Tait Sorensen - Director, IR Carlo Bozotti - President and CEO Carlo Ferro - CFO Philippe Lambinet - EVP, Home Entertainment and Displays Carmelo Papa - EVP, Industrial and Multi-segment Sector

Simon Schafer - Goldman Sachs Glen Young - Citi Nicolas Gaudois - UBS Didier Scemama - RBS Tristan Gerra - Robert Baird Sandeep Deshpande - J.P. Morgan Kai Korschelt - Deutsche Bank Mark Lipacis - Morgan Stanley Odon De Laporte - Cheuvreux Jonathan Crossfield - Bank of America/Merrill Lynch Jerome Ramel - BNP Paribas

Good morning and good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the STMicroelectronics second quarter and first half 2009 earning results conference call. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be opportunity to ask questions. (Operator instructions) At this time, I would like to turn the conference over to Mr. Tait Sorensen, Director, Investor Relations. Please go ahead, sir.

Thank you, Dino. Thank you for joining our second quarter 2009 conference call. Hosting the call today is Carlo Bozotti, ST's President and Chief Executive Officer. Joining him on the call are Carlo Ferro, our Chief Financial Officer; Philippe Lambinet, our Executive Vice President of Home Entertainment and Displays; and, Carmelo Papa, Executive Vice President of the Industrial and Multi-segment Sector. This call is being broadcast live over the web and can be accessed through ST's Web site. A replay will be available shortly after the conclusion of this call. This call will include forward-looking statements that involve risk factors that could cause ST's results to differ materially from management's expectations and plans. We encourage you to review the Safe Harbor statement contained in the press release that was issued with the results last night and also in ST's most recent regulatory filings for a full description of these risk factors. As a reminder, please limit yourself to one question and a brief follow-up. And now, I'd like to turn the call over to Carlo Bozotti, ST's President and CEO. Carlo?

