of the Company in Q4. Nicholas Gudva - UBS: Okay, great. And as a follow up,if I understand you correctly in the opening remarks, you said that your viewin '08 of your EMP-related business will be higher than what you thought inMay. Now, in May, if I remember well, you said that you'll ship into about 30 million units basicallyin '08 versus 10 million units in '07. So are you suggesting that you think youwill ship more than 30 million units of basebands for Ericsson Mobile Platformnext year? And, if so, what kind of underlying market share assumption are youtaking for EMP for the overall 3G baseband business?

Tommi?

I think that we are very well inline with our earlier estimates of strong growth into next year. I think thatit is difficult to give the exact number due to all the confidentiality that wewant to respect here. But I think that the ballpark that you mentioned iscorrect. Nicholas Gudva - UBS: Okay, fair enough. And thatassumes market share for EMP broadly flat into next year? Is that your best-casescenario, just as a working assumption, obviously?

I wouldn't like to comment on ourcustomers' markets here. Nicholas Gudva - UBS: Right. Okay. Well, I'll try tofigure it out myself then. Thank you very much.

Thank you. Vicky, next questionplease.

The next question is from Mr.Tristan Gerra, Robert W. Baird. Please go ahead, sir. Tristan Gerra - Robert W. Baird: Hello, good afternoon.Previously, you said that 45 nanometer would be on track for a ramp in thefirst half of '08. If you could elaborate on that, if you mean sampling, whattype of products we're likely to see at 45 nanometer first, and when?

We did not mention previously,and (inaudible) 45, but maybe it was some earlier media conference call. Maybe,Tommi, you can describe what we are doing on 45 nanometer on the digitalbaseband.

So, basically, on the processdevelopment, we are firmly on track to have the capability to manufacture already,let's say, during next year. We have already sampled a number of devices. The exact ramp-up of when westart, of course, it depends on the designing cycle of our customers. The keyproducts that will go to volume will be in Wireless, but they are later than2008. Tristan Gerra - Robert W. Baird: Okay. And then any idea of thetiming of when you could have a single chip 3G baseband Nomadik?

Basically, from the Nokialicensed modem technology, we have the capability to create chips like that forthe market in 2010. And it's product road-mapping decision, or product road–mappingquestion which we are currently working on. So, technically the capability isthere for 2010, but we haven't yet communicated a firm plan in that area. Tristan Gerra - Robert W. Baird: Okay. And then, finally, if youcould just give us utilization rates for the quarter.

Yes, sure. In fact, utilizationrate for the quarter was about 86%, both on 8 inch and on the 6 inch. Now, whenwe were impacted by a low utilization rate of these two Fabs which areproducing memory, R2 on one side because we are decreasing the productionthere. And the other one -- R2 is in Italy in Agrate, and [Amucure 8], withoutthese two plants, because now I think we need to start speaking of a companywithout memory, we'll be 88%. Tristan Gerra - Robert W. Baird: Great.

And for Q4 we are expecting aboutthe same, probably a little bit lower, about 87%. Tristan Gerra - Robert W. Baird: And that be ex-memory?

Yes, without memory. Tristan Gerra - Robert W. Baird: Okay, great. Thank you.

Okay. Vicky, next question,please.

The next question is from Mr.Simon Schafer, Goldman Sachs. Please go ahead, sir. Simon Schafer - Goldman Sachs: Hi there. Thanks very much. Iwanted to ask a question on Crolles 2. I think you have the option to buy out thatequipment, and the deadline, to my knowledge, is at the end of this calendaryear. I was wondering whether you could update us as to what the plan is.

Yeah, absolutely, we have theoption to buy the equipment. In fact, as Carlo was mentioning in his openingremarks, in the budget we are talking about the -- the first input that we aregiving to you, which is less than 10% CapEx to sales for next year, we areincluding this possibility. And by the way, the buyout of theequipment will be shared between this year. And this year we are mentioning $1.2billion of CapEx. This includes part of buying back the equipment from one ofour partners, and the rest will be next year. And, again, the 10% CapEx tosales includes the buyback of this equipment. Simon Schafer - Goldman Sachs: Okay. Thank you. And my follow-upquestion would be looking at your gross margin guidance, does that presume muchof an increase in gross margin in the Flash Memory Group, or is that roughlythe same as it was this time?

