Didier Scemama - ABN AMRO Nav Shira - Lehman Brother Remi Thomas - Cheuveux Nicolas Gaudois - Deutsche Bank Simon Schafer - Goldman Sachs Cody Acree - Stifel Nicolaus Stuart Adrian - Morgan Stanley Jerome Ramel - Ixis Titus Menzies - Jefferies & Company Francois Meunier - Cazenove Matt Gable - Weiss Advisors

Hello and welcome to the STMicroelectronics Third Quarter 2006 Conference Call. All participants will be in listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. (Operator Instructions). For your information, this conference is being recorded. I would like to turn the conference over to Mr. Stan March, Group Vice President, Investor Relations for STMicroelectronics. Mr. March, please go ahead.

Thank you, Vicky, and thanks to all of you for joining us for this STMicroelectronics conference call. Hosting the call today is Carlo Bozotti, the President, Chief Executive Officer of ST. And joining Carlo in Milan are Alain Dutheil, Chief Operating Officer; Carlo Ferro, our Chief Financial Officer; and Philippe Geyres, our Executive Vice President responsible for the product groups. I will just cover two housekeeping points before we begin. First, for your questions, which will come at the conclusion of Mr. Bozotti's comments, in the interest of moving through as many questions as possible and to get everyone who has a question able to ask at least one, please limit yourself to one question and one follow-up; and then if you need to, return to the queue. And then also, please note that many of the comments today are forward-looking, and as such are covered by the disclosures that were in our release that was issued last evening, as well as the risk factors that are in our most recently published 20-F. And with that bit of housekeeping, I will now turn the microphone over to Carlo Bozzotti for his comments. Carlo?