Well, thank you, Tait, and good afternoon, and good morning. Thank you for joining us on today’s conference call. Last quarter’s indicators of improvements in booking activity and increased visibility were confirmed as ST reported second quarter revenue results of $1.99 billion, coming in above the high end of our targeted range. We posted sharp sequential increases in most market segments. And from a regional perspective, we benefited from strong sequential improvements in China and in Asia Pacific, but not yet from Europe and United States. While the environment is still uncertain, we had a number of positive metrics demonstrating that ST is well aligned with the key priorities that we shared with you at the time of our annual field trip on May 15th in New York. First, we indicated that we planned to maintain a positive net cash position, and we have, for both the first and second quarters of this year, having reversed our net debt position of $542 million at the year-end 2008. Our positive net cash position in the second quarter was $205 million. Looking ahead, we expect to continue to be in a strong position for the final two quarters of 2009. Second, we indicated that we were taking aggressive action with respect to inventory levels. Our goal is to reach 4.5 turns by the end of this year. During the second quarter, we decreased our inventory by $207 million, improving our inventory turns to 14.1 times from 2.9 turns at the end of the first quarter. And from our outlook, we can see that our goal is to deliver further improvement in the third quarter. Our aggressive actions are clearly reflected in the stronger year level of our gross margin for both the first and second quarters of 2009. These are ugly numbers. I don’t like them any more than you do, but we are right to take these necessary actions. Looking ahead to the third quarter, we expect to see a sequential improvement in the gross margins to about 31%, plus or minus 2% points. This range assumes some partial recovery in operating efficiencies and fab loading, but is still far below our optimal levels. And it also reflects an anticipated 75% fab loading as we expect some further inventory reduction in the third quarter. We are encouraged by our fourth quarter backlog dynamic, but we had a broader than usual gross margin range that still reflects uncertainty in the market and related fab loading in Singapore -- in September. Third, we indicated that we expect to turn cash flow positive, and we have, with net operating cash flow, excluding M&A, of $45 million in Q2. Looking ahead, we expect to generate positive net operating cash flow in the second half of the year if market conditions develop as anticipated. Fourth, we indicated that we are continuing to advance our lighter asset strategy, and we have. For the first half of this year, capital expenditures totaled $166 million. And so, we will be well below the $500 million for this year, and well below last year’s expenditure of $983 million. Also, we continue to push our (inaudible) technology approach, after having recently finalized the R&D grant from the French government. Today, we have extended the partnership for sharing technology development with global countries. And finally, turning to wireless, let me make the following points. Obviously, putting together three companies was not easy to do. But again, it was the right move strategically. If you’re certain in this business, to be successful, you need three critical elements. We must have the scale, we must have a leadership tied to customer base, and you must have the R&D resources to innovate and serve the different market segments. ST-Ericsson is one of the very few companies that have all three. We know that under this post-crisis market scenario, we have to lower the company’s breakeven point. Indeed, ST is executing towards the $1 billion productivity and studying programs to lower our breakeven. I will not recap this in detail as it has been extensively discussed in other venues, but simply state that it’s a broad-reaching plan including manufacturing, a continued rationalization of the site, the improvement of the R&D effectiveness, and importantly, capturing the synergies in wireless. Now, let me turn to some specific highlights of the second quarter. The quarter was essentially the opposite of the first. We sold market segments and applications up on a sequential basis. And just as distribution saw a significant distort in the first quarter, it rebounded sharply in the second quarter, with 44% sequential growth due to improving business conditions in some regions as well as more normalized alignment or inventory to demand. As I said earlier, our gross margin of 26.1% was reflective of our efforts to make significant headway in inventory reduction. In the second quarter, we had $121 million in unused capacity charges, compared to $139 million last quarter. In addition, the results were affected by inefficiencies related to manufacturing as almost our -- all our fabs have experienced operational disruptions when running at such low volumes. And this will happen again in Q3. And finally, industrial applications and higher demand in China, while driving revenue growth, had a negative mix impact. So some of these factors explain why we were not able to leverage the higher than expected revenue results. Operating expenses of $896 million increased sequentially due to the integration of one additional month of the former Ericsson Mobile Platforms business into ST-Ericsson, and a higher number of days in the second quarter, but were partially offset by the ongoing cost reduction programs. Turning to the third quarter, with somewhat improved visibility, we are returning to a more normal outlook. Based upon current information, we expect revenue to increase sequentially between 4% and 14%, representing a revenue range of about $2.07 billion to $2.27 billion. We expect sequential growth in all further groups, with industrial, automotive, and computer driving the growth. Now, there was one final metric that I did not speak about at the start of the call, market share. Our sequential revenue growth in the second quarter was 20%. This is above what many semiconductor companies have reported. So I believe we are positioned to capture market share sequentially and year-over-year. This brings me to the final topic for this call. It is about continuing to improve our market position by introducing innovative products to serve the need of the markets we address. And it is about expanding our customer -- our base of customers in specific regions, such as China, where we grew 38% sequentially; in the mass market where we grew 36% sequentially; and, in our new key customers, where we grew 34% on a sequential basis. Looking from a regional perspective, our focus on Asia Pacific and Greater China is paying (inaudible). Over the last few years, we have gained market share in Asia Pacific, and we expect to do so again this year. As we discussed last quarter, we have in place important marketing and development initiatives with our regional sales and marketing organizations, in combination with our product groups. In the second quarter, we registered strong growth in several programs. As we mentioned in the press release, we are excited about our progress in the Sense & Power initiative as we began shipping analog controllers and power MOSFETs for power management in computer motherboards for the first time. We expanded the range of our high-voltage MDMesh power MOSFETs for our switched-mode power supplies, gained traction in the 32-bit microcontrollers in the industrial smart car in the automotive markets. And we continue to ramp up our new cost optimized product family based on advanced 55 nanometer low power technologies for the set-top boxes. And in wireless, as the Ericsson is making significant progress with its product portfolio, as of the end of the second quarter, the JV shipped over one million units of the TD-SCDMA devices, and recently announced a strategic partnership with China and Mumbai to drive development of both high-end and low-cost handsets based on this technology. Let me summarize our significant progress during this quarter and the first half. First, with respect to managing our cash and liquidity, we maintain a positive net cash position, we generated positive cash flow -- operating cash flow, and we drove down inventory levels sharply, and we made prudent capital expenditures. Second, with respect to our cost programs, we are in fact on time to deliver results. Third, with wireless, here again we are moving ahead with product initiatives with customers and with right sizing the JV for profitable growth. And finally, product innovation, with the introduction of a wide range of high value added products. Moving to our longer term perspectives, I believe that the world cannot get out of the crisis without building its future growth on the solid foundation of electronics. There is an enormous potential demand for improved connections between people, machines, and enterprises. There is a widespread need for improved security. The applications of remote sensing and robotics are just beginning to show their potential in the support of an aging population. The same is true for the application of electronics to healthcare. And we are all aware of how vital electronics are for the more environmentally friendly vehicles, the efficient use of energy, and to exploit renewable resources. Well, today and for the next several decades, microelectronics, as it evolves towards nano-electronics, would be the most powerful enabling technology for all those applications of electronics. The potential is huge and we are prepared to grab all of the opportunities as we play a major role in this new step forward in the industry. With that, my colleagues and I are now available to answer your questions. Thank you.