No, Simon, this is Carlo Ferro. Gross margin in Flash Memory Groupwill improve in Q4 as earlier anticipated, also boosted by the effect ofaccounting of assets held for sale. Simon Schafer - Goldman Sachs: Thanks, Carlo.

Vicky, ready for the nextquestion, please.

Next question from Mr. JonathanCrossfield, Merrill Lynch. Please go ahead, sir. Jonathan Crossfield - Merrill Lynch: Thanks for taking the questions.Given the strong core cash generation, and the expected nearly $500 millionyou're going to get from the disposal of Flash, are you planning to acceleratecash returns to shareholders, or are you looking to focus more on theacquisition side?

No, I think that's what we wantto do to maintain flexibility, to push the two opportunities. It is clear thatST will stay systematically below 10% CapEx to sales ratio. This is the decisionthat we have taken. We believe can grow faster than the market, operating withcapital investment program of this dimension, including the ramp in Crolles 2which is, of course, good news. And I believe that the opportunity of the freecash flow generation will remain. And we do not see any risk in the capitalintensity moving on for ST in the future. So, it is obvious that we want tomaintain the two opportunities, the one of remunerating the shareholders on oneside, but on the other side also working more aggressive on the productportfolio. And as I said already, a couple of times, yes, in terms ofacquisition, but also in terms of doing those things that we believe do notperform at the level they should perform. And, of course, in this we need totake into consideration the aggravation of the exchange rate that sometimes hasan impact stronger on certain product lines rather than other product lines. So I think we will maintain theflexibility. And it is for sure that for us it's a way of no return, the one ofmuch more mitigated capital intensity in running our business. And we willmaintain the flexibility to both remunerate our shareholders, but also to moveon with additional value to the product line. Jonathan Crossfield - Merrill Lynch: Thanks, Carlo. And then just as afollow up, how do you expect operating expenses to develop in the next coupleof quarters as you bring in the 200 Nokia engineers through the deal thatyou've done there?

Do you want me to take this?

Yes, Carlo Ferro will take it. Weare going to integrate 200 engineers but, at the end, their overall cost as youcan imagine, is a relevant ingredient when discussing the sequential dynamic ofour overall expenses, but when looking at overall the next quarter we can, Iwould say, easily digest these additional costs. Having said that, very shortterm in Q4, we see various incremental factors for R&D and SG&Aexpenses to increase in absolute dollar. In addition to the integration ofthe Nokia R&D team, there are a couple of other technical ingredients. Oneis, unfortunately, the exchange rate whose impact is estimated on expensessequentially in a range between $15 million to $20 million. And another one isthe number of work days, which is a combination of a couple of more days of calendargiven our cutoff on December 31 in Q4, as opposed to the usual four, four, fivecalendar. And the other one is that normally vacations are very high in Q3, andlow in the fourth quarter. Having said that, referring toabsolute dollar I remain absolutely comfortable that leveraging on salesgrowth, the [OpEx] to sales ratio will decrease sequentially, and will remaindefinitely below our 28% target threshold. Jonathan Crossfield - Merrill Lynch: Great, thank you very much,Carlo.

Sure.

Vicky, next question, please.

The next question from Mr. OdonDe Laporte, Cheuvreux. Please go ahead, sir. Odon De Laporte - Cheuvreux: Yes, good afternoon, everyone. Iwas wondering, how do you think the Joint Venture in Memory will fund itsinvestment in 300mm, given that they will have $500 million in the openingbalance sheet? And then I have a follow up.

