Stan March - Vice President, Investor Relations Carlo Bozotti - President, Chief Executive Officer Carlo Ferro - Chief Financial Officer, Executive Vice President Tommi Uhari - Executive Vice President Carmelo Papa - Executive Vice President of Micro, Power, Analog Alain Dutheil - Chief Operating Officer

Sandeep Deshpande - JP Morgan Tristan Gerra - Robert Baird Cody Acree - Stifel Nicolaus Simon Schafer - Goldman Sachs Martino De Ambroggi - Euromobiliare Jonathan Crossfield - Merrill Lynch Otto de la Parque - Cheuvreux Janardan Menon - Dresdner Kleinwort Didier Scemama - ABN Amro Paraag Amin - Citigroup Thomas Brenier - Société Générale Jérôme Ramel - Exane BNP Paribas Stéphane Houri - Natixis Securities Clara van der Elst - Standard & Poor’s John Dryden - Charter Equity Research Eric Reubel - Miller Tabak Roberts Peter Testa - One Investments Matthias Großmann - WestLB

This is the conference call operator. Welcome to the STMicroelectronics second quarter 2007 conference call. (Operator Instructions) At this time, I would like to turn the conference over to Stan March, Vice President of Investor Relations for STMicroelectronics. Please go ahead, Mr. March.

Thank you very much, Vicki and thanks to all of you, ladies and gentlemen and welcome to STMicroelectronics’ second quarter and first-half 2007 conference call. Hosting the call today from Geneva is Carlo Bozotti, ST's President and CEO. Joining him on the call are Alain Dutheil, our Chief Operating Officer; Carlo Ferro, our Executive Vice President and Chief Financial Officer; Tommi Uhari, our Executive Vice President and General Manager of MMC, who is representing the application-specific group; and Carmelo Papa, our Executive Vice President and General Manager of the IMS segment. On today’s call there will be statements made that are forward-looking and as such are covered by the forward-looking statements discussion in the earnings press release that was issued yesterday. I would also like to point out that in addition to the earnings release which was issued, you should also direct your attention to the jointly announced initiative between STMicroelectronics and IBM. Finally, as a matter of housekeeping, please limit your initial question to just one and then with a follow-up, in the interest of all on the phone, and then we’ll begin working our way back through the queue again. With that brief introduction, I would like to turn the call over to Carlo Bozotti, our President and Chief Executive Officer. Carl.