We will now begin the question-and-answer session. (Operator Instructions) The first question is from Mr. Simon Schafer of Goldman Sachs. Please go ahead, sir. Simon Schafer - Goldman Sachs: Yes. Thank you very much. My first question is related to the gross margin outlook. Just in light of your statement that you would expect your salvation rates to be high as 75%, it would appear that maybe the gross margin leverage that is coming through isn’t as pronounced as one may have expected and it seems to be the case -- or it seems to be the case for other companies in this space. I understand that perhaps the inventory burn down issue is taking a little bit longer. But that utilization rate would be great if you could shed some more color as to when we would expect that to be coming up more. Is that just a function of cycle times than inventory burn down, or is there anything else at work? Thank you.

Well, I think Carlo is taking this. I think it’s very technical, and sure, Carlo’s covering it.

Good morning, good afternoon, everybody. At the end, we’re really driving against the point after the prior quarter call. Year-end, the way that we are currently running to have is affecting those margins negatively in two respects. One is the technical cost of a news capacity. This is an impact of about six points in the second quarter, and will continue to be somehow visible as large as three points of gross margin in Q3 based on our current visibility. And the other one is real efficiencies that when running they have at half of their capacity exist given the inability when the machine runs of really using their move on the most effective way. And this is a substantial effect. When we met in May at the end of this day, I guess I’ve shared with you about five points of negative impact, at this time was in the first two quarters. The one that we are experiencing in the second quarter is no different, even eventually a little bit higher. And these at the end fall on the inventory cycle, and based on that, the fall on the following quarter. So this is an effect that is still present in our third quarter gross margin current visibility. At the end, from Q2 to Q3, we do see some opportunity of improving margin at mid-point of the guidance by about five points. And these five points reflect the initiative that has been significant in the re-structuring. Since I would remember that in early April the company phased out the operations in (inaudible) fab in Carrolton, and just sends the plant in the bank. So these positively affected manufacturing costs during Q2 that benefited the margin of Q3. But probably we are yet at a normal situation at full speed of the running defect. Going forward to the last part of your question, of course in with Q4 we do expect another substantial step-up based on the current visibility. We got to see at the end that this effect will progressively mitigate. However, also for Q4, we do not currently see a full loading, we see about 80% of fab loading. And in Q3, the use of the fab will continue to be not optimal so the inefficiency effect is progressively re-absorbed, but not totally re-absorbed. What would be positive, looking at the gross margins for the first two quarters, is the mix factor. Mix, at the end it can turn to a positive contribution with the new products in the 15 animators with the CBC BMA that’s quarter-over-quarter will ramp to higher volume and very visible revenues, and even a more balanced geographic solution as a margin in Q2 would sustain a stand. So in Q3 is very much affected by weight of sales into geographies like China that is lower margin, which is higher than the normal balance for the company. Simon Schafer - Goldman Sachs: Yes.