Well, it's Carlo Ferro againtaking the question. At the end, the new company will be an independent entity,motivated and measured on two major parameters. Number one, a time to go to IPOand, number two, value that they can create for their shareholders. And as a shareholder we do expectthe new company would make the most appropriate decision for his strategy, andthe timing of its strategy, to move to the 300 millimeter based on the obviouscombinations of various decision factors, including demand, includingtechnology, including comparison to the direct competitors and, of course,including the ability to self-sustain his own investment, and their financialstandpoint. Odon De Laporte - Cheuvreux: Thank you. I have a follow up. Doyou think it would make sense to set up a Joint Venture in the area of camerasensors or camera modules in order to get the critical size?

Well, as I said, we will becomemore aggressive. Also, under the pressure of the exchange rate on our dollarportfolio but, frankly, I have to say that we have some opportunities, but I donot want and I cannot comment on any of these opportunities. I think that, ingeneral, the principle must be that any of the product divisions has to deliverthe expected financial performance. And for us, the minimum run-up for any ofour product division is 12%. And I believe that there are somethat are under scrutiny and there are, of course, for these divisions a numberof options. We can close the activity. We can sell the activity, or we canventure with somebody else. And I think this is, of course, an area where we'llbe more aggressive in the future, but I do not like to comment on the specificdivisions at this point. Odon De Laporte - Cheuvreux: I understand.

If you allow me a comment on thecamera. So basically, what we are seeing is that the technology position thatwe have is our new manufacturing process that is being ramped up, and the nextones that are in the pipe, we believe that we have a very good image sensorquality. Also the know-how that we havebuilt in the area of miniaturization and being able to create the modulesbecomes extremely valuable, even more so than before when we are moving to waferlevel camera solutions. And we believe that all our traditional semiconductorknow-how will be accrued, so a value-adding element in moving forward in theCamera business. Odon De Laporte - Cheuvreux: Thank you very much.

Next question, please, Vicky.

Next question from Mr. DidierScemama, ABN Amro. Please go ahead, sir. Didier Scemama - ABN Amro: Good afternoon, gentlemen, andthanks very much for taking my question. I'd like to come back to the grossmargin that you reported, and I'd just like to clarify a number of things.First of all, on your gross margins ex-Flash at 39.1%, we basically see on thedollar about $76 million sequentially, an increase. And that's precisely about-- probably due to about $70 million decline in depreciation, sequentially. So,it feels like, basically the ramp-up of your new products in Logic did notgenerate really a significant improvement in underlying margins, but ratherthat your gross margins were basically supported by a fall in depreciation? Associatedto that question is basically the significant decline in gross margins in FMGwhere they went from 19% in Q1 to about 10% in Q3. I appreciate that you stillhave the depreciation to fall in that business, to improve the margins in Q4. Butcan you just maybe help us reconcile this very sharp decline in gross marginand very strong increase in the Logic business? That would be very interesting?

Yes, Didier, this is Carlo Ferro.We need to set the page on the appropriate number, and I am sorry, we do notnormally report on the press release depreciation for Flash for the non-Flashbusiness, but given your question, maybe that's okay that I show the number, forsecond quarter 2007 depreciation excluding Flash have been $266 million. Andfor the third quarter 2007 they are $263 million. So you have [well captured],there is a reduction, but this reduction is as little as $3 million. I guess,this answers the question. Didier Scemama - ABN Amro: So the 70 million is going into FMG, but at the sametime the gross margin go down by 4 points sequentially?

There reason of why Flashdepreciation goes down, basically, because of holding -- depreciating the assetsheld for sale. And we have started in June, and the cycle of inventory forFlash is approximately four months. So, this reduction in depreciation issubstantially recaptured reducing the inventory value for Flash. You have also-- you cannot [knock it]. But looking at the asset held for sale balance, theseoverall included in the inventory of Flash, also includes inventory of Flashthat went down. So what happened is thatdepreciation overall for the Company was down. This is because of Flash -- theFlash portion is not yet in the gross margin, and is in the value of theinventory. For the non-Flash portion, the change depreciation is substantiallyimmaterial to the gross margin dynamic being a $3 million gap. Didier Scemama - ABN Amro: Okay, and just a quick follow upthen. One of your U.S.competitors is sharply down this morning in the U.S. on the back of a substantialincrease in R&D in the fourth quarter, and going forward, I think, tobasically accelerate the ramp of their growth market. I'm just wondering whatwe should expect for ST's R&D budget, let's say, in 2008 for the Company,obviously, ex-Flash, at least in the percentage of sales? That would be veryinteresting, thank you.

