Stan March - VP of IR Carlo Bozotti - President and CEO Carlo Ferro - CFO Alain Dutheil - COO Tommi Uhari - Product Groups Carmelo Papa - Industrial and Multisegment Segment Andrea Cuomo - Chief Strategy Officer

Nicolas Gaudois - Deutsche Bank Amit Kapoor - Piper Jaffray Didier Scemama - ABN AMRO Sandeep Deshpande - JP Morgan Titus Menzies - Jefferies & Company Simon Schafer - Goldman Sachs Cody Acree - Stifel Nicolaus Mark Lipacis - Prudential Manish Goyal - TIAA-CREF Tristan Gerra - Robert W. Baird

Hello and welcome to the STMicroelectronics Fourth 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 call over to Mr. Stan March, Vice President, Investor Relations for STMicroelectronics. Mr. March?

Thank you, Vicki, and thanks to all of you for joining our conference call today to discuss STMicroelectronics fourth quarter and full year 2006 financial results. Joining us on the call today and hosting the call from Paris today is Carlo Bozotti, our President and Chief Executive Officer. We have also, joining Carlo, Alain Dutheil, our Chief Operating Officer; Carlo Ferro, our Chief Financial Officer; and three other members of our Executive Committee. We have Tommi Uhari who is representing the Product Groups. We have Carmelo Papa, who is representing the Industrial and Multisegment sector; and we have Andrea Cuomo, the Chief Strategy Officer. Just would like to make a few announcements before we begin. First of all, I think all of you know that we are going to try to work through as many questions as we can. So please keep your questions to one and with a quick follow-up and if you have subsequent questions, please reenter the queue. We should be able to get through all the questions given that this is a follow-on event to our earlier conference that we held here in Paris and separately, but importantly, you should also know that several of the statements that we make today are forward-looking and as such, are covered by the risk factors and other items that are covered both in our press release, as well as in our regulatory filings including the 20-F. So with that bit of administrative background, I would like to turn the microphone over to Carlo Bozotti, for some introductory comments. Carlo?

What if there was a way to promote your company to a perfectly targeted group of potential customers, partners, acquirers and investors? What if you could tailor your pitch to them at the moment of maximum interest? And what if you could do this for a no-brainer price?:

Company sponsors partner's transcript: Company sponsors competitor's transcript: Issuer-sponsored research firm sponsors client's transcript:

IR firm sponsors transcript of micro-cap company: Consulting company sponsors company's transcript in sector of interest: Your company's name and promotion could have been on this transcript! Learn more, or email Zack Miller for details.