Thank you, Stan. I would like to welcome all of you to this conference call. As our financials results for the third quarter and nine months demonstrate, ST continues to make steady progress in improving the performance of the company. First, we have regained market share. This began about one year ago and we have continued since then. Revenue for the third quarter increased 11.8% year-over-year and is up by 13.5 % for the year-to-date. In comparison, the industry has grown approximately 8.5% so far this year. Based upon our outlook for the fourth quarter, we expect to grow the top-line approximately 11 to 13% in 2006. And we believe our strength being broader portfolio and customers' initiatives, positions ST to continue this market share growth next year. Secondly, we have made great strides in improving our profitability. Specifically, ST has delivered significant year-over-year growth with third quarter operating income at 90%, operating margins expanding 320 basis points, and earnings per share more than doubling. In fact, I would also like to emphasize that this is the fourth quarter in a row of earnings per share growth on a year-over-year basis. Thirdly, we have clearly propositioned the cost structure of the company over the last year and a half. Improvement in profitability is not a result of higher revenues alone. Both, our gross margin for the third quarter and our fourth quarter gross margin outlook, demonstrate that our cost restructuring initiatives are delivering. Even with limited sales average from Q3 to Q4, we expect to show sequential gross margin improvement. In addition, to some extent currency volatility has clouded the level of underlining improvement in our cost structure. And finally, the careful management of capital investment has been a key priority. This is evidenced by both improvements in return on net assets, or RONA, as well as capital intensity trends over the last two years, listing growth in RONA in each quarter of 2006. For the third quarter, our RONA was about 10% and is now at a similar level to our weighted average cost of capital. We have more improvements to come, but we are clearly showing progress on this front. Our capital spending trend had important implications for the depreciation levels going forward. Based upon our fourth quarter plan, we anticipate that our 2006 capital spending will be approximately $1.6 billion, or $200 million lower than we had previously communicated. I am pleased to say that we have been able to meet our investment requirement by more efficiently utilizing our worldwide resources. And for the second year in a row, our annual capital spending level would be below depreciation. A lower depreciation level in 2006 -- in '07, set to decline by approximately $150 million from 2006, will be an important level together with greater manufacturing efficiency and our richer product portfolio for gross margin improvement in 2007. Now, let's turn to our financial review for the third quarter and the nine months. Our largest sector representing over half of our revenue is the Application Specific Product Groups. Their products have the core focal point of our R&D reorganization, which occurred last year. We have started to see the benefit of an improved product portfolio in our figures and anticipate even more benefit as we move into 2007. While ASG's revenues were essentially level with the second quarter, operating income rose 16% to $125 million from $108 million. We benefited from an increase in wireless volumes as we made some mix improvement. For the first nine months of this year, ASG's revenues are up 10%, with operating income sharply higher, posting a 50% increase. Our operating margin for this group was 9.1% for the quarter and 8.1% year-to-date, demonstrating substantial progress in comparison to the year ago periods. Advances in ST's product portfolio are already visible in the results of MPA. As we said in this quarter, we are absolutely delivering on plan for growth and for margin expansion in this group. MPA sales increased 6.3% sequentially, looking at the year-to-date performance. MPA sales are up almost 19% higher than any other group and operating income is up even more at 27%. From a profitability standpoint, MPA is also the leader with an operating margin of 15.7% year-to-date. Overall, this impressive performance by MPA confirms the shrewdness of our strategic decision to focus on advanced analog ICs and complete solutions for the industrial market. In MPG, our primary day-to-day focus is on maintaining the positive operating income through technology migration and manufacturing excellence, as we continued to do this quarter. The environment remains tough, especially NAND, with price pressure ongoing. On a sequential basis, Flash memory sales, which are about 15% of total ST sales, decreased 7% to $375 million. Just briefly touching on operating expenses, you can see from our numbers that we continue to manage carefully where and how we invest and this focus will continue. We did increase R&D spending in the quarter by 3%, driven by important effort in process technologies and dedicated products. On inventory, we saw turns decline slightly to 4.1, as shipment in the third quarter were below initial expectation. Given this deterioration in turns, we would be carefully managing factory [auditing] and plan the holiday closing of certain fabs to improve inventory levels. However, within the current environment, we do not expect to meet our 4.5 inventory target in the near term. I would like to highlight one additional area of significantly improved performance for ST and that is cash flow. We have continued to systematically generate positive cash flow for the past five years, and as you have seen, ST generated over $0.5 billion in net cash from operating activities in the first nine months of 2006. We expect this trend of positive cash generation will continue. Now, let's move to our outlook for the fourth quarter. For the first nine months of this year, the semiconductor industry has grown about 8.5%. We expect growth to moderate for the remainder of the year as we see some correction in the current semiconductor cycle that may last a few quarters. As a result, we would expect that ST's sequential growth would be below our historical level with wireless and automotive sales anticipated to be below normal -- normal seasonal trend. Automotive will be affected by market weakness, particularly in United States while wireless would suffer from a product mix towards the low end. This leads to an expected fourth quarter revenue growth range between minus 1% and plus 5% on a sequential basis. Importantly even though our fourth quarter revenue outlook reflecting industry condition is somewhat lower than what -- than we would have anticipated earlier in the year, we expect to continue see gross margin progression. Our fourth quarter gross margin is expected to be about 37% plus or minus one percentage point. This guidance demonstrates the leverage of translating over 90% of incremental sales to gross profit. Our revenue and gross margin outlook assumes an average effective rate of 1 EUR to $1.265 for the fourth quarter. So ST is making important progress across our three major initiatives. We are strengthening our product portfolio, increasing our market share, and improving our returns on invested capital. However, these results are not the end of our efforts. As I just touched upon, there is a correction underway in the current semiconductor cycle, which has caused us to lower our 2007 market growth expectation to about 6 to 7%. Despite this tough environment, ST is poised to again significantly outperform the market. To drive towards this level of performance, we will continue to execute our customer, regional, and new product initiatives. Now, let me share with you our most important strategic initiatives underway. First in technology R&D, we are addressing the likely changes in the Crolles2 Alliance. We are not waiting. We have potential solutions in our hands already, and through these new partnership options, we will continue to lead the way in CMOS technology development below the 45 nanometers. Second in Flash memory, we are pushing industry consolidation and financial reconsolidation. Let me just say that we are dedicated to a solution here and believe the current environment better positions ST to achieve this objective. Once completed, this will increase our asset turns as well as increase operating margin. And third, ST will evolve (inaudible) capital intensive company. As you know in the past, ST's CapEx-to-sales ratio has been in line with the industry average of 20%. We have been successfully improving our capital spending levels over the past two years bringing this ratio down from 22% to 16% or so by the end of this year. Looking forward, we are working to shift the ratio towards a new target of 12% through a combination of a less capital intensive product portfolio, increased usage of (inaudible) for nonproprietary technologies, and optimization of our manufacturing resources. In summary, we are pleased to see the progress in return on net assets over the past seven quarters from 1.5 to 10%. These additional actions are being implemented to further expand our RONA as we strive to move into and remain within our targeted range of 12 to 20%. My colleagues and I would now be happy to take your questions. Thank you.

Thank you Carlo. Vicky, we will now go the question-and-answer session.

Thank you. (Operator Instructions). The first question is from Didier Scemama from ABN Amro. Please go ahead sir. Didier Scemama - ABN Amro: Hello.

Hello, Didier. Didier Scemama - ABN Amro: How are you?

Good. How are you? Didier Scemama - ABN Amro: Good. Thanks very much for taking my questions. Two things I would just like to clarify, if I may, the comments you made this morning regarding Catania M6 and perhaps if you could give us a bit more details on the alternatives you have for Crolles2. So my question about M6 is did I understand well that because you think that Freescale and NXP are potentially going to get out of Crolles2, you don't need M6 for logic and you're going to allocate that capacity for Flash, am I correct there? And second, what are your alternatives for Crolles2 alliance on the basically next generation manufacturing process technologies?