Yes, I want to make an overallcomment on our own R&D effort. I think that the trend in ST is toaccelerate on the [front] of solutions, solutions to be provided, of course, toall our customers, and in many of the areas where we operate, from the simplerindustrial solutions to very complex platforms in the area of digital consumerand wireless, multimedia. On the other hand, I think wehave the opportunity to decrease relative terms. The effort in technologydevelopment. And as you know, we have communicated the effort will be very muchon what we define as derivative technologies, also primary technologies. Bothin the area of CMOS, but also in the area of Smart Power products. So I think there will be a shift.I think that the shift is happening, and will happen, of course, and there willbe an increasing effort in the company on application software products andmore focusing of the technology R&D effort on dedicated technologies,proprietary technologies. Today, the Company is stilldeveloping two platforms in terms of technology; the full Flash platform andthe full CMOS platform. In the new configuration the companywill not work on a pool technology platform development. In fact, on the Flashwe are separating, and on the CMOS we have decided to join the IBM consortia toshare this with many more partners. So, overall, we expect a shift, but we havenot changed our objectives in terms of expense to sales, both to R&D andSG&A. Didier Scemama - ABN Amro: Okay, thanks.

Okay, Vicky, I think we're readyfor the next question, please.

The next question is from Mr.Robert Sanders, Dresdner Kleinwort. Please go ahead, sir. Robert Sanders - Dresdner Kleinwort: Yes, hi. Good afternoon,everyone. Just a quick question for Tommi, actually, just on the Nomadikprocessor. I was just wondering if you could just give us a bit more color onhow you expect the ramp to pan out from Q2 next year at your biggest customer.Should we just sort of expect it to be a few models and then accelerating fromthere and getting quite significant in Q4? Is that the sort of thing that youare expecting at the moment?

Nice try, but I won't comment, saymore widely. So I will just say that on the business, what we are seeing isthat the ramp continues very strongly next year. Of course, that will besupported by more models, but a customer-wise comment is not possible for us tomake. Robert Sanders - Dresdner Kleinwort: Okay, and then just a follow upfor Carlo, if you could just give us the outsourcing percentage in the quarterfor STM, excluding Flash, that would be great, thanks.

Yes, this is Alain Dutheil.Excluding Flash, what we have today is a little bit more than 7%. The total ofthe Company is close to 14%, but the non-Flash is 7.5%, and in Q4 it will beabout the same, about 7%. Robert Sanders - Dresdner Kleinwort: Okay, thanks a lot.

Vicky, next question, please.

The next question is from Mr.Francois Meunier, Cazenove. Please go ahead, sir. Francois Meunier - Cazenove: Hello, and congratulations onyour very good results, despite the weakening dollar. In terms of the positivemix impact we have seen in Q3, and which is probably likely to continue in Q4,is it a structural strength, or is it something which is going to be seasonalsome more, basically a better mix in H2 than in H1, and that would continueinto 2008?

No. I think that probably withbusiness point of view it's something that we are trying to drive verystrongly. I think that we are trying to drive this very strong in all thegroups where we operate. For instance, we did not mention the IMS, and I wantto comment on IMS also because Carmelo Papa is here with us, and he is very --he's [bright]! I think in IMS, we want to drivethis mix improvement very, very strongly, and we have tried to do that. And Ithink, of course, it takes time, but we will get there. So we want to sell muchmore advance on our products. We want to sell much more high-endmicrocontrollers. We want to sell much more in our MEMS products rather thansimple [discreet]. So this is an effort that we arecontinually doing. We want to accelerate when at the same time there is areluctance here but, trust me, it is a very, very strong drive to improve themix in all the products where we operate. Now, if we look at a moreshort-term view, I think that Q3 was very good, a very good mix because theWireless was -- excuse me, ASG was strong, and within MMG, MMC was strong. Andas I said, Camera was not that strong in Q3, and so we may have variations inthe short term, quarter after quarter, but there is a very strong drive in theCompany for anything we do to improve the mix, moving from lower-end productsto higher-end products and this drive will accelerate. Francois Meunier - Cazenove: Okay, now a question for CarloFerro. In terms of acquisitions, if I remember in the past, then the, somethingwhich was basically the main criteria for acquisitions was that the acquisitioncouldn't be dilutive to earnings. Is it still valid? And also, do you have alimit in terms of size? So basically, you don't want to buy anything more than$2 billion or more than $3 billion?