Well, thank you Stan, and thank you for joining us to all of you on our conference call today. I would like to focus my remarks on key main areas. First, the current market trend, and the way in selective key markets we serve and the impact on our fourth quarter and first quarter outlook. Secondly, the substantial progress made over the course of 2006, to strengthen ST; and finally I would like to share with you our roadmap of 2007. So let's get started with a review of the environment and our fourth quarter results. Looking first at the semiconductor environment, we did expect to see a moderation and correction in the market. We indicated last October that our sequential growth would be below historical levels for the company, with wireless and automotive sales below normal seasonal trends. We expected automotive would be affected by market weakness, particularly in the United States, while wireless would suffer from a product mix towards the low end. This was indeed the case. However, these strengths were more pronounced than we had anticipated. In particular, our wireless business came in well below historical seasonal patterns, leading to a sequential revenue decrease of 6.5% in telecom. As a result, our net revenues for the company decreased 1.2%, coming in at the low end of the range we had communicated. On the plus side, our consumer results were pretty good with sequential growth of 5%. Here, I would like to point out that Q3 is normally, seasonally stronger than Q4. This year however, our Q4 sales were higher demonstrating the good acceptance of our new products and improving position with selected customers. Industrial and computer were up about 2% each. As anticipated, automotive was flat, compared to normal seasonality for Q4 which generally shows sequential improvement over Q3. I believe having the global presence with automotive customers helped us, as weakness in the Americas was to some extent mitigated by a better automotive environment in Europe and in Asia. Lower than expected revenues and the less favorable wireless mix put additional pressure on our margins and operating performance during the fourth quarter. However, despite the sales performance and a tougher currency environment, we did see sequential expansion of the gross margin to 36.3%, due to our cost reduction activities that we have shared with you in the past. The resolution of the tax claim benefited net income in the quarter also. Turning to the first quarter, let me begin by saying that we see a continuation of the market correction in some of the major application we address. And the level of this multi-quarter correction is somewhat higher than what we had expected. As a result, our first quarter revenue outlook assumes a sequential decrease of between minus 3% and minus 11%. Looking to the full year 2007, we believe the semiconductor market should continue to show year-over-year growth, estimated in the range of 6% to 8%. But believe it will be back-end loaded compared to the quarterly trends of 2006. Essentially, 2007 to some extent is the reverse of 2006, with an expectation of a softer first half, and strengthen in the second-half of the year. Now, what is ST doing for that situation? Our key focus in our management is on managing the absolute level of our inventory, and this is a top priority in the first two quarters of the year. We finished 2006 with inventory about $50 million higher than we had at the end of Q3. Also this was exchange rate related, and the other half arose from revenues coming in at the low end of our outlook compared to the midpoint. Doing some simple math, revenues were lower by about $80 million, currency added $25 million, so our effort with factory loadings and closing certainly helped, but not sufficient. As a result, our revenue outlook and inventory goals, our gross margin in Q1 will reflect on favorable fab loading conditions, leading to a gross margin expectation of about 35 plus or minus one percentage point. Now, in spite of the weakness in the fourth quarter, ST delivered strong year-over-year improvement in financial performance. With revenues up 11% to $9.85 million driven by targeted [gate counts] up 48% year-over-year, and by our mass market effort or sales outside the top 50 customers, which rose 17% over 2005 levels. Originally, sales in Japan grew 31%, in a local market that was up 7% to 8%, while Greater China was up 16%. In summary, ST gained market share in 2006. Operating income increased by $433 million to $677 million. Net of other factors; 37% of the $972 million in incremental sales achieved in 2006 with the [EBIT lie]. Net income was $782 million compared to $266 million in 2005 and ST generated over $650 million in net operating cash flow during 2006. Looking at the key operating metrics, gross margin expanded 160 basis points; operating margin was up over 400 basis points; operating expenses improved to 27.7% over net revenues under our 28% target level. We improved the operating performance of each of our major product groups, and RONA improved to 8.8% substantially doubling from the level in 2005. So the signs are clear. Our product portfolio and marketing strategies, as well as our cost restructuring initiatives are delivering results for ST and are helping the company better navigate the current market production. Overall our market share is growing, our financial performance is improving, and our balance sheet is stronger. Now, before opening for questions, let's talk more broadly about our business objectives for 2007 and the continuous progress we plan to make, notwithstanding some negative hazards. In early December, we announced a corporate reorganization. As a result, on January 1st, 2007 we have organized our NOR and NAND Flash business into a standalone segment. Further, we are moving ahead on creating a separate legal entity in connection with our strategic repositioning of this business. The Flash Memory Group represented 16% of net revenues for 2006 and with the first quarter we will provide operating data. We are also driving a significant reduction in our capital intensity. This is visible, not only in our 2006 results, with our CapEx-to-sales ratio down to 15.6% from over 20% to just a few years ago, that's also in our guidance for 2007 spending. Specifically, we have set our initial capital expenditure budget for 2007, at approximately $1.2 billion compared to 1.5 in 2006, representing a 20% reduction. We have initiated a new CapEx-to-sales ratio target of 12%, through a combination of a less capital intensive product portfolio, increased usage of foundries for nonproprietary technologies, and optimization of our manufacturing facilities. We are confident we will reach that goal this year. Our product portfolio continues to strengthen and in many ways it is the most critical effort we have underway. I believe we are developing the strongest pipeline of new products in our history with important implications on both our market share and margin. As you know, we have recently reorganized our largest segment, ASG and IMS, and strengthened the management of both. I would like to spend the last few minutes of my remarks, focusing on the changes and the emphasis we are making in these two organizations. As an example, looking at our business unit that participates in the digital consumer segment, we can see the improvement in profitability and financial return progressing in each quarter of 2006. From loss-making in Q1 to attractive financial performance in Q4, the primary driver of this improvement has been the new generation of products for the high-end definition market. The same sort of initial loss-making when starting the business to sound financial performance trend, is likewise seen in computer systems, where our new product's effort in printers are also paying off. While these types of improved results were largely obscured by the wireless performance in the 2006 fourth quarter, they are real. And in the case of wireless, our new products for connectivity, for multimedia, and for the 3G baseband are ready, qualified and prepared for the market resurgence. For the Industrial and Multisegment sector, we are planning to build on the substantiality of our 2006 sales growth of 19%, while maintaining RONA over 20%. Further evidence was seen in the ranking of our Industrial segment that grew to number one position in the industry. Advanced analog and linear sales grew faster than and has superior financial returns and there are still many opportunities to realize here. In summary, looking back, the inflation point for ST began in mid 2005, as our efforts started to result in a reversal of our market share losses, and the commencement of our market share gains. 2006 was a period of hard work, diligently focused on strengthening all areas of the company, resulting in strong revenue growth and earnings improvements. Looking ahead, 2007 is poised to be a year where ST's longer-term potential becomes more evident and visible. Now, let me stop, so my colleagues and I can take your questions. Thank you.

Thank you, Carlo. Vicki, if you would assemble the question queue please, we would like to begin as soon as possible.

Thank you. (Operator Instructions). The first question is from the Mr. Nicolas Gaudois, Deutsche Bank. Please go ahead sir. Nicolas Gaudois - Deutsche Bank: Yes. Hi there, good afternoon.

Good afternoon. Nicolas Gaudois - Deutsche Bank: My question will be on margin dynamics. If I look at the current cycle, it seems like effectively [FP] had 46.3% in Q4. If I look back at 2004, the peak was 37.9% for the highest quarter, and then looking at MPG, within this period of time, we've got broadly a business which is [even] or breakeven. So, it's difficult to rationalize the 5% margins are lower despite cost cutting only because of Flash. Can you give us a bit of clarity in your view, why margins are still with these lower, even in the current cycle despite all the efforts you've made since the first [restructuring] starting September '05? Thank you.

Okay. Carlo Ferro will take your question.