Hello and thank you for joining us on this call today. I appreciate your interest in ST. This has been a very important quarter for ST from a strategic perspective. Just one quarter ago we were making progress but did not have a final resolution to our objective of financial deconsolidation and possibly industry consolidation of our Flash business. Now we do. Just one quarter ago we did not have a final resolution to our development of core 300-millimeter CMOS processors and now we do; and from an operational perspective, in addition to the resolution of these key strategic initiatives, we have also clearly identified the next important actions to further improve the efficiency of our manufacturing asset. So let me begin my remarks with a discussion of our strategic announcements and then move to a review of our second quarter and outlook for the third quarter and the rest of the year. First on Flash, as you know, we entered into a definitive agreement with Intel and Francisco Partners to create an independent semiconductor company, Numonyx. We will be selling our flash memory assets to this entity and Intel will be selling its NOR flash memory assets to the new company. Subject to customary conditions and regulatory approvals, we anticipate completing the transaction in the second-half of 2007. While some of you would have liked to see a resolution sooner than we achieved, I believe the extra time has enabled us to put together a very strong company with a significant market position. As we outlined at the time of the announcement in May, we expected to incur an impairment loss of between $850 million and $900 million associated with this transaction and that we would recognize the significant majority of that in the second quarter. As you can see, we took a charge of $857 million, primarily consisting of non-cash impairment charges, and at closing there will be a final true-up. From a reporting perspective after closing, this will be an equity investment and appear below the operating income line. Based upon assumptions which we believe are reasonable, we anticipate the equity impact of Numonyx to be positive on ST earnings from the first year after closing. Second, on technology R&D, as anticipated a few months ago we have just announced reaching an agreement related to the development of core 300-millimeter CMOS processors at 32-nanometers and below. ST will join the IBM consortium for this cooperated effort at the end of 2007. It is anticipated that both companies will have teams at both IBM’s East Fishkill site in the U.S. and our Crolles facility in France working together for core and value-added derivative technologies respectively. We believe this alliance will bring a number of benefits to ST. This is a new model for us in advanced logic which should bring greater efficiency. It should also enhance our ability to master technologies, accelerate time to market and enable us to increase our use of foundries. Finally, it will reduce our overall spending on CMOS technology. In combination with the reduced spending on flash technology as a result of the divestiture, we anticipate from 1% to 2% of sales will be redirected from technology R&D spending towards product innovation when freed up in 2008. Moving now to the second quarter, net revenues for the period increased 6.2% sequentially and, excluding FMG, net revenues increased 6.8%. We came in slightly below the midpoint of our range of between 4% and 10%. Turning first to ASG, the quarter progressed very much in line with our expectations, which we shared with you at the time of the first quarter release. Sales increased 6.8% sequentially, driven by double-digit sales growth in wireless and digital consumer. Wireless sales increased over 11% sequentially, reflecting volume growth and good performers across several product lines, including connectivity and 3G digital base-band. Consumer also had a very good quarter. Areas of strength included set-top box and digital television products driven by our single chip offerings for H.274, 264 and high definition applications, as well as strong box demand in emerging markets. These two divisions combined were up over 20% sequentially. This was a record quarter for sales levels in the automotive group. Sequentially, automotive increased about 4% on our strong product offerings. Finally, computer peripherals decreased sequentially on quarter-end shipments shipped, though we see growth resuming from here. Turning to operating profitability, we saw a significant rebound in operating profits for ASG in the second quarter over the first quarter, benefiting from volume and mix improvement which more than offset sequential pricing pressure. Literally all product areas within ASG had positive mix improvement, with the most important coming from wireless and digital consumer. While not yet at the year-ago level, the sequential volume and mix improvement indicate that the plan we articulated is delivering the anticipated result. Based upon our third quarter outlook and fourth quarter visibility, we expect to see substantial improvement in the operating margin for ASG as we move through the third and the fourth quarters of his year. Moving to IMS, it was a record sales quarter. On a sequential basis, net revenues in IMS increased 6.2%, driven by our high single-digit sales improvement in the industrial market segment. The operating margin was 13.4% compared to 14.8% in the first quarter. This margin reduction is largely explained by two factors; substandard manufacturing performance, which has been resolved, and our decision to accelerate investment in the business with a focus on increasing our resources in advanced analog products. In the second quarter, we increased headcount by over 100 people to ensure the necessary resources are on hand to continue our product development and growth plans. Looking at some other key metrics for ST, first we saw good improvement in sales to our targeted key accounts, which increased 27% year over year excluding flash. Secondly, we had strong sales results in Japan, up 38% year over year and good progress in the mass market with sales up 12%, also in comparison to the year-ago quarter. Gross margin was 34.7% in the quarter and excluding FMG was 37.8%, improving from 37% in the first quarter. Carlo Ferro asked me to provide a brief explanation to our figures regarding depreciation and amortization. You may have noticed that our second quarter figure is lower by $24 million. It was $396 million in the first quarter and it is $372 million in the second quarter. This almost exclusively benefits FMG inventory at the moment. In connection with the signing of the flash agreement, we moved the flash assets to a new category, assets add for sale. As a consequence, we suspended depreciation related to those assets beginning in June. You may be wondering where this amount went. I want to be clear that this reduction did not benefit our gross margin results during the second quarter. Under accounting, the offset benefits will first go to inventory and then to cost of sales, and depending on the timing of the product sale, a quite limited amount in Q3 and the bulk in Q4. Moving to currency, we continue to manage the business through adverse currency conditions. One year ago, the U.S. dollar was at $1.23 exchange rate per Euro and over the last 12 months, has weakened further by over 8%. We estimate that this had about a $90 million negative impact on our operating profit, with a little less than half of this reducing our gross margin and the rest impacting operating expenses. Specifically, the year-over-year gross profit impact was approximately 170 basis points. Looking ahead to the third quarter, we expect to face further pressure on margins from currency as the dollar continues to weaken. As discussed at our field trip in May, we started a new round of initiatives to further reduce cost, manage the exchange rate challenge, improve our financial returns and further optimize our asset utilization. Specifically, we announced in early July plans to rationalize three of our manufacturing operations. We intend to wind down operations at our 6-inch fab in Carrollton, our 8-inch fab in Phoenix, and our back-end packaging and test facility in Ain Sebaa, Morocco. We estimate that it will be approximately two to three years before all products at this site are requalified at other facilities. We have estimated pretax impairment and restructuring charges in the range of $270 million to $300 million. At the end of this period, we expect the potential benefit to cost of goods sold will be approximately $150 million per year. Finally, let me turn to cash flow for a minute. We continue to improve our cash returns with a strong increase in cash flow from operations for both the second quarter and the first-half of 2007. Our net cash from operations in the first-half represented an 8.4% cash yield on sales, which we think is pretty good for ST and a good figure in comparison to our industry. The strong cash flow has enabled us to increase our cash dividend by nearly 150%. In the second quarter, we paid cash dividends totaling $269 million and ended the quarter with a net cash balance of $870 million, similar to the one we had entering the period. RONA was over 9% in the quarter excluding flash. Looking to the second-half of the year, we expect to see further significant improvement. Turning to our third quarter outlook, let me first step back to the start of the year. For ST, we did indeed reach a trough in the current industry correction during the first quarter and we saw a resumption of growth in the second quarter. Looking forward, based upon our current order visibility, we see sequential sales growth in both the third and fourth quarters. With respect to the third quarter, we are anticipating sequential sales growth in the range between 2% and 7%. Also, based upon our order visibility, we expect ASG to continue to show a sequential growth a little faster than the corporate average. Based upon our third quarter sales outlook, spending plans and currency assumptions, we anticipate the gross margin for ST, including FMG, to expand to about 35.5% plus or minus one percentage point. The midpoint of this gross margin outlook would represent an 80 basis points improvement with the drivers being sales expansion, product mix and operating performance. Regardless of the accounting impact for the flash asset, our gross margin for the rest of the company will improve in a similar or better fashion. With respect to capital expenditures, we are well on track to spend less than 12% of sales this year as we continue to progress with our asset light strategy. We also expect that ST will be able to meet the low-end of our inventory turns target range, or 4.5 to 5 times by the end of this year. This is of course based upon our current visibility into the fourth quarter, as well as currency assumption. In summary, ST reached a resolution on three strategic initiatives and we look forward to closing the flash transaction and working with our new R&D partners in the days ahead. Importantly, I believe we have reached the best resolution for ST and our shareholders. At the same time, our top priority is to continue to drive improvements across the company by focusing our effort and resources on leadership in multimedia convergence applications and power solutions, advancing our lighter asset business model, driving towards high RONA, and continuing to enhance our cash generation from operations. I would like to stop at this point and with my colleagues, take your questions. Thank you.

(Operator Instructions) The first question is from Mr. Sandeep Deshpande, JP Morgan. Please go ahead, sir. Sandeep Deshpande - JP Morgan: A couple of questions. Firstly, regarding the cash balance on your balance sheet. You’ve got a significant cash balance on your balance sheet. What are the plans -- are there any specific plans to do anything with this cash on the balance sheet in terms of return to investors? I’d like to talk about that and I have a follow-up, actually.