I would say that the real metricis the value that the acquisition overall provides, and the ability for theCompany to increase shareholders' value generation. Then, whether it requires agiven size or another, I would not expect to be a limitation, also consideringthe financial plans of the Company, currently exiting, and based on that, andbased on our track record performance, of course, a significant ability to tapthat capital market is required. So in this respect, I'm not amongthose CFOs putting to our management team or suggesting limitation in value foracquisition -- in amount for acquisition. I see a lot of attention andconvergence of all our team on the fact that an acquisition has to be wellbalanced in terms of investment and future return in order to be shortlyaccretive to our EPS. Francois Meunier - Cazenove: But you would still need to beaccretive to earnings, say not the first year but, say the second year?

That makes a lot of sense.

Yes, absolutely. I think that thecriteria -- we always had three criteria's, and maybe we should add a fourthcriteria in these days. I think the three criteria, number one, of course froma broader point of view need to make sense. And this is obvious, and I believethat the complementarity, completing what we have, creating value to --creating more value to our offer is an important criteria. The second criteria is in all,majority. The -- for instance, in Japan,we are not present and this could make sense, but everything, as you know --there is law in Japanin terms of M&As activities. And the third criteria is the return, andabsolutely -- what we have is the objective that any acquisition needs to beaccretive the second year. Now, for us, the dollar is alsoimportant. The exchange rate is important, and the dependence on the Euro. Weare taking a lot of steps. We are reducing our manufacturing costs, and movingmore and more activity from the western world to Asia.Last year we closed two Fabs in Europe. Thisyear we are restructuring to separate FMG with additional closing. We havedecided to close one Fab in Morocco.We have decided to close two Fabs in U.S.,and all of this, more or less, is moving to Asia,so this is going to help. But if, on the product line, there is a way to havesome better, natural hedging, of course, this is also an important criteria. Francois Meunier - Cazenove: Okay, thank you very much.

Thank you.

Okay, Vicky, next question,please.

Next question from Mr. JeromeRamel, Exane BNP Paribas. Please go ahead, sir. Jerome Ramel - Exane BNP Paribas: Yes, good afternoon. Just want tomake sure I understood correctly. What should be the level of depreciation for2008, excluding the Flash? Should be around $1 billion?

No, more than that.

It is, frankly, not a matter ofhaving a (inaudible). I did not say it yet, please. For next year, we expectbetween $1.050 billion and $1.1 billion. We talk after the time of the Flashseparation about $1.050 billion, and the only difference today is the exchangerate impact. So, please take a reference of $1.050 billion to $1.1 billion. Jerome Ramel - Exane BNP Paribas: Okay, and second question, whatwas the level of outsourcing in Q3, and are you still targeting to reach the15% by the end of this year?

No, in fact, I gave the number;this is Alain Dutheil speaking, just a while ago. The level of outsourcing withMemory is close to 14%, and -- but without Memory, is between 7% and 7.5%. Andof course, during 2008, this number, 7.5%, because at that time the Companywill be without FMG, we will move progressively to 15% and 20%. So at the endof -- probably at the end of the year or the beginning of 2009, we'll be atabout 20%, from 7.5%. Jerome Ramel - Exane BNP Paribas: Okay, thank you.

Vicky, next question, please.Hello, Vicky.

We have a follow-up question fromMr. Cody Acree, Stifel & Nicolaus. Please go ahead, sir.