Hi Nicholas, good afternoon. Your question at the end it was on the year-over-year dynamic of the margin. And of course we're not completely happy about the progression from Q4 to Q4, or if you wish, similarly, the progression from Q1 '06 to the midpoint of our guidance for the Q1 '07. We have made significant initiative in order to mitigate the current exposure, and you have noticed that we're not any longer making the point on a few percentage points of exchange rate volatility quarter-after-quarter. But when comparing these two periods, we have to take in account that in both Q4 '05 and Q1 '06 the exchange rate was at 1.20 and today it is being 1.28 for Q4, and 1.29 in the reference point for our guidance for Q1 '07. And this is 7% swing, as at the 7%, a swing regarding more than 1.5 of impact on our gross margin. Of course, added to that there is a sign of some progress from the 35.4% of Q1 '06, to the midpoint at 35 of this current quarter, [or from a better] -- Q4 '05 and to Q4 '06. Another key characterization of the manufacturing performance, in the manufacturing performance, the margin wholly detracted; the expected savings of the values of [detraction to be]. (Inaudible) both Q4 '06 and Q1 '07 are heavily affected by cost of our situation and that could consider approximately one point of effect from -- it was slightly less than 1 point of negative effect from the [saturation] in this respect. Your question on what the company is doing on this specific respect -- I have also announced, where I am sure Carlo has addressed and in the other questions he will address about the mitigating of our capital expenditure. We have not expressed the CapEx guidance at 1.2 billion are significantly below the historical records of the company, and of course, getting overstaffed flexibility in our manufacturing machine that we could avoid in the future major heat from the saturation, as we have incurred in last quarter and we are incurring to a certain extent or so in this current quarter. In respect to the product portfolio, and there are many value items, and strategic actions that was showed during the conversation, we will address that what is very evident in our NAND is that the Flash business is as we have anticipated, diluting the overall gross margin of ST, significantly diluting the overall gross margin of ST. Nicolas Gaudois - Deutsche Bank: Okay, thank you. Thank you very much, Carlo. Just a quick follow-up as well for Carlo Ferro. Could you give us some guidance please, on operating expenses for Q1 and also which will develop for the rest of the year? Thank you.

Yeah, sure Nicholas. When we talk, a guest has asked a similar question three months ago, we have anticipated that from increase in the dollar amount of OpEx from Q3 to Q4 and I would say that actual number has materialized exactly as expected. To notice that I believe the actual number is perfectly in line with the average of the -- I would say more than those of analyst that I am familiar with. Of course, the top-line heat, the OpEx to sales ratio, 28.6% in Q4 is above our target and this is driven by the top line. Moving forward, I would expect that in Q1 '07, expenses in absolute dollar of course at the reference rate, will go slightly down from -- sequentially from Q4 '06 to Q1 '07. They will be slightly down in absolute dollar and I would expect that as revenues will recover and this is likely in second quarter, we will be back below the 28%, which is our target and our plan is to have a fiscal year 2007 with OpEx to sales ratio overall within our -- or below our 28% target, progressing quarter-after-quarter and by progressing the leveraging on the revenues growth while continuing to tightly control the expenses in absolute dollars. Nicolas Gaudois - Deutsche Bank: I mean, it's just a calculation in absolute terms, '07 versus '06 you should see this -- how much or what do you think?

Not so much -- I would say that on the overall -- we are also -- I would say, as in the end of January on the possibility to continue to modulate our expenses trend, especially in the second half of the year. So in this respect I would prefer to remain with an objective which is the one-off keeping for the OpEx to sales ratio at or below 28%. Nicolas Gaudois - Deutsche Bank: Okay. Thank you very much Carlo.

Thank you, Nicholas.

Okay. I think we are ready for the next question Vicki.

Next question is from Mr. Amit Kapoor, Piper Jaffray. Please go ahead sir. Amit Kapoor - Piper Jaffray: Great, thank you very much. Just -- given the shift that we are seeing towards more low-end phones in the handset market. I was wondering, do you have any plans to shift your product development to further address that market?

Well, I think that the question would be taken by Tommi Uhari, General Manager of our MMC, the Mobile, Multimedia and Communication.

Hello, this is Tommi Uhari. So our product portfolio is very much geared towards succeeding with the higher end of the mobile phone product portfolio. We don't see the increase in the relative share of the low-end market changing our strategies, and that is mainly driven by our understanding that in the higher end, the margin opportunities are also significantly higher. In the low end space, we are of course also enjoying some significant business with the designs that we have in that space, but the bulk of new investments that we are making here are gearing towards the mid-end or higher end of the market. Amit Kapoor - Piper Jaffray: Great, thank you. And may be as a quick follow-up, if you could talk about your outlook for the 3G handset market during 2007?

I think overall, I would say we have seen market volume growth estimates on the level of -- lets say if the market this year is around 100 -- I am sorry for '06 is about a 100, '07 would been in the level of $150 million. Let's say we are quite comfortable with that estimates and we believe that due to our relationship with Ericsson Mobile Platform tower, absolute share of the business that we can turn from that market will increase significantly towards the end of the year. Amit Kapoor - Piper Jaffray: Great. Thank you very much.

Next question please Vicki.

Next question is from Didier Scemama, ABN AMRO. Please go ahead sir. Didier Scemama - ABN AMRO: Yes, thanks for taking my question. I think I am going to remain on the wireless scene. Two questions, first of all, can you may be give us an idea, Tommi about any plans you may have to develop a system solution for the 3G-3.5G market; i.e. your own baseband, with our own DSP, your own software as opposed to using to EMP software. That's my first question, and second, looking at the broad trend of the handset industry, where you have been relying quite excessively in fact on Nokia is [exiting] the RF and power management market. I mean what is the chance that, say over the next three years or so that market sort of goes away and the rollover, do you have it increasing, you are not able essentially to address the opportunity that Nokia may address, may outsource more funds to ODMs?

Yes, I would first comment on our own plan for the chip system, the 2.5G and 3G. So basically -- currently our strategy deals with -- on working in a close partnership together with our main customers, and we think that this 3G market is being quite captive towards the platform players, that are in that market. We believe that this is a visionary on strategy. Like I already commented on the low-end handsets, I think we are seeing similar phenomenon on 2.5G, so that will be a very competitive market. There, let's say the margins will be quite a challenge. So our strategy here is to continue with the current customers arrangements we have and serve those customers to our best ability. And we do not have a plan of developing our own solution at the moment. Didier Scemama - ABN AMRO: Okay. I got it.