Of course. I think that the first priority for us is to close the deal on memory. This will allow us to cash in another approximately $500 million. And then I think that our plans are on three fronts. It is clear that we want to have flexibility in terms of additional dividend, potential acquisitions, or potential buy-backs. I believe that it is important for us to maintain this flexibility and we want to move on now rapidly with closing the flash deal and enjoy the additional cash in. Sandeep Deshpande - JP Morgan: Secondly, about Crolles -- what happens? You announced the deal with IBM on the process. What happens to the fab itself? NXP will get out of the Crolles 2 fab by the end of this year? You’re not entirely sure what Freescale is going to do -- I mean, do you have a plan going forward on Crolles 2? Will you continue to invest, at least replace this company’s investments in that facility and how do you see that playing forward, particularly in association with your CapEx light strategy?

I think that as you know, we have the flexibility to decide about the equipment that are presently owned by NXP and Freescale and we have an option, we have the full option to buy those equipments and the line for us to decide is at the end of this year. I believe that today we see a strong demand and a strong demand increase on CMOS logic products, particularly in the area of digital consumer, the digital core of drives and wireless applications, so we believe that the loading opportunity that we have for the Crolles 2 facility are important opportunities and of course we will take this into consideration when deciding on the call option on the equipment. I would also like to mention that the call option is at a very favorable condition because we will be able to access, in case we decide to make the call, pretty new equipment at a price that is about 50% of the market price for that equipment. All of this is absolutely compatible and fully congruent with our asset light strategy and I would like to reconfirm that we have set a target, this 12%. We are below this target and we will remain below this target. Sandeep Deshpande - JP Morgan: So you have no plans to get new partners into this JV, into the fab, I mean?

This is of course an opportunity but at this point, I believe I cannot describer further here and in any case, we believe that the volume of increased opportunities that we have are very significant and for sure we will have also to essentially work with foundry partners because the capacity, the internal capacity is just a portion of what we need overall in the advanced CMOS area.

Next question, please, Vicki.

The next question is from Mr. Tristan Gerra, Robert Baird. Please go ahead, sir. Tristan Gerra - Robert Baird: Good morning. Could you talk about 45-nanometer production and whether you are on track to ramp through the first-half of ’08?

Yes, I think that our 45-nanometer technology is in line. I believe this is part of the previous objective with the previous alliance that we had in Crolles and the most important products for us in this area is of course the digital base band in the cell phone. We have important projects in this area on the 45-nanometer and we expect to get -- we will have a production volume, important production volume on the digital base band at 45-nanometer in the year 2010. Tristan Gerra - Robert Baird: Okay, and also could you talk about your lead times currently in commodity products, including [inaudible] or NOR flash, and how does that compare with last quarter?

Well, as far as the most products, Carmelo who is here with me would comment?

Thank you very much and this is my first question, so I appreciate it very much. So lead times are improving in the sense that they are shortening. So there is not such a strong pressure but still there is some pressure in some niches. For instance, on power we had very long lead times. Now we are going to more reasonable let’s say type of lead times. So overall, they are diminishing for the entire group.

For NOR, I don’t have any specific comment. I think that it is very much for the wireless and for the major customers, so I don’t have any specific comment here.

Vicki, next question, please.

The next question is from Mr. Cody Acree, Stifel Nicolaus. Please go ahead. Cody Acree - Stifel Nicolaus: Thanks, guys. With the IBM agreement, can you maybe talk about the financial impact, when we can start to look and maybe what we should be expecting from a gross or operating margin impact long-term? How does this kick through and change the way we look at profitability?

Of course, the three initiatives that we have concluded in the course of the second quarter are very, very material. I think you are aware about the weight of this operation, the value of this separation of flash memory. This is more than 3 points of gross margin. In terms of technology R&D, it is also significant and I did mention this in my introduction remarks. We expect that with the flash separation and with the new model in the CMOS logic, the development of the CMOS, advanced CMOS logic, we expect that our technology R&D effort will decrease by 1 to 2 points of sales. Of course, we retain the flexibility to use and redirect this portion that is now a technology development into a stronger effort in product development and system R&D. And finally, I think we have also quantified the savings that we will be achieving by relocating the manufacturing activity from the United States and Morocco into Asia. Last year we closed two fabs in Europe. This year we are separating another fab in Europe with a memory transaction and in addition, we have these three fabs, two in the U.S. and one in Morocco and the impact of the relocation from these three fabs, the two American and the Morocco fab, is about $150 million on the cost of goods sold. Cody Acree - Stifel Nicolaus: Thank you very much, and a follow-up, if I may. Carlo, you’ve obviously taken on a huge amount of changes structurally within ST within the last 12 to 24 months and a lot of these are in their infancy. If we look out the next 12 to 24 months, are we now focusing on getting these implemented? Are we focusing more on implementation or should we -- do we think there is more structural changes to come, there’s more efficiencies to ring out? Do we have more restructurings that are going to be on the table or is it going to be more about execution from here on out?

I think of course the table is very rich and the priorities on executing, the very short-term execution that for us is absolutely crucial of course is the closing of the memory deal but also the relocation of the manufacturing activities from these three fabs into Asia. I believe that the challenge that we have in these days and I want to be very frank with you, with all of you, is the strength of the Euro. I think that we will not stay still in case the Euro will further reinforce or the dollar weakening and I think this is business, so if the Euro becomes even stronger, we will take more action. I believe that what we have done is compatible with the Euro-dollar rate of today but in case there will be a further deterioration of the dollar, we will take more action to mitigate that impact. In parallel, I think this quarter is a turning point so we will focus much more on new products and we will focus much more on growth but I do not want to -- how can we say - underestimate the challenge of the currency so if the dollar will become weaker, we will take more action and we will mitigate the problem related to the dollar. Cody Acree - Stifel Nicolaus: Could you, along that line, with the closing of the couple of facilities in the U.S., doe that not mathematically increase your Euro exposure, or have there been other things that helped to keep that percentage of gross and operating expenses leveraged to the Euro about the same?