Okay Didier, this is Alain Dutheil answering. In fact on Catania M6 what we've said is that Catania is going to be within the perimeter of the initiatives we will take on the Flash memory, and therefore, yes, you're absolutely right. Catania would be devoted to flash and the [unsettled] position, we will clear when needed. But yes, it's not going to be dedicating to CMOS logic, but to flash memory. About the Crolles, what we said this morning is that of course there might be some new things happening with the change of the shareholders in both our partner. We are not sure about it but we need to get prepared, and therefore we have explored several possibilities, and therefore whether or not the alliance or the partners in the alliance stay with them or not, we will have a solution and we have prepared for a solution. In fact we have several solutions which are possible in order to keep developing the technology and of course all the derivatives in Crolles2. Didier Scemama - ABN Amro: Okay, I completely understand. Is there anything that we should read into the stiffness of the ramp up for Nomadik and 3G basebands as a result. Meaning perhaps the ramp up is slower than expected and therefore you don’t need to ramp Catania M6?

Today we have a mix currency that is more towards the low-end phone, but we believe this is an issue for one or two quarters. The global trend of the evolution towards 3G or towards high-end phones has not changed and we are not changing or we don’t plan for these, not even 2007 quarter. Didier Scemama - ABN Amro: Okay, final question may be so for Carlo Bozotti, if you could give us an idea of the number of parties you are talking to for your JV in flash, whether that includes the NAND business with Hynix in Wuxi, and I am sure I am asking too much, but if we could have an idea of the timeline for this potential deconsolidation?

Yes, I think that we are talking to a number of potential partners on this. Of course there is only a few numbers but, a few of them and I believe that the vision that we have is that this would concern all the flash activity in [fees] including both NOR and NAND. And in terms of let's say, a timeframe, what we have in minds is a few months from now. Didier Scemama - ABN Amro: Okay. Thanks very much.

Thank you. Okay. Vicky.

The next question from Mr. [Nav Shira], Lehman Brothers. Please go ahead sir. Nav Shira - Lehman Brothers: Thank you very much. Good afternoon gentlemen. Carlo, I just wanted to come back to your long-term targets or goals, the return on net assets of 20% and double digit EBIT margins, would these be with the company structure having legally separated out of the Flash memory business, am I reading that correctly? So, would that be for the remainder of the business?

You know what, we are two Carlo's here, so I take the question.

Two Carlo's.

No, I think that, for us it's important to show a continuous improvement trend. When I started with the new management team, of course we started at the beginning in the second quarter of 2005 our return on net assets was below 2%. In six or seven quarters, we moved from 2% to 10%. And we believe that with or without memories we have more opportunities to improve in terms of the return on net assets, and I believe that we have presented for the first time, well in fact, we have presented for the first time in London during the analyst day our financial model and we want to be consistently above 12% RONA. We have given a range from 12 to 20%, and of course this -- then the performance may depend on the specific semiconductor cycle. We will gain, I believe, that we have gone from 2% or less than 2%, we need to do more progresses from 10 now up into the mid-point of the range and I believe that we will not change this model depending on the results of the memory initiatives. Nav Shira - Lehman Brothers: Thank you very much, that's clear, just a quick follow up. Would you envisage 2007 capital spending to be down versus 2006 at this stage?

Yes, the percentage of sales is going to be down, and then of course it will depend on the level of our sales. But for sure, the percentage of sales is going be below 16% Nav Shira - Lehman Brothers: Thank you and one more thing. I think I heard this morning that you had reached your goal of 10% of the Bluetooth market already; I just wanted to confirm I heard that correct?

Yeah this is in Q4 we believe we are at this run rate, so we are -- we did not achieve it Q3 but we believe right now we are there on this run rate. Nav Shira - Lehman Brothers: That's brilliant. Thank you very much.

Okay, Vicky, next please.

The next question is from Remi Thomas, Cheuvreux, please go ahead. Remi Thomas - Cheuvreux: Thanks and good afternoon. I understand from this morning's presentation --

Excuse me. Can you please -- better? Remi Thomas - Cheuvreux: Is that better now?

Yes. Remi Thomas - Cheuvreux: Okay. I understand from this morning's presentation that you were quite bullish on the fourth quarter for digital consumer. I remember that there were some technical issues with the ramping up of high-definition set-top box in Q2, on the sense some of the large suppliers' set-top box that there were still come issues, although they’re working around them. But they don’t expect a new version of the ST7100 to be available until earlier next quarter. So, can you just clarify what's been happening with the technical issues that you've been -- you and the others obviously have been meeting and also can you tell us about the ramp up that you're expecting in terms of outputs for that chipset going forward, and how you see the business evolving sequentially in Q4?