And in order to, if you let me continue on that for a while. So in order to -- in order for us to succeed (inaudible) with our Nomadik application process. So therefore, we of course need a communication technology to go with that. In the engagement that we've had with the top OEMs, we find our customers extremely competent and capable to integrate our application process together with the modem of their choice. So we are not seeing that this is limiting our market opportunity in that space. We are also, let's say, working closely with the modem vendors to ease the integration effort for our customers. Didier Scemama - ABN AMRO: Right.

And moving on to your second question, which was about the RF and power management, so, does our position as the current customer may pose a significant risk in 3G in the next three years? I think not. Didier Scemama - ABN AMRO: Perfect. My follow-up question would be just looking at the 2006 results, where ST has outperformed the market overall. However, if I look at the application-specific groups, which I think has grown by about 8%, I mean based on the preliminary SIA data, it seems like the application-specific market has grown by about 10%. And the other thing is, given the amount of R&D you spent into the business in the last five years and given the low base in fact, that we have in 2005, seems like the new products so far have not really delivered any satisfactory results. So do you expect an acceleration of the application-specific revenue group in 2007 or not?

Well, I think that on the statistics and -- Carlo Bozotti speaking, I think that there is of course -- there is a main block that these -- our dedicated products for industrial applications that is not, from an organizational point of view, under the application-specific groups. But still is part of the dedicated products. And this is a very, very important segment for us. It's not -- it's very high margin products, by the way, and I am talking about the industrial segment that is part of this year in the new IMS organization, and of course when looking at the reporting under the market statistics, this is to be considered in the application-specific products, because this is the case; and in this area, we have grown at a very high rate, during 2006 and we believe that our growth last year -- on the overall, I mean if we split our business in discrete microcontrollers, dedicated products, I believe that it is the area of dedicated products we have grown at the same pace of the market, while at the company level we have grown more than the average of the market. Thanks to a big increase in linear, standard linear and advanced channels, discrete, particularly PowerMOS and also Flash memories. Having said that, I think that as you know, we started a major refocusing effort in the 2005 and let's go through some of the examples, let's take disk drives; in the disk drives -- and of course, disk drives is a major part or the major portion of our computer peripheral. There was a clear change in the strategy. So, we have started to develop System-on-a-Chip disk drive solutions based on our own ideas, and this product, of course, is our development cycle time, but it is also the cycle time of our customers to include this as a product of their own systems. The effect of this will be in -- at the end of this year. This is one example that I can give, that is very important. The other example that I would like to make is the digital consumer. Digital consumer, it is for sure that in 2004 and 2005, we have lost ground, but if during 2006 we have regained a lot in this field and we are more and more confident that with the 90-nanometer products that we have introduced and where we are now expanding our customer base, we are regaining share, and we have now introduced the first 65-nanometer products for dual TV set-top box for the high-definition TV, for the high-definition DVD, the Blu-ray. We are absolutely comfortable that with this wave of new products in digital consumer, we are regaining share in that respect. In the wireless, I think this year is the year of initiatives. As we mentioned, all the new products are within the market this year and even in the area of network and that we are not discussing so frequently, I think that this is going to be in 2007. So, this is an area of focus. Our (inaudible 1:14 21 file) applications product groups, of course, are very-very vital to ST. Also, the Industrial Product Group is in very, very vital to ST. So, I think that we need to see in a block that there is a major effort to accelerate the R&D effectiveness on these products. Didier Scemama - ABN AMRO: Okay. Just a clarification from what you said this morning because I'm afraid I did not really understand, when you talk about Core 2 and the fact that you are going to align with technology leaders, what does that mean? Does that mean that you follow the path of one of your American competitors?

Yeah, we have a -- I think that, basically what we (inaudible) in very practical terms. So we understand. So the 45-nanometer platform will be finished the way it was seen. In fact, we have a budget with the previews and with the existing alliance partners and the fund to support and to complete the development of the 45-nanometer platforms are available from ST and from the two existing partners. So this would be concluded in the course of 2007. Then starting from 2008, there will be a discontinuation and the discontinuation is such because of the increase of the effort that would be required to fully support the 32-nanometer platform Crolles 2. We have decided that the core technology on the 32-nanometer would become available through partnership with industry leaders in this field and, of course, it is obvious that we have alternatives. While in Crolles, we will focus on the development of the proprietary technology derivatives that are fundamental for our wireless business and specifically the image sensor technology for the camera modules, the radio frequency CMOS technology for of course the communication portion of the cellular phone; and the analog CMOS for the power management application in the cellular phone. So, it is a clear change in the strategy, but of course Crolles will remain a very important asset in ST, it is the key center for the most advanced technologies development. And the focus will be on derivatives technologies and while on the bulk, on the CMOS bulk, we will align with the industry leaders and make sure that this will be available in our facilities to integrate and develop the derivatives on one side and also to support a portion of our manufacturing activity. And of course the other portion will be supported by foundries by a standard foundry. Didier Scemama - ABN AMRO: But I don't understand how you -- then continue to negotiate and partner with people like Seagate and HP and so on that's usual. You are using the CMOS process for the ASICs. I mean, how do you keep the relationship going essentially?

No, but I think this is -- I think it is also the pressure of our customers and we think our customers -- I don't like to mention customers, you did mention customers. But we have customers that are demanding, that we have two manufacturing facilities. They want to have a double source, right. So, in our manufacturing strategy, the source initiative of the CMOS logic is of course Crolles 2, but the alternative source is and will be, we believe, that it would be more outside. But this is not new, for instance, we are developing today a product with our top telecom customers, where it is very, very clear that we have a manufacturing capacity available inside in ST, but it is also very, very clear to them that we've a important pickup that is vital for flexibility, [up and] down outside ST. And let's not forget that as part of the existing Crolles Alliance, we have an external partner that is the FMC. So this is not changing. We will have two manufacturing sources, one inside, that is Crolles, and one outside that is the foundry services. Most of our customers', they require that we have two sources, and one source is being [archaic] and this is exactly what we are doing. Didier Scemama - ABN AMRO: Okay. Thanks.