Overall, and of course it is a complex matter, looking at the separation of the memory and the reduction in Europe of certain volumes of memory and even the transformation of our present R2 facility that is also a manufacturing facility. This has become the R&D center of the new company. Overall, we will not deteriorate. I believe it is even with what we have today but of course, the manufacturing cost that we have in the United States and the manufacturing cost that we have in Morocco is much higher than what we will have in Asia on similar technologies, similar products, similar packages, both in Singapore and in China, where we want to focus our operation. Cody Acree - Stifel Nicolaus: All right, great. Thanks for the last question.

Next question, please, Vicki.

The next question is from Mr. Simon Schafer, Goldman Sachs. Please go ahead, sir. Simon Schafer - Goldman Sachs: Thank you very much. I was wondering whether you could comment a little bit on the pricing environment in NOR Flash. Your partner, or one of your partners, Intel, has made some comments on their call, and so did Spansion. I was wondering whether you could make a similar range of remarks in terms of what you see in terms of outlook there.

I think Carlo will take that, Carlo Ferro.

Good afternoon, everybody. This is not frankly a particular quarter for pricing pressure on flash when including both NOR and NAND. We’re used to this kind of pressure, which is in the mid-single-digit range. What maybe is somehow peculiar, has been somehow peculiar is that the price pressure on NOR has been somehow higher than price pressure on NAND.

Yes, but the major issue in Q2 on flash was volume and specifically in the wireless and of course a specific customer where our presence is very important and I think that the major issue that we had was the lack of volume at this customer, or at that customer. Simon Schafer - Goldman Sachs: Understood, thank you. Spansion actually talked specifically about some measures that they are taking with respect to the production measures that it can actually improve the gross margin in times of falling pricing. Are you doing similar things? Could you share a little bit what the company is doing to improve that positioning?

Well, of course, of course we merging the activity with Intel and -- Simon Schafer - Goldman Sachs: I meant more from a near-term manufacturing capability.

Yes, absolutely, so I think that the most significant difference between the two flash organizations, just to be precise, is the NOR flash organization in Intel and the NOR flash NAND activities in ST. I would say that the most significant difference between working today and working in the future is the simplification of the manufacturing infrastructure with a very, very strong presence in Asia of the new company. This is the most significant change that we will have by merging the two organizations. So absolutely, simplification of the manufacturing infrastructure and this relocation to Asia. Simon Schafer - Goldman Sachs: My follow-up would be I noticed Tex Instruments’ announcements on the relationship with EMP for 3G. I was wondering how this may or may not impact your own business plan that you have set out for 3G with that particular customer?

Tommi, some comments on that?

Sure. The way that we understand this arrangement is that basically currently when the application processors are sold they are at one of the currently available commercial modems, typically that would be Qualcomm. I think that this is a positive for us in the sense that the EMP modem that they will be supplying will be replacing Qualcomm in those custom designs. Simon Schafer - Goldman Sachs: Understood. Thank you very much.

Next question, please, Vicki.

The next question is from Mr. Martino De Ambroggi, Euromobiliare. Please go ahead, sir. Martino De Ambroggi - Euromobiliare: Good afternoon, good morning, everybody. A follow-up question on the U.S. dollar weakness. You said we are ready to take additional measures in case of further weakness. Are we far from the level you consider unavoidable such an intervention first, obviously would be better, a specific indication of the level but I can’t imagine anything possible. The second question is on the inventory turn. Under the new group structure, excluding FMG, you are starting from 3.9 but I can imagine you have to restate the guidance you gave under the old group structure.

I think that Carlo Ferro will take the question on the inventory turn. Concerning the dollar rate, I believe that we have a lot on the table to do, right? So this of course will -- the flash separation is more than three points of gross margin. The new restructuring plan is $150 million on the bottom line. The new model on the CMOS development is from one to two points of expenses, so we believe that this is congruent even at this level of dollar. Of course, I think we have tried very, very hard to do what we have said we would have done in the second quarter and of course, a further motivation for us to accelerate on this is the present weakness of the dollar. I think of course, if there would be a further deterioration, we will take more actions. This is our duty and we will not accept that the company does not go back into a situation where there is a continuous generation of cash flow, which is already significant but we can do better and a weaker return on capital employ that is much higher than what it is today. I believe you have the range, from 12% to 20%. But we will take all necessary action to face the further deterioration of the dollar rate. I think this is our duty and we will do.

On the inventory at flash, and thank you for the question again, I believe really we should start to look at the NOR flash to prepare for what is going to be there shortly. Inventory of flash at the end of June are at $1.33 million. Before talking about a target, I would also highlight what is the current dynamic. In the prior earnings call, I believe we have anticipated that in Q1 we have reduced in absolute dollar amount the inventories at flash. And in this current quarter, it is in the range of $20 million excluding the exchange [inaudible] impact, so you may have noticed that on these product families, [fares] increased by 6.8% and inventories increased by 1.5%. So there is another step on accelerating turns. Turns at 3.9 at this stage are below our range target of 4.5 to 5, and I’ll say that for us now, the focus in execution is to reach as soon as possible turns within the target. Martino De Ambroggi - Euromobiliare: But you are confirming the range?

Yes, it does not change at this stage. Martino De Ambroggi - Euromobiliare: Thank you.

Next question, please, Vicki.

The next question is from Mr. Jonathan Crossfield, Merrill Lynch. Please go ahead, sir. Jonathan Crossfield - Merrill Lynch: Good afternoon. I was just looking at the sequential revenue growth in Q2 and the guidance for Q3 and Q2 was broadly in line with your historical sequential average. Q3 is a little bit better but I just thought coming out of an inventory correction and with so many new products ramping in the second-half that we might see slightly stronger growth. Can you help me to understand why the growth in the second-half isn’t looking a bit stronger?