We do not have enough orders from Europe. And unfortunately in Q3, Europe is seasonally weaker, but we expect a stronger recovery from Europe and from America in the fourth quarter.

Simon, did you have a follow-up? Simon Schafer - Goldman Sachs: Yes, if I may. The second question is actually sounding more related to Carlo Bozotti’s statements just now in terms of your ordering environment in Europe. I think your press release is clearly stating that that is a part of the geography, which is still slightly weaker. But you did, I think, comment that even some of the industrial portions of the business in automotive, we're seeing some initial signs of life. I think that’s what you said in the May analysts’ day, but I was wondering as to whether you could maybe just elaborate a little bit more colors possibly as to what you are seeing in terms of the ordering environment, in terms of re-stocking or real end demand? Thank you.

Yes. So first of all, I mean automotive grew in Q2, but then China was very strong in automotive in Q2. And of course, it’s not the same kind of cars. It’s much lower end cars. But what we see are very, very -- simply is that the numerical indicators -- the indicators that we have in our backlog, also for Q4, are positive. So of course, we check backlog on a rolling basis and we have good indicators for Q4. Still, we are in a living and we are in a major crisis. So we remain cautious and we want to work being very, very careful on inventory and we are ready to adjust loading down if necessary in September. The risk that we see is more a correction in Asia, in China, and in Taiwan, in Korea because the recovery was pretty fast. And in case this would come, we will rapidly adjust our loading because we are strongly committed to move on with inventory reductions. So this is the concern, but this is not in our numbers. If we look at all the indicators at our backlog today, our backlog for Q4 is substantially up. Simon Schafer - Goldman Sachs: Okay. Thank you very much.

Thank you, Simon. Next question, please.

The next question is from Mr. Glen Young of Citi. Please go ahead, sir. Glen Young - Citi: Thanks for taking my question. I just wanted to follow-up again on the gross margin question. You made the point that you’ll be at the 75% utilization in Q3, 80% in Q4, and yet still you are seeing inefficiency charges. I understand that there maybe still some underutilization charges. But at that level of loading, are you actually still seeing an impact-- inefficiency impact from being “low production levels” if you’re at 75% or 80%?

Yes. A gain of both, Glen, you may consider that, obviously. Its growth, basically, reflects the prior quarter performance of the fab in this respect. So Q3 again is affected by the second quarter, which rank has been, I would say, the worst quarter for manufacturing due to the level of activity of the fab in the history of the company. And if you further still reflect at 75% to a certain extent. So we are improving, what is also important and I like to highlight it if that could be asked for, the down in restructuring, manufacturing, and the headcount reduction, which is a plan of just 500 people has been substantially completed and this helped significantly to mitigate this effect. So how qualifier is very visible and these effects, otherwise the impact would have been, obviously, much higher. At the end, we are now, I believe, experiencing a phase of recovering activity. And in the phase of recovering activity, the fabs are progressively restarting, none when phasing out, none when restarting the activity, all goals are perpetually smoother, semi-conductor fab sub-design to work as the perfect continuous process, and any of this kind of disruption, up or down is not helping the performance for sure. Glen Young - Citi: Great. That’s a good answer. Thank you. Second question I have is maybe if you could just shed a little bit more light on your recent asset with Global Strategic. Maybe let us know what the genesis of that relationship was, what benefits we might expect to see, and when we might expect to see them?

Well, I think that -- of course, for us it’s aligning with our advancing most technologies. This is a good opportunity for us. It’s an additional source for us. And what is important is it is fully aligned because it’s our own technologies. And therefore we expect not only from competitive solutions, but also from a technical point of view is smooth -- work together. And so, I think this is venue of the agreement. It's an additional source. It’s a full alignment, and therefore a good opportunity to land smoothly, for instance, product -- the same product in two different facilities.