Okay. Vicki, next question please.

Next question is from Mr. Sandeep Deshpande, JP Morgan. Sandeep Deshpande - JP Morgan: Hello.

Hello. Sandeep Deshpande - JP Morgan: Hello. The first question I have is on your inventory development. I mean your inventories rose from Q3 to Q4 and now you have said that you are going to reduce loading to be able to address that. I mean based on the current orders you have and your guidance for Q1, how do you think your inventories are going to trend at the end of Q1?

Yes, I guess the question is for me, and this is Carlo Ferro. Sandeep Deshpande - JP Morgan: Hi Carlo.

Yes, hi Sandeep. I'd say that, first of all, as Carlo has mentioned during the introduction, the inventory increased by 50 million occurred in the fourth quarter, has been the effect of the market situation and not allowing the company to hit the midpoint of our sales expectations. And you may have noted (inaudible) the sales expectations, let's say it has occurred at $80 million below this point of the expectations and inventory did increase in the range of $25 million if we consider that had to add half of the value increased in the inventory in the balance sheet. It is only driven by this exchange rate factor. Also December 31, the reporting date has been [1.317]. So in Q4 the efforts of managing the manufacturing, has partially resulted in mitigating the impact on inventory. In Q1, we continue to pursue the objective of using the inventory in the absolute dollar amount. At this stage, it is what we have in our plan. Of course the evolution will also depend on how going forward the backlog for the second quarter will end up and what will be also the [values] what will be the requirement to support the arriving user for the second quarter of the year. Sandeep Deshpande - JP Morgan: Okay. Thank you. Secondly, just a follow-up. You've talked about CapEx-to-sales of 12%, which is your goal for this year. I mean does this CapEx to sales goal include your goal for the NOR Flash business? That is, if there was to be a strategic action to do with NOR, would this goal of 12% CapEx-to-sales change?

Yeah, the budget that we are providing today includes Flash. Sandeep Deshpande - JP Morgan: Okay. Thank you.

Of course it may change. This I do not know. But with the separation of change -- with the separation of Flash, of course we expect one of the targets is to make sure that the company will become a less capital intensive. But the budget that we have approved is including the Flash memory's business. Sandeep Deshpande - JP Morgan: Do you -- whatever action you take on the Flash business, do you expect to continue to be spending CapEx dollars on the Flash business going forward, after this action is taken or that would form the end of -- I mean deconsolidation would mean that is here for a final investment in that business?

No. This means that will be the final investment within this business. The objective is of course, to see this company run independently, and with the separation, we would not -- say from an operational point of view, be involved any longer and that we do not expect to provide further investment in this business. Sandeep Deshpande - JP Morgan: Thank you very much.

Thank you.

Next question please, Vicki.

Next question is from Mr. Titus Menzies, Jefferies. Please go ahead sir. Titus Menzies - Jefferies & Company: Good afternoon gentlemen, thanks for taking my questions. Just to clarify one question from a previous question, inventories by end of Q1, are you expecting to be back down by $16 million as a Group -- by $16 million in absolute value coming out of Q4. And with respect to, reducing the fab loading to bring it back down by 16 million at the end of the first quarter '07?

Titus, your question -- Carlo Ferro answered the question about inventories in Q1 by not giving a specific number, but indicated that this was an effort to control the company, and -- but its of course, dependent on the building of the backlog and other factors. There was no specific number. The mention of $80 million and the $25 million, that was a mathematical analysis which was used to describe what occurred in Q4 and what the net effects were of currency activity as well as the real impact of the company's revenue level coming in below the midpoint. Obviously, we were able to mitigate, but not completely offset through fab closures. But the comment Carlo Ferro made was not a specific number and not a specific magnitude with respect to Q1 inventory levels. Sorry to jump in on there. Titus Menzies - Jefferies & Company: Thank you. The first question I have is then, in regards to the license for the Nomadik to Samsung for a DBB phones, is that a domestic license only for Korea or does Samsung have the option to translate that license to the non-domestic market going forward. Is it a flexible contract or just a closed contract, only for the Korean market?

This is Tommi Uhari. We don't have a limitation on Samsung on the market that they can sell the product in. Titus Menzies - Jefferies & Company: Okay. So it's beyond just the domestic market.

Of course. Titus Menzies - Jefferies & Company: Perfect. And the second question I have is, regarding the STi7200 for the set-top boxes. Could you give us an idea of the mix between the number of customers that are sampling that product right now and may be a breakdown between how many of them are US, how many of them are Japanese.?

This is a very specific question -- the number is what?

In the STi7200.

Yeah, the 7200 of course, this is a 65 nanometer platform. This is for dual set-top box TV applications. This is for the digital and high-definition TV applications, and this is also for Blu-ray. So I think that the measure, the effort -- because we have this product now. The product is out, of course its at the sampling level on 65 nanometer. The major effort that we are doing with this product is really in the United States and in Japan. And I would not, of course, comment on customer names, but it is clear that the focus is there. This is a major effort, and at the same time, there is proliferation, there is an expectation of our 7100 families in the various forms from 7100 to 7109. So there is a proliferation. We believe that we're making big, big progress in United States on -- with this 90 nanometer family. And the focus on the -- for the time being, the focus on the 7200 is again, in the United States and Japan. Titus Menzies - Jefferies & Company: Okay. So focus is Japan and United States. And the number of customers, it's more than -- is it more like one and two or more like maybe half a dozen customers?