First of all, I would like to comment on Q2. I think indeed it is probably in line with our historical performance in the second quarter but the expectation that we have for the overall semiconductor market today on the second quarter is flattish compared to Q1, maybe even slightly declining. So I think that we need to compare the 6.2% sequential growth with a dynamic of the market and I believe the 6.2% will be significantly better than the dynamic of the market. Today we have Q3 visibility. We are giving a visibility that is based, of course, on the current backlog. I think it is better than our seasonal average. I think, as I said in my remarks a few minutes ago, we expect that ASG may grow faster than the average of the company in this period. And I have to say that we have a very, very strong backlog for Q4. This is just in the numbers. It is a very strong backlog, so I believe that the opportunities for growth in the second-half are there and they are based on the numbers, they are based on the new products, based on the marketing effort and the marketing initiative. I believe -- of course, we would like to do more. However, Q3 is better than our average. Q2 is for sure much better than the market and our backlog that we have now for Q4 is very, very strong.

Just to complement on the -- to make sure that we are all on the same page on the numbers, since 2003 the seasonal Q3 to Q2 sequential growth average of the company has been 3%. The midpoint of our guidance being at 4.5% is 50% higher than -- we’re not hear to discuss -- I don’t know whether this is a little or as I read this morning on some report, very modest. At the end of the day, the average in the last four years for the company has been at 3%. The midpoint of the guidance this year is 4.5%. Jonathan Crossfield - Merrill Lynch: Thank you. Maybe just as a follow-up, with the new restructuring program in place, at what stage would you expect us to start seeing the benefits of that program coming through on the cost-saving side? Will it all come through at the end or should we start to see that being phased in over the course of the next couple of years?

The question is to me, and I have to say that at this stage, I would like to be conservative. The $150 million will build up progressively and we will completely resolve as the plan will be completed. However, we have experience on the 6-inch manufacturing that the process of unloading fab, qualifying products and all these related disruptions sometimes result in possible economies that over the transitional period may hit a portion or a significant portion of this total savings. So I’ll say at this stage that the $150 million will be fully visible at completion of the plan without excluding the opportunity that something more will materialize through the period. Jonathan Crossfield - Merrill Lynch: That’s great. Thank you very much.

Next question, please, Vicki.

The next question is from Mr. Otto de la Parque, Cheuvreux. Please go ahead, sir. Otto de la Parque - Cheuvreux: Good afternoon, everyone. To me, the deal between EMP and TI is a setback for your application processor business. How do you see the situation and could you clarify if you are as a single supplier or if there are two suppliers for the base part to EMP? Thank you very much.

First of all, on the application processor side, we are making very good progress with all of the three customers that we have announced in that, so LG, Samsung, and Nokia. I expect that business plan we have in that area continues to be one that will deliver us some growth. Then, on your particular question of how many sources are there at EMP, publicly EMP has said that they will have more than one source. I believe that our position for the foreseeable future is very strong in that area. Otto de la Parque - Cheuvreux: So overall you see this deal more as an opportunity for you?

I think that it is fair to say that it will be of course better if this deal would have been together with our application processor but at the moment, we are seeing it also as a positive thing in the sense that it secures a bigger market opportunity for the digital base band part that we are supplying. Otto de la Parque - Cheuvreux: Okay, thank you very much.

Next question, please, Vicki.

The next question is from Mr. Janardan Menon, Dresdner. Please go ahead. Janardan Menon - Dresdner Kleinwort: Just going back to the previous question, on the connectivity side, you are shipping quite a lot of volume on Bluetooth to Sony Ericsson. I was just wondering whether this deal with TI, which also includes connectivity products, could have any impact on your Bluetooth shipments to that customer?

I think no, and the reason is that when you are using the digital base band as the main processor of the system, the Bluetooth is attached to that particular part and that’s the type of business that we do already in the current application processors that are sold. The Bluetooth part is often attached to that and this is let’s say in a different market segment where our Bluetooth business is. Janardan Menon - Dresdner Kleinwort: You had earlier said that you will see a strong ramp at EMP to about 10 million units of base band, most of which will be in the second-half of this year. Can you just confirm that that is on course and your 4.5% midpoint guidance includes that kind of a strong ramp that you are talking about right now?

I confirm that this 10 million is the right number to quantify the business that we see for the latter part of the year. Janardan Menon - Dresdner Kleinwort: And just one second question, if I may; can you just clarify -- there is a comment that says regarding the closure of the Numonyx flash memory deal that if the estimated loss of dollars, $857 million related to our flash memory business, materially changes at closing as a result of significant developments in the flash memory business. I’m just wondering what can be those significant developments? Is that a situation which sort of takes a look at the possible losses in flash memory or is it regarding something else outside of what can happen in the market?

I guess your question refers to the Safe Harbor language and of course there is some cautionary ingredient that we cut and paste from a lawyer’s language. To be more concrete on the point, the term of the deal to combine our flash business with Intel flash and sell our flash business to Numonyx are defined and firm and are not contingent to any significant possible change, other than a minor adjustment like inventory amount at closing date and these customary kind of adjustments. So I would not expect a significant difference in this respect. The $857 million is an estimate on this quarter based on certain assumptions of a closing date, based on certain assumptions of the offset at closing date, including for instance, the carrying amount of inventory or a capital expenditure to be incurred from the end of June to the closing date, or the currency impact, the currency preparation adjustment on our assets and for these reasons may change from the Q2 estimate to the final true-up at closing. Janardan Menon - Dresdner Kleinwort: Thank you very much.

Next question, please, Vicki.

The next question is from Mr. Didier Scemama, ABN Amro. Please go ahead, sir. Didier Scemama - ABN Amro: Good afternoon, gentlemen. I have a couple of questions, if I may. To start on with the restructuring program announced a couple of weeks ago, with the closure of these two fabs in the U.S. and the packing plant in Morocco, during the previous restructuring program effectively when you ramped down your fabs and you were ramping up at the same time other fabs in Asia, you had quite a negative impact on gross margins. I was wondering if we should expect something similar over the next 18 months before we see a potential positive impact on gross margins. I have a follow-up, thank you.