First on the 7100, this chip we still have some customers who are simply breaking the boxes, but we have customers who are using this chip in volume; by volume, I mean millions; since several months. So this chip is deployed in volume in shipping. And there are many boxes, many specific issues related to specific condition or access, operators or customers or software, so -- but the 7100 today is shipping in volume. Regarding the evolution of the market and the growth, this morning we were commenting on the trend this quarter and next year. Now if we look, let's say, 2007, yes, we actually are confident on a good growth in 2007 because of deployment of HD, in particular in America, but also in Europe, deployment of IT set-top box everywhere in the world, with telecom operators being very bullish in deploying this service keep their subscribers. We are also seeing good growth from cable in China and the US. And so the 2007, yes, we are positive in the specific Q4, it's not particularly strong. I would say, it's normal seasonality, maybe a little less strong that usual, but this is really a [spot]. Remi Thomas - Cheuvreux: May I just ask why you would expect seasonality to be less strong than usual and what would be normal seasonality in these specific segments?

No. We were referring to Q4 2006, so we are already in the middle of the quarter. So, we will start to get some visibility on the quarter, and when we see the level of backlog we have and the level of activity, I would say it's a quarter not more -- in some area they are little softer, in particular in the areas of [finality]. Remi Thomas - Cheuvreux: Okay. Alright, thanks. Thanks a lot.

Thank you, Remi.

Thank you.

The next question from Mr. Nicolas Gaudois, Deutsche Bank. Please go ahead, sir. Nicolas Gaudois - Deutsche Bank: Yes. Good afternoon. First question would be on utilization rate. Alain, if you could give us the usual level for 6 to 8-inch in the quarter? And how you would see this evolving into Q4 and linked to that, how long do you think it will take for the excess inventories you currently have on the balance sheet to be -- if they could be up sold?

Yes. Utilization rates in Q3 was to be precise, 89%, and profit both for the 6-inch and the 8-inch were on the same level. Now, what we are planning to do in Q4 is to shutdown some of our fab -- most of our fabs between Christmas and New Year. So this, of course, will help decreasing our inventory. And outside these are shutdown, our utilization rate will be probably at the same range for year or a little bit below. So, we shutdown to decrease the overall production and at the same time, probably our utilization rate will be slightly below or about the same as in Q3. On top of that, we are going to have, let's say, little bit less subcontractor activity. It was about 10% in Q3 and is going to be between 9% and 10% in Q4. So, also they are making a slight adjustment. Nicolas Gaudois - Deutsche Bank: And how much of the total capacity internal would you shutdown for these couple of weeks exactly?

Probably it is going to be -- probably about 60% more than -- this is a rough estimate, because in some technology we still need to run our production, but 60% to 70% may be shutdown. Nicolas Gaudois - Deutsche Bank: Great, excellent. Just on the operating charges side, we have been reasonably predictable recently. Can you give us an idea on how this is developing into your fourth quarter, both R&D and OpEx, and maybe also next year what kind of levels you should think about?

Carlo will answer you.

Yes. So, we did close the third quarter with 27.2% OpEx, so to say it is a ratio which is one inline with our objective and you may have [thought] that SG&A is also $2 million lower than prior quarter and R&D shows some increase, which is mostly to accelerate process technology and improvement in product development. Going forward for the next quarter, I would not expect very significant changes in respect to current rate. So, other than two ingredients. One is that Q3 is somehow benefiting from seasonality of vacation in Europe, so normally Q4 in absolute dollar is somehow higher than the Q3, but this is something that we are also controlling and trying to mitigate it. And the second one is a technical point, which I would like to anticipate and accept that when the stock compensation charge is up and the [grants] of 2005 software is well already incorporated in our third quarter expenses, while the 2006 plan has been just recently granted. The effect of that is that of the first -- the cost of the first year for 2006 stock expense plan, instead of being distributed in four quarters is going to be distributed in two quarters, that's Q4 '06 and Q1 '07. So in these two quarters, we are going to add approximately $15 million of additional expenses for stock compensation charges. I think that we remain going towards 2007 focused on our objective to continue to keep and improve OpEx to sales ratios. Nicolas Gaudois - Deutsche Bank: Okay. So effectively excluding these stock comps, basically the ratio of OpEx would be largely the same into Q4, basically OpEx.

Yes, correct. Nicolas Gaudois - Deutsche Bank: Okay. And just very, very briefly, clarification on your guidance for the wireless side. You are basically saying softer than normal seasonality. Softer means for you growth, but not as much as usual or potentially down a bit and is this primarily some inventory absorption or more mix related? Thank you.