Well, I have to confess that I do not know exactly the number of customers. However, this is a kind of business that -- it is very fragmented. So, I am sure that the focus of Christos Lagomichos and of course also the focus of the Group and the organizations -- the two regional organizations is on a wide base of customers, because this is the intrinsic characteristic of this business. It's not one customer -- product for one customer. This is a platform where -- like we have done with the 7100, we want to reach a very wide range of customers. Titus Menzies - Jefferies & Company: Perfect. And the 7200 is a 65-nanometer process. Is that correct?

The 65 -- is a full 65-nanometer process, absolutely. Titus Menzies - Jefferies & Company: Carlo, thank you very much for taking my call. Thank you everyone

Absolutely.

Next question, Vicki, please.

Next question from Mr. Simon Schafer, Goldman Sachs. Please go ahead, sir.

Simon, please go ahead. Simon Schafer - Goldman Sachs: Thanks good afternoon. Just noticed one of your slides in the presentation shows the revenues to strategic customers seems to have only grown in single-digit terms in 2006. I was wondering whether you could share with us which -- by end-market segment, which application under-grew or outgrew that average that you're showing on that slide there?

Well, I think that -- it's Carlo Bozotti here. I think that, first of all, as you know, these customers, many of these customers have been very close to ST for several years now. And some of these customers have been more successful. However, there have been other customers, which have been less successful. But for us, what was important, 18 months ago or so, was the understanding that, globally, there is a degree of plateau, and the understanding that the revenue growth opportunities at this traditional base of strategic partners was somehow limited. For this reason, we have identified 12 new measure accounts. And altogether these 12 new measure accounts have a proper available market in excess of $40 billion. That is a very important target in our marketing initiative and last year we grew these 12 accounts, 48% and I think you can see that our revenues have largely exceeded the $1 billion mark at these 12 new accounts. So against this contribution now, this new range of top customers, that is about 20 customers, have grown more or less at the same pace as the company, slightly higher at the 12% growth. Now, to come back to your question, well, of course some customers -- well, we know, take Alcatel they have sold many years ago their cellular phone activity. [Foxon], they have sold their TV activity. These things go on. So, there are, in that original list customers that have grown at a higher pace than something that have grown at a lower pace. But I would say, it's more customer dependent, rather than segment dependent or rather than a steep performance dependent. I think its more the evolution of the customer itself. But I think it's important to notice that with this addition of 12 new measure accounts and of course this will become also major partners for us, or some of them. We have reversed the trend and now overall, this block has started to grow again and last year, globally, was 12%. So last year, this new block, we grew 12%, in the mass-market, we grew 17%, which is all the customers outside the top 50 list. And then, from a geographical point of view, there was a major growth in Japan and a very significant growth in China. In China, we grew 16% and in Japan we grew 31%. And I am very pleased to report the progresses that we are doing in Japan in our new marketing initiative. It is not just one product line. It is not just one market segment, it's very wide and I think there will be good progress there in the coming months and years. Simon Schafer - Goldman Sachs: Understood, thank you.

Thank you. Simon Schafer - Goldman Sachs: And then given that you've given us some numbers for the reorganized Flash Memory group, could you share with us what percentage of your 2006 CapEx and depreciations was in that product?

Well, depreciation, of course, you know, very well and CapEx, we also know very, very well. But, of course, you understand that these numbers are very confidential and I think we will start reporting at the end of Q1 and we have -- frankly we've not even decided yet [fully] what will be the degree of the reporting. For sure, as in the past we will report the top line and then we will report the bottom line in this business. But I mean you can imagine, if it's a Flash business, it is clearly delivering our gross margin, its more capital intensive but unfortunately we cannot provide these figures. Simon Schafer - Goldman Sachs: Understood. And just a very brief follow-up question on something you said in Paris this morning. I think you described the mix, obviously in wireless as somewhat slightly more to the low end. And as we go into Q1, did you also say that you expect it to be -- that you expect the seasonality to be more or less normal as we go into the New Year?

I think the seasonality for us is normal, except [one]. I think I have to say that -- the mixed issue is of course is from our angle, because at the end of the day its revenues [for us]. The mix issue is determining a decline in wireless that is significant. Now, the question is how is the volume in the cellular phone in Q1? I think that maybe what is the expectation from the volume point of view. You can probably respond better than me, but the impact on ST is more than the normal seasonal -- negative seasonal adjustment that we have in Q1. But Tommi, can you comment?

Well rather than commenting on the volume, I'd comment on our product. It's in our product portfolio mix, which will be in the different wireless businesses that we are in, it will be much stronger towards the second half of the year. So in addition to the low end mix, we are also seeing a low end mix in Q4 and Q1. We are also seeing an improvement in our imaging product portfolio towards the later part of the year which will improve our performance. Simon Schafer - Goldman Sachs: Okay. Thanks very much.

Thank you, Simon. Vicki, the next question please.

The next question is from Mr. Cody Acree, Stifel Nicolaus. Please go ahead, sir. Cody Acree - Stifel Nicolaus: Thank you. Carlo, could you give any more clarity on your gross margin thoughts progressing off this first quarter load throughout the year?