Okay, thank you. Cody Acree - Stifel Nicolaus: Thanks, you guys for fitting mein. Just one quick follow up. We've had lots of earnings here from a lot ofyour peers, and quite different views as far as the health of the inventorychannel, and what the level of orders have meant for stocking of inventoriesthroughout the third quarter and into Q4. Do you have an opinion on, maybe,some of your different end markets, what the health of the channel is, and whatyou are shipping to consumption levels?

Well, I think I have reason to --we have recently gone through, for instance, the dollar is a good indicator ofthe inventory status of all our distributors in the world. And I believe thatthere is a big effort that is in place at all our distributors, and they arereducing inventory. I have to say that I saw inventory reductions at many ofour distributors already happen and this is a good indication. It is, ofcourse, is important for the industrial, for the multi-segment market. While, as we see a strong demand,we do not believe there is any accommodation on inventory, not on Wireless, andI believe that consumer is a similar trend. Well, of course, such strength ofthe Euro, this may give some concern about the European economy, and we seethat this, of course, is a general concern because the Euro is so strong, andthis may limit exports from the European companies. We are monitoring that. Weare very attentive to look at that. But, in general, I think what weneed to do is to wait for the Christmas season, and understand how sales forChristmas will go through, and this is particularly important for the Wirelessbusiness, because the demand today is very, very solid in Wireless, very strongin Wireless. Cody Acree - Stifel Nicolaus: All right, perfect. Thanks forthe comments.

Thank you.

And Vicky, we have time for onemore question.

The next question is from Mr.John Dryden, Charter Equity Research. Please go ahead, sir. John Dryden - Charter Equity Research: Yes, Carlo, could you comment,ex-FMG, on progress with your growth initiatives? I'm really looking forstrengths and weaknesses versus your expectations trading off China, Japan, the key accounts, and theup-selling to the outside of the top 23?

Yes. Yes, absolutely. I think weare doing good progress. This year, there is a major problem. And I thinkeverybody knows, is very much related to one Wireless customer that had animpact, particularly on our -- in the first half on our Memory business, on theFMG business. For the rest, it's going through nicely. I think that Japanis solidly growing. Chinatoday is almost 30% of the Company revenues which is very, very strongperformance. I think that, as you know, we aretargeting, in fact, there is a form of deployment to target 16 new customers,and they are from all the geographies, and I believe we are doing goodprogresses there. So I think we are also progressing with our mass marketinginitiatives. So I think in all of these items, in all of these categories,initiatives, we have good progresses. It is more some of our strategic --traditional strategic accounts where there is some limitations of the growththis year. So, apart this very specific caseon Flash Memory in the first half, I would say that the rest is performing verywell, and Japanis solid. We are growing and we would expect to continue to grow next year. China is, as I said, is now almost30% of the Company in terms of revenues, and there is a very strong focus on these16 accounts. Some of them are fantastic, of course, but some of them less but,overall, I think is very good. So, apart this glitch in the first half that wasspecific to one customer and very much on Memories, I believe is progressingvery -- is progressing very well. John Dryden - Charter Equity Research: Thanks for that. Just a followup, moving to -- back to OpEx. You discussed Nokia. Could you also discuss,ex-Flash, how the roll-off there will be, going into the first quarter? Can westill expect to be within your range on lower revenue in March?

The question is about OpEx trendsat post-Flash from January 1?

No, on the -- I would say that wemay need a couple of quarters after the closing of the deal to somehow digestthis portion of resources that, as you can imagine, when carving out thebusiness could not be fully transferred for retaining the functionality of theoperation. As we said, the combination ofcontinuing to grow revenues and productivity, we are solving and managing someof these possible effects of cost that put us, very comparable to be back inour target of OpEx below 28% for the second half of next year. John Dryden - Charter Equity Research: Thanks for taking my questions,and good afternoon.

Thank you very much, John. Thankyou. Ladies and gentlemen, at this time, this will conclude the conferencecall. Thank you very much for your participation. If you have any follow-upquestions, please don't hesitate to call myself or any member of the InvestorRelations team for ST. Thank you very much, and have a nice day.

Ladies and gentlemen, theconference call is now over, and you may disconnect your telephones. Thank youvery much for joining. Good bye.