No, we see -- this is Philippe Geyres. We see the total wireless volume in Q4 good and growing, but with the higher mix of low-end 2G phones and less 3G high-end phone than expected. But in total, we expect the sales to grow in Q4 versus Q3, but moderate growth while usually in Q4, we have the strongest seasonal effect. Nicolas Gaudois - Deutsche Bank: Okay. Thank you very much.

Thank you Nicolas. Next please, Vicky.

The next question from Simon Schafer, Goldman Sachs. Please go ahead, sir. Simon Schafer - Goldman Sachs: Hi there, good afternoon.

Good afternoon. Simon Schafer - Goldman Sachs: I was wondering whether you could give us an update on the shareholder agreement, specifically the balance there, that amount outstanding still exists until 2008, past quarter of 2008. Could you give an update of what the latest status is there? Do you need shareholder approval to change any of those details?

I think, the question -- of course, it's difficult to comment on the [outlook] of our shareholders. The agreement among our shareholders are disclosed in our quarterly MD&A and our quarterly reporting, and there are no changes, at least there are not to our knowledge. But I will say in this case we should disclose changes irrespective to what has been already reported in the prior 20-F and in the most recent 6K MD&A filed. Simon Schafer - Goldman Sachs: Am I right in understanding that under the current structure, it's relatively difficult if not impossible to be receiving a hostile or even friendly bid in terms of consolidation or private equity interest without a change in this agreement? And do you require to hold an EGM in order to make changes to those details?

Your understanding came from having carefully read I guess all these disclosures and the reporting also you have read from our (inaudible) interpretation. So, I would prefer not to comment and I believe that it is really from our -- if you are interested first on to look at the relevant documentation which is filed. Simon Schafer - Goldman Sachs: Okay. And then you in your remarks have referred to some market share gains that you have been making. Could you point us to some details, I think, maybe Bluetooth was one of the areas that you have mentioned already, but what are the kind of areas where you think you've been gaining market share?

Well, I think that overall the semiconductor market this year will grow 7 to 8%, and in the guidance that we have provided for Q4, our growth will be in the range between 11 and 15%. And in the first nine months, the markets grew about 8.5% and we grew 13.5%. I think that this year, the areas where we see some significant gain in market shares are all the MPA products, the analog products, all discrete products. I think it is good improvement in personal market share. And in general, I think on the HPC portion, that is a combination of dedicated wireless products, consumer products, some telecom infrastructure products. And through the second quarter also a significant gain in the area of non-volatile memories, which we believe (inaudible) in Q3. So these are the areas where the market share contribution was stronger -- the market share gain contribution was stronger. So repeat [NPA] in general on all of the products that they own, HPC, so the combination of consumer and telecom and through the first half of the year also the non-volatile memories. Simon Schafer - Goldman Sachs: Great. Thank you for that.

Thank you.

The next question is from Cody Acree from Stifel Nicolaus. Please go ahead. Cody Acree - Stifel Nicolaus: Yeah. Maybe I can just ask if you can follow up there, a little more clarity in the consumer and telecom markets. I know a lot of R&D has been spent to refresh product portfolios there, can you drill down into any specific verticals where you think you either have already made some significant share regains or where 2007 promises to accelerate those gains?

Yeah. If we talk by telecom, in wireless, 2006 was the first -- is the first real volume year for connectivity -- Bluetooth, wireless LAN, and since it is a year of comfort we'd continue to have good growth next year -- by good growth I mean nearly doubling or about doubling. And second, Nomadik is now shipping in volume. You can buy your Samsung phone with Nomadik in the shops. So this is contributing a little now in Q4 and will be significant in the year 2007. Then in the major line that we are having wireless which is ASICs for baseband, we continue to see our traditional customers and products growing. They have been growing this year. They will continue next year helped by hopefully now the shift accelerating from 2G to 3G where we have a higher content and we are shipping in volume next quarter the digital baseband 3G to a new customer. This is a major addition to our revenue for 2007. We also won a significant energy management ASIC as the first customer which will be end of 2007 start of production. And rapidly on consumer, we see of course the high-definition and advanced codecs H.264 and VC1, this is driving the growth both in set-top box and in digital TV. In all areas, we see cable, we are getting share in the US through Scientific-Atlanta that is himself gaining share. We are enjoying the boom of cable in China and IT set-top box is being developed by all telecom operators, and we have a very strong share there about 50%, 60%. And in 2007, we should come back stronger in the US satellite where we did lose some share in 2005 and we restarted significant design wins in 2006 and they will pay off starting now. On wireline infrastructure, telecom infrastructure now, we also have a new strategic partner, Cisco. We've been awarded the status of preferred supplier of Cisco and this started to contribute to additional sales in 2006, and with long cycle times in these type of applications, we are going to see -- continue to see positive effects in 2007 and beyond. Cody Acree - Stifel Nicolaus: Great, that's extremely helpful. Maybe a follow up on the income statement, you have a lot of strategic initiatives, a lot of restructuring benefits coming through already in gross and operating margins, but could you, may be one of the Carlo's talk about some targets for gross margins through '07 and where do you expect operating expenses to start to stabilize or at least what you'd like to see them as you exit the year?