Yeah, on the first quarter, I think that first of all if we start from Q1, the major issue that we have is (inaudible). I think that this is of course related also to the manufacturing costs, so that we have -- upshot in Q4. That is a product that we sell in Q1 and this is affected by the loading of the fact that this is definitely suboptimal. And so I think that in our manufacturing machines, we did progress properly and then there was a significant glitch in Q4, but its really related to the volume loading. Moving on in the course of the year, I think that we are taking from one side, actions that are on the continuous improvement process. I think that there would be a strong focus this year on our 8-inch fabs, and this year we will fully enjoy the improvement that these are related to the 6-inch restructuring. So that, in manufacturing, there would be this very strong focus on 8-inch. Again in terms of continuous improvement process, is the wave of the new products that we have described in many, many segments and there would be an acceleration quarter-after-quarter of this. But, in addition to this, there was improvement in terms of manufacturing cost reduction and new product introduction. There are two significant discontinuations that we believe are very, very important in ST. The first discontinuation is -- or discontinuity. And my colleagues are telling me that the right growth in English is discontinuity. So, there are two important positive discontinuity in our approach on top of a continuous improvement. The first one is the separation of the Flash business, and this one of course is significant in terms of gross margin improvement because of the dilution effort of the Flash memory on the total ST. And the second is the capital investment strategy. I think that we are moving from more than 20% CapEx-to-sales ratio to a -- below 12%, and this has two effects. This is on one side mitigating and improving the evolution of the depreciation that has been one of the key challenges that we have to address. On the other side is we provide with increased foundry services. That flexibility that for instance we did not have in Q4. So, in Q4 we had to operate with a sub-optimal loading of our fabs because the flexibility with our silicon foundry was not at the level that we had -- just would have been requested to fully compensate both the drop in the demand and for the drop -- and for the reduction in sales. So I think that I want to underline the fact that 2007 is going to be a good year where these discontinuities will be visible. And I believe that, I am sure we will progress with our products. I think there is more focus and there is a wave of new products. I am sure that we will repeat in the 8-inch manufacturing what we have done in 6-inch with a very strong improvement in manufacturing cost. But on top of this continuous improvement activities. I think it's important to underline the discontinuity and this is a major step in our company. Cody Acree - Stifel Nicolaus: Thank you, very helpful. And then may be to follow-up a little more of a strategic question. Your outlook and your in-market expectations sound very similar to what we have just heard out of Texas Instruments yet both of you are taking a very different approach strategically to how you are handling internal inventories. Do you see any possibility of a risk, if we get demand recovery in the second quarter? Are you then having shortness of supply?

Well. As you said that today we are leading -- where the production was significant in Q4. And let's face it. In September, we had in mind $2.6 billion in Q4. And when we met in the beginning or in the middle of October, we had in mind the midpoint of the guidance and compared to the midpoint of the guidance that we missed by $80 million. I believe that all of these is mostly on wireless, and I think on wireless we are on one side, let's say, also protected by long-term visibilities that our customers are providing and we offer them with some flexibility. So with the inventory level that we have and with the flexibility that we provide, if there will be a resurgence of the market, we will be able to follow very, very quickly. But the priority today is to make sure that we do not -- that we resolve the inventory problem. We want to resolve the inventory problem. I think Q1 was -- Q4 was tough, but we must address these and resolve these. And then with the inventory level that we have – is very good products, and with the flexibility of process that we have with our customers in case over resurgence of the demand we can react very, very quickly. In many of the products it is more business as usual, I mean we do not comment today much about IMS that last year was $2.8 billion in (inaudible), and so a significant portion of ST this year there would be another major growth in IMS after the growth in 2006. And here the business is more normal. I mean it is more a normal adjustment in Q1, and I think is a more normal inventory situation internally in ST, but also with our distributors for instance, is not too bad what we see in terms of point-of-sales and what we see in terms of distributors' inventory evolution. So, I think that to go back to your question, we believe with the major customers we have all the ingredients to react very quickly if needed. And on the other portion of business, that is IMS, I think is more business as usual. There is some production that is very mild and moderate. Cody Acree - Stifel Nicolaus: Very good, thank you.

Thank you.

Next question please, Vicki. Hello, Vicki.

The next question is from Mr. Mark Lipacis, Prudential. Please go ahead sir. Mark Lipacis - Prudential: Great, thank you for taking my question. You may have covered this, but hopefully you can give me a clarification. You mentioned the CapEx intensity has come down markedly over the past years and this is certainly impressive and beneficial to the cash flow. As you look into the next couple of years, is there a risk that you have to reverse the downward trend to increase your capital intensity over the -- some time over the next couple of years? I am just trying to understand how long will CapEx stay below the depreciation expense. And as part of that, would you also be so kind as to review your CapEx expectations for Crolles 2 and your outsourcing strategy, what percent is outsourced now out of foundries in over the next couple of years, thank you.

Yeah this is Alain Dutheil here. About CapEx there are a few things which have changed, which make us very confident to keep this CapEx ratio at the 12% or even below 12%. Number one, as you know the market growth now no more is in the range of 12 or 15% as it was in the past. Today it’s no more than it. Number two ourselves we are taking action. One of the action is to separate the Flash memory which are more capital intensive than the average of our business. So this is also some thing which is going to affect our CapEx to sales down. And number three, we will grow using more foundries. Just as to remind you today, the rate of our foundry in our production is about 10%, and as a first step we can move to 15 and then increase. So frankly with all these, the market itself, the Flash come out, the less capital intensity by using more foundries, as well as better usage of our CapEx than in the past. It should allow us to stay at about 12% CapEx to sales. About Crolles, we are not disclosing any CapEx number in Crolles. But the only thing I can tell you is that this year we are not going to spend $1 on increasing our capacity. In the morning we spend there will be mainly for R&D and we will be moderate. And the third question was -- Mark Lipacis - Prudential: I think you got most -- I think you got all of them. The follow-up would be the 15% target for foundry, would that be a goal for the end of this year, for the end of 2008? How should we think about that ramp?

Yeah, 15% is a goal that we have. I don’t think during the first-half this will be possible. Because one of our challenge today as it was mentioned before, is really to close our fab. So therefore we are not going to increase the rate of foundries, but at least we will grow [progressively or we will reach our rate] in 2008.