As I said earlier, frankly I would like and you are among those following ST a long time so I would not like to have to run every quarter the gross savings, net savings chart and all the related explanation. What we currently expect is that overall during the execution of the plan, the effect could be neutral and going forward, slightly positive as the gross savings, the savings from moving the wafers or the packaging units start to materialize and partially offset by these economies at this site, which is a similar experience than what we have incurred with the 6-inch restructuring. Didier Scemama - ABN Amro: And just going to some comments that Carlo Bozotti made on Bloomberg I think this morning, you said that you aim to outperform the market this year, growing by more than 2% I think, or I think you expect the market to grow by 2%. If I take the midpoint of your guidance for Q3, to grow 2% this year you need to grow Q4 by 12% sequentially. Is that more or less what you imply when you say you have a strong backlog for Q4?

I think that my comments this morning was ex flash. Didier Scemama - ABN Amro: That was ex flash? Okay. My final question is on computer peripherals. You were talking in the past about the ramp of new 90-nanometer SOC in Q3. Is that on track?

This is referring to what, sorry? Didier Scemama - ABN Amro: The HDD SOC?

Our comments were always that that product was to ramp in the second-half. The hard disk drive SOC was a second-half 2007 ramp event.

Yes, we confirm that. Sorry, I -- yes. Didier Scemama - ABN Amro: Okay, great.

Vicki, next question, please.

The next question is from Mr. Paraag Amin, Citigroup. Please go ahead, sir. Paraag Amin - Citigroup: Good afternoon, guys. A quick question on depreciation going forward. What level can we expect going forward? And then, a quick question on NOR in terms of how do you expect to or what are the measures you are going to be taking that means you can break even? Does the asset write-down help this from an accounting perspective?

I’ll take the question on the depreciation and the depreciation this quarter, pure depreciation, excluding the amortization, are $350 million in the second quarter, $350 million. As a result of the asset handling for safe accounting for flash, then we go down to approximately $300 million in each of the third and the fourth quarter. I would say that at this stage it might be beneficial for your modeling to look at the total depreciation excluding flash, and total depreciation excluding flash in the second quarter is in the range of $270 million and I would expect that they remain at that level for the next couple of quarters. The second question is what measures we are taking to improve the profitability in flash. I would say that the combination with contributing the business into Numonyx is the measure and under this, of course we will continue to run the business as an ongoing concern to focus on expanding the market presence. We’re continuing to improve manufacturing efficiencies. So this is a business that very shortly we expect that will be contributed to a new company. It deconsolidated from ST and our focus in execution is also to accelerate as soon as possible the closing of the deal. Paraag Amin - Citigroup: Thank you.

Vicki, next question, please.

The next question is from Mr. Thomas Brenier, Société Générale. Please go ahead, sir. Thomas Brenier - Société Générale: Good afternoon. Carlo, could you be a bit more specific in terms of the rebound in margin that you expect for ASG in Q3 and Q4? I think you said earlier in the call a significant rebound. Could we come back to the more normative level that we’ve seen in 2006 as soon as Q3?

I think that of course we do not provide the guidance by product line but the expectation that we have for Q3 is another significant jump, positive jump in the operating margin of the ASG overall. I would not want to provide a number. I mean, I think it will be a significant improvement in the third quarter. Thomas Brenier - Société Générale: Another way to ask the question, would it be fair to assume that the improvement in the overall group margin will come mainly from ASG? For example, what you see in the guidance --

No, because we consider -- I consider, we consider the margin of IMS in Q2 a glitch, so I believe that there will be a recovery in the margin of IMS both in the third and in the fourth quarter of this year. Thomas Brenier - Société Générale: Okay, and then flash, would it be fair to assume that it shouldn’t move that much?

The main thing for flash at this stage is how difficult is considering the effect of accounting of assets for sale. I would say that incorporating these effects and this contribution, we are optimistic that margin will improve in flash as well. Thomas Brenier - Société Générale: If I may, on the currency impact, you commented earlier in the call that if the Euro was going to strengthen again and it looks like it’s the way it is taking currently --

Not today. Thomas Brenier - Société Générale: No, not today but these days, I would say, you were ready to take more actions. Could you maybe give us a general view on how your exposure will have changed when all the actions that you are currently taking will be closed and what kind of further actions you could take if the Euro goes to, for example, 1.50 or even more?

Of course, we have -- let’s see, we have some -- how can we call it -- plan B. If the Euro is strengthening, [inaudible] and we have some idea on what to reduce, which industrial line we could move to Asia, additional in the share line we could move to Asia and of course, we would disclose that if needed. When this plan is finished and is put in place, our exposure to the Euro in G&A is not going to change too much. It is going to be along the 60% to 65%, and the exposure to the Euro in manufacturing at the end of our plan, within three years probably is going to be less than it is today as we have more production moved to Asia. But frankly, what we are planning to do now is more cost reduction plan when rebalancing of our production between the Euro and the dollar. It is cutting manufacturing plan, we have the cost of -- well, in practice, last year we closed two fabs in Europe. With the separation of the memory, there is one fab this year and we will not grow in Europe. I think that the growth will come from Asia. Thomas Brenier - Société Générale: Okay, thanks.

Vicki, next question, please.

The next question is from Mr. Jérôme Ramel, Exane BNP Paribas. Please go ahead, sir. Jérôme Ramel - Exane BNP Paribas: Good afternoon. Can you just confirm that you still expect ASG division to grow by 25% Q4 versus Q1 this year?

Well, we are very close, yes. We are very close. I think we will have -- maybe overall it will be between 20% and 25%, and wireless and consumer, we’re about 25%. Jérôme Ramel - Exane BNP Paribas: And just a final question -- what was the level of outsourcing this quarter?