Which Carlo? Cody Acree - Stifel Nicolaus: Whoever will answer the question?

As some of you may note this morning that we have addressed at some analysts, investors, and press present here in Milan at our conference and we have provided the value, the ingredients of our roadmap going forward. I would say that we are quite happy on having two quarters ago elected to grow step by step presenting middle-term vision of the model and quarter-by-quarter objectives and delivering these results quarter-after-quarter. So, I would say it would not be the appropriate time to throw a number for gross margin on the next year or provide guidance. At the end, the ingredients are always the three major blocks, the one of business expansions, the one of the new product that some of the questions have already addressed and the one of the opportunity in the manufacturing costs. On the opportunity on the manufacturing costs, we are now facing the results of having completed the various plans. In London I have talked about the $350 million of net savings in costs of goods sold from Q1 '06 to Q4 '06. In the third quarter results, we have $200 million unrealized of course out of these vendor (inaudible). They remain $150 million unrealized that will mostly occur in the fourth quarter when the managed goods manufacturers in Q3 would be able to make a result. The effect of these additional $35, $38 million benefiting the quarter are the most relevant driver of our 1 point margin progression from 36% in Q3 to the 37% midpoint anticipated for Q4, somehow also mitigated effect by some effect of loading of the fabs and due to the opportunity (inaudible) of reducing the activity at the end of the year that align as new service. Going towards the 2007, our objective is to continue to reduce the manufacturing costs and the objective for the wafer cost is a 15% from Q4 '06 to Q4 '07. And this is based on accurately identified opportunities inductions. First of all, the rollover of the depreciation on the 2001 investment that's coupled with a mitigated capital spending in the last two years and (inaudible) in 2007 will reduce the depreciation by at least $150 million from 2006 to 2007. Then there are opportunities of increasing volume, and we will be going through the learning curve towards manufacturing activities that resulted from the fixed infrastructure, for instance, (inaudible) 8-inch fab that frankly just recently stepped up, the Singapore 6-inch and this could be another significant contribution. In (inaudible) the move up towards increase of capacity will reduce the wafer cost in 12-inch for the internal tools of logic, and the manufacturing joint venture Wuxi, our joint venture with Hynix, manufacturing Flash NAND in China will provide in 2007 low cost NAND wafers into 8-inch, that will be another contribution. So, that -- these are to mention some of the most important drivers in the cost structure Cody Acree - Stifel Nicolaus: Hello, any thoughts on the operating expense line next year.

I said earlier on addressing Nicholas' question that other than I would say, the effect of these additional charges for stock compensation, some I would say normal and mitigated and well-controlled dynamic on the expenses evolution year-over-year, which obviously is always the case of a large company like us, we will not see any significant change in our cost structure, nor upside nor downside and of course leveraging on higher savings we do expect to continue to move towards a lower operating expenses (inaudible) ratio in 2007 (inaudible) 2006. Cody Acree - Stifel Nicolaus: Thank you, very helpful.

Thank you, Cody.

Okay, Vicky, the next question please.

The next question is from Stuart Adrian, Morgan Stanley. Please go ahead sir. Stuart Adrian - Morgan Stanley: Yes, hi, there. I just wanted to go back to your Nomadik comments earlier, and just ask, Samsung has ramped and products are available. Are we expecting another OEM to ramp in Q4, and when do we expect Nokia to ramp Nomadik-based products? And then on the 3G baseband, did we expect that in Q4, or is it going to be first half of '07 ramp plan? Thanks.

So, on Nomadik in the consumer and productions, we said that we have two other Tier 1 customers designing Nomadik. We expect one of them to be in production next quarter, Q1 '07, and we expect the second one to be in production in the second half of '07. Stuart Adrian - Morgan Stanley: And have they changed at all, is that --?

No. All this has been the plan. Stuart Adrian - Morgan Stanley: Okay.

On the 3G baseband, we are going to ramp up very early 2007. It was supposed to ramp up by the end of this quarter, it delayed by one month or two. It will start really in January '07. Stuart Adrian - Morgan Stanley: Okay.

But it’s an initial shift of the start date. It is globally the same [platform], but we have seen significant volume quite fast during the quarters of -- during the May of '07. Stuart Adrian - Morgan Stanley: Okay. And then could you just talk a little bit about the hard disk drive market? I think you expected some softness through the third quarter, is that the way that it played out and what are your expectations going into the fourth quarter, specifically as it relates to Seagate, there seems to be quite a lot of commentary about relative market share shift between yourselves and Agere there? Could you provide some color around your expectations?