But I think that the objective that we have is to make sure that, and of course it is not a new objective. It's something that we started – I mean we started with CapEx to sales ratio of more than 20, we went down to 15, now its 12. What is objective? Of course the objective is on one side of the financials than at the level of depreciation that is more bearable. On the other side is to make sure that there is a degree of flexibility that we need to prevent any, let’s say poor loading conditions in our facilities if you take Q4. If we would have had more outside in terms of silicon foundry, it would have been possible to fully load with our facilities during the course of Q4 and this is a lot of money. And this is, well I have in mind that -- Carlo, correct me if I am wrong. I had in mind that this had a pickup of $30 million, right? So this is significant. So why that? Because we do not have enough flexibility outside to absorb the market collection, and we are building up in the course of this quarter the flexibility. So this is what we want to do and there is a CapEx strategy and that there is financial integrations, but there is also a strategy that is to make sure that there is more flexibility through outsourcing and so guarantying a continuation of the optimal loading conditions or optimal loading condition in all our fabs. Mark Lipacis - Prudential: Very helpful. Thank you very much.

Thank you.

Okay Vicky, we have time for two more questions, so would you give us the first of those two please.

Next question from Mr. Manish Goyal, TIAA-CREF. Please go ahead, sir. Manish Goyal - TIAA-CREF: Yeah, hi, thank you. Question is on Nomadik. Do you -- are your customers working on Symbian or Linux operating system on that platform or are they working on both of them?

The question will be taken by Tommi, of course.

Yeah. For the products that are currently on the market it's apparent that what are the other operating systems in those and there’s a variety of let's say Symbian series 6 gen and even in other device there. And the ones that are in the development, I must say that a variety of the high-end operating systems are under development and ST is taking no stand on, on which way to go and we are happy to support our customers in whatever is their choice. Manish Goyal - TIAA-CREF: So specifically to Nokia, do you know if you will be designed in only Symbian operating system, or will you also have a design in Linux-based handsets?

Well, I am afraid that we cannot comment on that. It's very specific to customers like one customer, and that of course we cannot comment on this. Manish Goyal - TIAA-CREF: Great. Thank you so much

Thank you.

Thank you. Vicky can you take the last question now, please

Last question from Mr. Tristan Gerra, Robert Baird, please go ahead sir Tristan Gerra - Robert W. Baird: Hi. In wireless, in 3G if you could talk a little bit about the dynamics impacting the trends, and do you view this as just short-term or is there a more fundamental structured problem that could last beyond the first half of this year?

Yeah. Well I think this is the last question obviously concerning wireless, and certainly Tommi will take the question.

So I think that what we have seen in 2006 has been a stronger than expected demand in the low end, which is let’s say, I think a higher market growth than was originally forecasted. 3G growth continues as strong for this year. I think that with the product mix that we’ll have to address – that we have to address that market, let's say, the current 3G outlook for this year looks very positive for us. Tristan Gerra - Robert W. Baird: Okay. And then just a quick follow-up. How much visibility do you have into Q2 at this point. I mean if you can talk about your backlog and how that compares versus Q4 and also the book-to-bill Q4?

Well, I will take the question on visibility. Of course that is part of the guidance. I mean we have to say that the visibility is worse than what we had as for instance in Q3 last year. And I think that, we have provided guidance at this time was -- in fact it is 8 percentage points, because we have a poor visibility compared to what we had in the past. But on the other hand, I think that in our business, in the semiconductor business, the term business generation is not unusual, and so I think all companies are working to generate term business. And of course this is something that is normal in a period where there is inventory correction, and this is particularly important for us in the memory area and it is particularly important for us in the area of our IMS products. So, I think that indeed the visibility is worse than what we had last year. We have tried to make sure that our guidance takes care about this work visibility, on the other hand the opportunity in all our regions and with many of our product groups is on term business and term business is kind of element that has become a common denominator when the market is, let’s say in a correction mode. I think that -- I think that there is a switch in the visibility. Some of you mentioned Q2. I think in -- we have not seen yet a difference in Q2 and Q1. So we will see later hopefully in the course of the first quarter and we have been pleased to report some better visibility for the second quarter. Tristan Gerra - Robert W. Baird: Right, thank you.

Well, thanks to everyone for participating. I would like to make one announcement before we conclude the call. And frankly, we thought we'd get that question, but today in the presentation by the Chief Financial Officer in response to a question, we did make one announcement that I think is appropriate for all the participants on this call. And that is that formally the effective tax rate guidance for the company for ST was planning in the year at 15-17% range. However, given the fine work that’s been done by our colleagues in the tax planning and some very good work that’s been done by the manufacturing activity and other elements of ST, we are in a position to be able to indicate that for planning purposes and modeling purposes beginning in 2007, an appropriate tax rate for the company and effective tax rate for the company is in the range of 12 to 16%. So I just want to make sure that one piece of information, which we thought we’d get a chance to discuss on the call, what we did discuss this morning was communicated. If you like to hear the full comment from the CFO, certainly check the webcast of this morning’s conference, if you like to hear that. But it's essentially what I have just communicated. Once again we want to thank you for participating in our fourth quarter and full-year results for 2006, and we look forward to communicating with you through the quarter and in the next quarter's results. Thank you and good day.

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

Company sponsors partner's transcript: Company sponsors competitor's transcript: Issuer-sponsored research firm sponsors client's transcript:

IR firm sponsors transcript of micro-cap company: Consulting company sponsors company's transcript in sector of interest: Your company's name and promotion could have been on this transcript! Learn more, or email Zack Miller for details.