The -- oh, the level of outsourcing was higher than in Q1 -- in fact, it was slightly above 12%. Just to give you an idea of what it is going to be this quarter, it is going to be above 13%. We moved a little more of the NAND, 4% to be precise and we moved to 13%. And this of course, just to clarify, includes flash memory. Yes, of course, a part of flash is outsourced, especially with [Inyx], with our joint venture with [Inyx] that we consider also for outsourcing. Jérôme Ramel - Exane BNP Paribas: And the capacity utilization rate?

The capacity utilization rate this quarter was 87%. It was more or less flat compared to the quarter before but here there is also the quarter before, a difference between the 6-inch and the 8-inch. The 6-inch was 88% and the 8-inch was 83%. I just want to mention that among the actions which have been taken for flash is also starting to offload some of our fab to adapt our let’s say [inaudible] to the new reality of flash with the new core being created. What I mean by that is, for example, next quarter we will have our R2 fab being slightly unloaded because we are preparing for the transition and we have also decreased of our Singapore 8 loading, both due to the flash. The rest will be quite nicely loaded with about 89% utilization rate. Jérôme Ramel - Exane BNP Paribas: Thank you.

Vicki, next question, please.

The next question is from Mr. Stéphane Houri, Natixis Securities. Please go ahead, sir. Stéphane Houri - Natixis Securities: Good afternoon. I have a question on the CapEx side. You have spent $222 million dollars in CapEx in Q2, just a bit more than 9% of the sales. Should we consider this level as a new guidance going forward for the year?

I think of course we are trying to spend less than the 12% of sales. This is obvious. I would not formulize a new guidance today but of course, the effort that we are doing to invest smartly and to make sure that we move on with our roadmap to become much lighter in terms of assets and depreciation. More or less, we also are adapting to a new reality of the market. If the market is going to grow 2%, there is no reason to lower our capacity, so we are very, very careful. Stéphane Houri - Natixis Securities: Okay, and on the flash memory side, you said at the beginning of the call that [Gevay] would be profitable during the year 2008 for ST. Does it mean that you don’t believe anymore in the fact that the [Gevay] will be profitable at the first quarter of its creation, i.e. in Q108 or is it not fair to think that?

I believe that what we said at the call is to expect this company to be neutral or accretive to our EPS starting from the second quarter after injection and the reason is that on the first quarter for sure, they are holding in the values a one-time accounting item. [inaudible] this kind of stuff. So today the reference by Carlo to the first year is absolutely consistent with this expectation. There are not, frankly, changes on the visibility of the new flash company of Numonyx as an accretive ingredient going forward to our EPS. Stéphane Houri - Natixis Securities: Okay. Thank you very much.

Vicki, next, please.

The next question is from Ms. Clara van der Elst, Standard & Poor’s. Please go ahead, Madam. Clara van der Elst - Standard & Poor’s: Just wondering, a clarification; I think you said that IMS suffered manufacturing inefficiencies this quarter. Could you -- maybe I missed it but could you elaborate what the reasons?

I believe we do not like to comment in this area but of course, it is related to some specific performance in certain fabs, and I would like not to elaborate and describe those details. I believe that I have also mentioned that the problems have been resolved and we expect now to go back to a higher level of profitability on this business starting from the third quarter. Clara van der Elst - Standard & Poor’s: Thank you. And then I have a follow-up on growth in wireless in ASG. How do you see, in the second-half, how do you see the high-end handset segment playing out versus the low-end in terms of share of total or growth rates?

I think from what we see that it seems that let’s say that the overall mix, the overall portion that the low-end handsets have of the overall market remains quite constant but then everything in the mid- to high-range, we are seeing let’s say a good mix towards the high-end. Clara van der Elst - Standard & Poor’s: Okay, so the top range is becoming more high-end -- is that a good way to summarize it?

Yes, so basically if you consider what is low, you would see that the ratio of that remains similar -- Clara van der Elst - Standard & Poor’s: Okay.

-- but then, within the mid to high, I think that we are seeing some more shift towards the higher part of that category. Clara van der Elst - Standard & Poor’s: Okay. That’s it. Thank you.

Vicki, next question, please.

The next question is from Mr. John Dryden, Charter Equity Research. Please go ahead, sir. John Dryden - Charter Equity Research: Good morning, good afternoon. Carlo, could you discuss the op-ex targets for 2007 versus the 30% that we’ve seen in the first-half of this year?

This quarter basically we did what was expected and anticipated, not some increase in absolute dollar terms and a reduction as a percentage of sales from 30.6% to 29.6%. I believe that this is the path that we will continue to follow on the next quarters, going down in terms of op-ex to a ratio quarter after quarter and I would expect that overall in the second-half of 2007, the ratio will be within our target range, which is below 28%. Of course, I am talking at current exchange rates and the exchange rate may remain a threat, or may also become an opportunity in respect to this performance. John Dryden - Charter Equity Research: Thank you. And then, back to the IBM agreement, are there any restrictions for another company joining the party? What factors drove you to this decision? Is there a limit to volumes from another party being part of the alliance of the six firms?

There is no limitation. Of course, we have two agreements that we have signed. One is us joining IBM consortium and one is IBM joining us in Crolles. There is no restriction in both sides. Of course, you know very well the IBM consortium, as it works. As far as other companies joining let’s say a new alliance, there is no restriction.

Vicki, next question, please.

The next question is from Mr. Eric Reubel, Miller Tabak Roberts. Please go ahead, sir. Eric Reubel - Miller Tabak Roberts: Good afternoon, gentlemen. Thank you for taking my call. A question on NOR flash. As you commented, volume was down due to a customer and pricing was weaker than normal. If I could ask you to comment how things are shaping up in July and if you assumed flat to down demand from the weaker wireless customer, how do you see the pace of price erosion in Q3, calendar Q3 in terms at or below normal seasonal trends? And I have a follow-up.