Carlo, may I add a point, in effect, to the cost model of the company. I guess we have expanded in New York so much as we have expanded about these -- jive technology model where full swing the ability of mastering advances in most of technology. We are so substantially reducing the technology R&D effort as a percentage of sales and in total dollar. And this a combination of main ingredients through a network of initiatives and partnership, the one that we started with IBM, the one that we de facto have with the French government and the related grant. And licensing and technology, as is the case of the global funding, and the receiving licensing royalty flow from partners is another form of mitigating with revenues, other income, the cost that you see on the R&D P&L light.

Thank you, Glen. If we can move to the next question, Dino?

The next question is from Nicolas Gaudois of UBS. Please go ahead, sir. Nicolas Gaudois - UBS: Yes, hi. I have two questions here for me. The first one is if you can come back to comments you made in May on reaching $2.1 billion to $2.4 billion of (inaudible) revenues by either Q4 of this year or Q2 of next year. And in that context to break even with some reports from the press this morning, which seem to suggest that you may not necessarily see it's probably to early to call for breakeven in Q4 despite the fact that you’re obviously basing in Q3 with which. And the other question is could you help us a little bit on OpEx since they were higher than expected in Q2. How should we think about it in absolute or relative terms into the first quarter? Thank you.

Yes, I know. I think this morning I said exactly what I said in New York. So we have a model, I think we are implementing this model. I think the time frame for the implementation is from 6 to 12 months. I think that maybe some elements will be performing in Q4, maybe not all the elements. But this is -- I said exactly what I said in New York. And we do not have any -- in this respect, any different position. I think that from the free cash flow point of view, we expect now a positive performance in the second half of the year. So in this brutal crisis, I think as you know, we have grown some cash into $139 million from an operational point of view. This, of course, is after capital investment. And at this point, we expect to have a positive free cash flow in the second half of the year. So overall, I think we will close 2009 with a financial position that is substantially stronger than what we had at the end of 2008 despite going through the most dramatic crisis that we lead with the target not to burn any cash from an operational point of view. As far as expenses are concerned, I think that Carlo will take it. Carlo Ferro?

Yes. I guess maybe to address Nicolas' question and maybe anticipate the questions, so it will be beneficial to share with you where we stand on the headcount restructuring as the operating expenses activities are concerned. We have presented and we are pushing a plan of reducing headcount in that area, SG&A and R&D, by 2,350 people. This is a combination of the ST plan; this is the combination of the Ericsson Phase 1, the one announced after the merger with NXP; and, the Ericsson phase 2, the one announced at the end of April immediately after the inception of ST-Ericsson. Where we stand today, we’re down about 850 people at the end of June. So there are other 1,500 still remaining to be addressed, so this is really a large number. It’s unfortunate for people, but it’s a big and large opportunity on our OpEx stream going forward. You know that the Phase 2 of the ST-Ericsson has been announced end of April, and the two months of the quarter has been devoted to completing all the procedures in Europe for labor communications. And so far so they will start to reduce headcount in the next future, and that mark down so far. You know there is a portion of this plan that is planned to be completed in 2010, by mid 2010, to be exact. So if we would characterize the 1,500 headcount to be addressed as about 900 from the second half of 2009 and the 600 for the first half of 2010. In this respect, looking forward to our operating expenses, we have substantial opportunity for reducing expenses in Q3 and in Q4 in respect to the level of the second quarter 2009. We may expect some tens of million dollars in each, Q3 and Q4. We will continue quarter-to-quarter to increase the benefit from the restructuring initiative for Q4. Please reconsider we are modeling that the quarter as an impact of the accounting calendar, which results in about 6% higher number of days. And of course, there's another (inaudible) our modeling, our model was made from the exchange rate at $1.57. Where we stand now is not exactly that. This could be another ingredient, but we'll see. It started from these contingent ingredients, so the plan is on track and operating expenses will move down in absolute dollar and even low leveraging on sales, increase as a percentage of sales from Q2 into Q3. Nicolas Gaudois - UBS: That’s tens of millions of dollars, basically, you said in Q3 versus Q2 you would expect?

Yes. This is what I said, the some tens of million dollars. Nicolas Gaudois - UBS: Okay. That’s great. Thank you, Carlo.