Yes, indeed we were expecting Q3 to be softer. It has been soft. We're expecting Q4 to be better, benefiting in Q4 of the effect of Maxtor being acquired by Seagate, which is benefiting us too, and (inaudible). This positive effect we shall fill it more in Q1 '07 or in Q4 '06. Stuart Adrian - Morgan Stanley: Okay. Thank you.

Okay. Thanks Stuart. Vicky, next question please.

The next question is from Mr. Jerome Ramel, Ixis. Please go ahead, sir. Jerome Ramel - Ixis: Hi. Good afternoon. Just wanted to come back to your long term target of CapEx on sales of 12%. I just wanted to understand what will your implied target for outsourcing [towards foundries]? And also more importantly, if you assume 12% CapEx on sales ratio, what is the implied sales growth that you have in your [more early] goal. If we are talking about 5 or 6% sales growth, capital intensity is not going to change. But we are still talking about 8 to 10%, then there is something changing. So, I just like to understand little detail this point.

Yeah. In fact, we are assuming at least for next year to move up 14% via outsourcing, so obviously from about 10 to 14%. You need to keep in mind also that we are working on decreasing our CapEx -- on working on our portfolio and, of course, as you know memory is one of the product family, which is very intense in term of CapEx. And the assumption -- long-term assumption for the market today involves 8%, then 12% in the (inaudible) as we are having now. Jerome Ramel - Ixis: Okay. Thank you.

Thank you, Jerome. Vicky?

The next question is from Mr. Titus Menzies, Jefferies & Company. Please go ahead, sir. Titus Menzies - Jefferies & Company: Good morning, gentleman. Thanks for taking my call. Just two questions basically, one on the inventory. Could you give us some color on what base of the level of entry is between you guys and your distribution channel, and in terms of lead times, you seeing right now? And secondly, in terms of you are also booking up backlog. How much of that is reflected in your current top line guidance?

About the distribution channel, we see that -- we are talking about inventory and our focus on channel, which we judge as being, of course, low inventory to us. This was not the comment on the distribution channel. The distribution channel used to be quite normal. In fact, we had a review few weeks ago and we have all -- marketing guys in the region and their judgment in the front of a distribution channel is absolutely normal. So, this is a good sign, and we should not to see any adjustment of inventory at that. As far as the second part of your question is concerned, I didn't catch it clearly. Titus Menzies - Jefferies & Company: Is your guidance inline with your backlog?

Yes, absolutely. Our guidance is absolutely inline with the backlog. The inventory when we enter the quarter, we have about 90% coverage and I think the coverage (inaudible). Titus Menzies - Jefferies & Company: Thank you, guys. I appreciate that.

Absolutely. What Alain said, it is quite normal for us, when entering the quarter in the ratio between backlog and (inaudible) our guidance, which is in the range of about 90%. Titus Menzies - Jefferies & Company: And just one lastly, if I can just reconcile in terms of the -- your NOR Flash business. Resource of the pricing environment of pickups of late August and throughout September, so in terms of the weakness you saw in your MPG group, how much of that is back of pricing and how much of that is back of unit weakness? And are you seeing the same thing rolling out into the fourth quarter?

We are not continuing price pressure, and in this market, there is no real price picking up. The pressure is more or less intense, which is always there, so we saw that continuing in Q3. Then, there was also in the [sensitive] case of NAND, some more static approach and the volumes in NAND has been less than usual, though the price pressure is still in the range of mid single digit decrease every quarter. Titus Menzies - Jefferies & Company: Thank you gentlemen.

Thanks Titus.

Vicky, please the next question.

(Operator Instructions).

Okay.

And the next question from Mr. Francois Meunier, Cazenove. Please go ahead, sir. Francois Meunier - Cazenove: Hello, it's Francois from Cazenove. A question for Philippe. Just to come back to your market share in Bluetooth, could you confirm if there is market share in units -- in handsets and that most of this market share gains came from (inaudible) lower market share at Philips.

Well, we know the customers we win, we don’t know who we displace. I am not sure we can. So -- when I say 10% market share, 10% of the handsets. Today our sales are down in handsets as opposed to headsets and accessories. Next year will be different. We are working on major designing in the headset market, but this will be 2007 sales. Today, we've achieved 10% of the handset market in units. Francois Meunier - Cazenove: Okay, thanks. Now a question for Carlo, in terms of the (inaudible) you were alluding to in terms of the NOR Flash business. If I remember or maybe left you at the same point, you were also saying it would open by the end of the year, and it did not turn out to open. What makes you more confident this year that it is going to happens, although something is going to happen?