I’ll say that these very short-term question at this stage, the business is following an even path of normal price trend. We do not see frankly easing the price or the price environment. But as I said, the price environment in the second quarter has not been significantly different from normal patterns and the price pressure we have experienced in the second quarter was in the range of mid- to single-digits. Similarly, we [inaudible] the third quarter. Eric Reubel - Miller Tabak Roberts: When you any mid to single digit, is that including -- I’m sorry?

Minus 5%. Eric Reubel - Miller Tabak Roberts: Okay, if I could turn for a second to the image sensors. Could you characterize your image sensor inventory in terms of weeks and could you break out image sensor shipments in terms of the mix between VGA and megapixel?

I think that this is a level of detail that I am not comfortable disclosing. Eric Reubel - Miller Tabak Roberts: Okay, gentlemen. Thank you very much.

Vicki, next question, please.

The next question is from Mr. Peter [Testa], One Investments. Please go ahead, sir. Peter Testa - One Investments: Thank you very much. I was wondering if you could give us some sort of feeling for your hedging position and try to understand in the comments you made earlier on looking to have, be reactive to an extant that there’s a big change in currency as to how you might change your hedging policy to allow you to buy time to make that sort of change?

Our hedging policy is covering approximately 50% of the overall exposure in cost of goods sold and operating expenses over a six-month period. The instrument that we are adopting are contracts and options, the combination of the instrument on the market momentum. So under this policy, we are taking advantage of our hedging to significantly mitigate the impact irrespective to actual rate in both the first and second quarter, and at the current rate our hedging will also positively contribute in Q3 and Q4. The current hedging for the third quarter, to the extent of our target exposure hedging eases substantially of course this stage and is much less than current rate, and also for Q4, the contracts that we have so far entered are at the rate which is between -- in the range of between 1.365 and 1.37 forward rate, so below the current rate. I would say this is the financial ability of mitigating of the [inaudible], the discussion that earlier occurred about the measure, of course, is much more structural in correcting the natural exposure of our construction. Peter Testa - One Investments: I was trying to understand whether you might lengthen your hedging policy to allow yourself to buy more time to implement the industrial part of the solution.

Well, you know, from what I understand your question is should we expand the hedging material and going to over 12 months as opposed to over six months or 18 months. You know, it is quite a risky decision on one side and by the way, [inaudible] cost.

Yes, considering that the difference of interest rate is still significant and the cost of hedging is the difference between a [inaudible] rate over 12, 18 months, this became material to our margin performance. Peter Testa - One Investments: Yes, I understand. That’s why I asked the question. And the other question I had please was if you could talk a bit about in your mobile communications business, the visibility that you have now looking forward as to the mix change between the advanced communications products, whether these 3G base band or others mentioned and 2G as to how you see your, how fast you see your mix changing based on your visibility looking forward? I think you referred to Q4 visibility, for example.

So the bulk of the position that we have in the RF products as well as the digital base band is naturally on the 3G. On the mixed signal, we have products both on 3G and 2G and we see demand in both 3G and 2G strong for the end of the year. Peter Testa - One Investments: Thank you.

Thank you. Vicki, we have time for two more questions. We’ll take the first of those, please.

The next question is from Mr. Janardan Menon, Dresdner. Please go ahead, sir. Janardan Menon - Dresdner Kleinwort: Just a follow-up on your Q3 guidance. In Q2 you said that computer was down 4% quarter on quarter and I was just wondering, was that from the printer side or was that from the hard disk drive side? How do you see that panning out into Q3?

I think we are expect in Q3 a significant growth in the computer peripherals business. It was a correction in the disk drives and it is a one-shot. Q3 focus is surely with a significant growth. Janardan Menon - Dresdner Kleinwort: Okay, and I’m just going to crawl again -- to do your specialty derivative technologies, are you suggesting that IBM will be part of that as well? If not, will you be looking for -- are you still in the market to look for any other partner for that or are you going to do it with three field semiconductor?

Yes, I am not only suggesting but they are part of it. In fact, IBM is going to put about 20 people in Crolles to work on the derivative, so they will be part of it and have access to technology which is critical there. This doesn’t exclude that other partners could come also. As far as Fishkill more specifically is concerned, they have not yet told us clearly what they intend to do and of course, they will probably tell us by the end of the year. Janardan Menon - Dresdner Kleinwort: Thank you very much.

Vicki, last question, please.

The last question is from Mr. Matthias Großmann, WestLB. Please go ahead, sir. Matthias Großmann - WestLB: Good afternoon. I have to come back to the foundry utilization issue. Where would the rate stand at if you do not take FMG into consideration?

Probably it would be around 10%. Matthias Großmann - WestLB: 10% excluding FMG?

Yes, excluding FMG. Matthias Großmann - WestLB: What would the target be by the end of 2008, excluding FMG?

By the end of 2008, frankly we don’t have any target but for sure by the end of 2009, we want to be above 20%, so it is going to be in-between in 2008. Matthias Großmann - WestLB: And a short clarification; earlier with regard to this IBM collaboration, you had the target of I think 15.5% to 17.5% in R&D spending, so do you think you will decrease this ratio going forward if you start IBM collaboration? Will this ratio go down or --

I’m not sure I understand your question. In fact, the number we have disclosed is that about one-third of our R&D expenditure are on the technology and two-thirds are on product development. What we are going to have in the near future is that this one-third/two-thirds is going to change slightly. We are going to spend less in technology development and more in product development. Matthias Großmann - WestLB: So it’s actually just a reclassification that you will --

We’ll maintain the flexibility, of course, but the motivation is to run more on products and systems. But we have the flexibility because we spend less in technology R&D. Matthias Großmann - WestLB: But going forward, the ratio will stay constant between 15.5% and 17.5%?

Yes. As a total R&D spending. This is the reason they were -- is similar to the current running of the company.

Yes, absolutely. Matthias Großmann - WestLB: Thank you.

At this point, this will conclude the formal portion and the Q&A portion of our conference call today. We thank you very much for your participation, your questions. If you have any follow-ups, please contact myself or other members of the investor relations team. With that, we wish you good day.

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