Thanks, Nicolas.

Dino, next question, please.

The next question is from Didier Scemama of RBS. Please go ahead, sir. Didier Scemama - RBS: Yes. Good afternoon, gentlemen. It’s Didier Scemama from RBS. Thanks for taking my question. I just like to start with a question on some of the review on the cycle and maybe where inventories are on the supply chain. Because when I look at the aggregate inventories for OEMs and EMS during the second quarter, I appreciate we don’t have all the numbers yet, but it looks like inventories have been drawn down substantially again in Q2? And I’m just wondering what you think is a sustainable level of inventory in the supply chain as we move into the second half (inaudible). And perhaps also catch up with end demand, that’s my first question. And my second question. Just strategically, one of your competitors is talking about a partner in the set-top box and DTV arena for JV. I just want to have your thoughts perhaps, Carlo? Thanks.

Yes. Well, it’s (inaudible) here. So we take this with pleasure. On the first one, of course, we track our distributors. And here, I think I have to say that the POS performance is up in Asia. But unfortunately, in Q2 the POS was still somehow deteriorating, both in the United States and in Europe. And I’m not talking necessarily about the POS of ST. I’m talking about -- I'm talking about the point-of-sales of the market. And inventory, they're down everywhere. We saw a strong reduction of inventory at our distributors everywhere. This, of course is -- I believe that there are challenges. There are even some delivery challenges in these days because the inventory at the distributors went down very dramatically. If you look at the OEM, we see significant -- we see numerous requests from customers to, in a sense, expedite products, which are a sign -- which is a sign that the inventories are down. Of course they have been and they are very cautious in planning and in their -- in our preparation of orders. I think it’s not going to be sustainable. I think some better planning is needed because the swings have been too brutal. So we moved here from a certain level, dropping 40%. And now we’re up, and all the inventory is down, and there are a lot of customers somehow screaming, and they’re trying to expedite products because the planning process was not optimal in these months. I do not know whether I responded, but this is what we see. Didier Scemama - RBS: Okay. And on the potential partner for NXP in set-tops and DTV? I think they are looking for someone, so.

So I think that this is now -- Philippe Lambinet is in front.

I’m not going to do investor relations for NXP, so.

Maybe it’s some of our former colleague is doing for us.

Maybe you should ask Chris [ph], he would know.

It’s well known that in the area of digital television, there are only two companies of the size -- the critical size to afford the R&D that’s needed in this field. So there’s the company in California, and there’s us. We have the critical mass to be sustainable, others don’t. Therefore, it’s not surprising to see some close consolidation happening. We saw NXP getting digital TV products in excess. They are still below critical mass. They are still not enjoying a very good market situation. So there’s no big surprise to see moves to consolidate. There could be other moves from other people who are also below critical mass. That’s not particularly surprising. As far as we’re concerned, we enjoy a lot of design wins with our new families. We are introducing later this year extremely competitive products with a very high level of performance. We are delivering our plan to come back in the TV (inaudible), thanks to our acquisition of Genesis. The Freeman new platform is in the fab at the moment, and we expect to start generating business later this year and maybe next year. So we’re executing according to our plans. And fine, if the others are struggling and need to partner, you should ask them the question, “What are they doing?”

Thank you, Didier. Dino, we’ll take the next question.

The next question is from Mr. Tristan Gerra or Robert Baird. Please go ahead, sir. Tristan Gerra - Robert Baird: Could you talk about your plans in terms of product mix going forward, and which areas you may be emphasizing or de-emphasizing in the future, in addition to what you’ve done so far in terms of divestitures, and also, maybe more specifically in analog.