Well, I think that first of all it is worth that in the meantime we have greatly improved our financial performance in the memory products. I think it is very positive for -- of course to all of us. I believe that the conditions that we see today in the market to move on and meet our two objectives that are from one side industry consolidation and on the other side financial reconsolidation, from ST I believe that today these conditions do indicate that we are getting closer to meet the objectives. Having said so, (inaudible) and I already mentioned this a few minutes ago, we believe that this will take another few months to go, but it is a very important initiative for us, is a very important initiative for our memory group. The objective is to increase the dimensional scale on what we are doing and then isolate and consolidate the business. I believe we are in better condition today than what we had two months ago and there is from our side a strong motivation to move on rapidly. Francois Meunier - Cazenove: Okay thanks. Now for the gross margin improvement in Q4 from 36 to 37, what is due to a better product mix and what is due to genuine cost reduction?

This is mostly due to better manufacturing performance. It is very much driven by the improvement that we are having quarter-after-quarter in manufacturing, and I believe that the full impact of our 6-inch restructuring we have not seen yet. In 2007 we will have more rolling off of depreciation next year. So there is a continuous improvement quarter after quarter of our manufacturing performance. Of course, the price pressure is there. The price pressure has been significant this year and I believe that one element that we had to compensate for the price pressure is to improve our mix. We believe we are doing both in terms of more important higher ways of certain higher margin families on one side, in any of our product divisions, there is a specific effort to improve the mix and this is starting to payoff. In terms of new product introduction, I believe that this year is a turning point. Philippe has mentioned, very much in detail earlier, a way of new initiatives, new customers, new products that we are introducing and I believe that the full hit of this major outflow of new products will be in 2007. Francois Meunier - Cazenove: Okay, so you --

Yes, we are pleased, as you know, we are not giving guidance in gross margin, but we are pleased with what the progress is. Despite our currency aggravation, and we have moved from 33% to 37% in two quarters, and we believe we have other potential for further expansion.

Okay. Vicky, we have time for two more questions, please.

The next question from Mr. [Matt Gable of Weiss Advisors]; please go ahead, sir. Matt Gable - Weiss Advisors: Hi, thanks. Could you just repeat what you were saying about the memory division in a couple of months, did you mean -- what do you expect to happen in a couple of months?

I did not mention a couple of months. I think that the objective that we have with the memory group is two-fold. Number one is to push industry consolidation to provide the proper dimension of scale in our memory activity -- to our memory activity. The second objective is from a financial point of view to deconsolidate this activity from ST, and I said that the conditions today are more favorable for us to move on with our two objectives. And I said that this may take few more months. So, this is of course -- the present feature is a very important strategic initiative in ST and we are very motivated to move on this line. Matt Gable - Weiss Advisors: Okay. Thank you very much for clarifying. I appreciate it.

Thank you.

Okay. The last question, please, Vicky.

The last question from Remi Thomas, Cheuvreux. Please go ahead, sir.

Remi, we did the cycle. Remi Thomas - Cheuvreux: I know but I did wait in the queue to get back.

Thank you.

Thank you. Remi Thomas - Cheuvreux: The digital baseband, the 3G digital baseband, first of all does that come on top of the one customer that you already had before which you never said the name, but some of us suspected it might be EMT? And secondly, what sort of ITL would you own on this one, in another words, would you still be acting as kind of a foundry although I know you're going to deny that or is it something that you've designed yourself?

Well, we have been speaking of one new customer with whom we would be doing a 3G digital baseband, which is this one that is now nearly going into volume production, we'll be in volume production in January. Now, this chip is an ASIC. The design itself belongs to our customer, but of course, on this the chip is a combination of system know-how and design from the customer and a lot of process, library design block know-how on it. Remi Thomas - Cheuvreux: Okay.

But it is not a foundry. It's much more than a foundry. Remi Thomas - Cheuvreux: Okay. And are you hoping to get additional customers? I mean is there anything we could find out in the coming quarters or is it pretty much going be the one customer?

No, we -- until we reach 100% market share, we will continue to try to grow. Remi Thomas - Cheuvreux: Okay.

We have more opportunities to add customers in all our wireless business, and I think it is great news. It is getting better and is wider range in terms of products and is wider range in terms of customers. Remi Thomas - Cheuvreux: All right, thanks a lot.

Thank you.

Okay.

At this point, we would like to thank everyone for participating in the conference call. I would like to make one additional comment and that is that the webcast of today’s presentation that was held at the Borsa Milano is available on the website as well the presentation available for downloading. And, we appreciate everyone's participation and we look forward to speaking to you soon. Thank you very much.

Thank you.

Ladies and gentlemen, the conference call is now over and you may disconnect your telephone. Thank you very much for joining and good bye.