I will leave Carmelo to make the point on the analog, where we have a lot of initiatives. I already said this, but I believe that today, the geographical mix in Q2, and partially also, in Q3, the geographical mix is pretty unfavorable. Because we had a global crisis, practically all industrial sectors and all geographies collapsed. And the first to recover were China, Taiwan, Korea. And the mix is somehow poor in these regions. While the recovery in Europe, the recovery in the United States, and also in Japan -- in Japan, the bottom was in Q2, in fact. So Q2 in Japan is lower than Q1. So the recovery is not there yet. So we expect that in the next two or three quarters, there will be normalization in this respect. Because today, it’s not that we are purposely pushing for a worse mix in China or in Taiwan. It’s simply that we do not have enough orders from Europe and US. And this of course, it takes longer time to recover. So this is from geographical point of view. From the point of view of -- very shortly, in the ST-Ericsson I think that -- I’m sure Alain Dutheil already commented this, but I think we have a strong focus on high-end products like the connective devices and these mild form supplications. And in the area of digital consumer, I think it is very much for moving also into smaller geometries from one side, but more value in the products, including dual core, set-top box products with a very performance -- 3D capabilities. So this is the path of the (inaudible), in a sense. And I leave to Carmelo to talk about all the initiatives that we have in the area of analog.

This is Carmelo speaking. We mentioned initiative in the area of analog (inaudible) with the Sense & Power campaign. We have a very bullish objective in a market. Nobody knows how we will end up. Some people talk about management now this year. We have an object of growth by 7% in this field, which means several hundred million dollars. So most of the products here are pure analog products, these are combination of also some discreet high-end, discreet power that complement in many applications, the analog products. But most of it is 90%, 85% is pure analog products. So we are really hitting the ground with this type of products. And I must say, we have a budget for the year. I don’t know if I can mention it here?

You cannot.

The boss says I cannot. And therefore, I don’t. But we have hit the target for Q1 and Q2. And therefore, it’s promising. Of course, most of it will depend how the market will evolve. If this doubles the digits, then this will also hit the campaign. But we count, more than anything else, innovation. We have a bunch of new products that are coming. I must tell you that in the first two quarters, we doubled the presence of new products by us. The new products are those who are born in the last two years, let’s say. In the first two quarters we have doubled the presence of new products and some (inaudible). Of course, everybody knows the MEMS example. This is a part of the Sense -- in the Sense & Power Campaign. So we started with -- we introduced the gyroscopes, next to the accelerometers. Q4 will come with the microphones. This will enlarge the scope of the mission of the MEMS, not only for wherever we were before, but telephony, gaming, but also industrial application and medical application. We are making inroads everywhere. The rest of campaign of the Sense & Power is devoted to motor control application where there is a lot of -- it seems that apparently, this should be discreet power. It’s discreet power. There are a lot of analog devices there. And this mother control is part of the mission of the Sense & Power. We have analog from the end of the applications. So it is a sort of -- let's say a number -- numerous of applications we are following. And one more thing, which was not happening in the past beside the new products that we are introducing, Kodak support. It's the system application that we are following now. So we introduced to the market, a lot of boards that prefer the much marketed and an received by the customer are of essential -- most preferred by the (inaudible), what I wanted to say. So in the sense that we do a lot of R&D for those people, and they do the finalization of this product. And we already sold the 9,000 boards, which is not peanuts. Altogether, we have 250 different boards carrying different applications, most of them in that application. So we count a lot on this Sense & Power campaign, which in the end, in terms of -- means a lot more analog. And the results are proving good. Tristan Gerra - Robert Baird: Okay. Quick follow-up, have you talked about your market share dynamics in microcontrollers given the new focus for one that's remained a competitor in this area? And could you please remind us what your market share is for 32-bit NTUs.

Go, Carmelo.

Well, the 32-bit campaign is one of the most promising and result giving over the minute ST has done until now. Of course, microcontroller takes a lot of time in terms of designing. So we started last year, and there are hundreds of designing that could be -- between now and the next year, we'll give results. Of course, we are not alone, but we are not alone before. What's happening now is we have a very clear strategy, a very good platform of technology. We're introducing now, not only in the area of (inaudible) bit, the low power version that will allow us also to enter us in the medical field. So we are -- well the people -- we can fight with anybody. I mean we are in very well positioned in the market, much better before than two years ago, for sure.

Yes. We have, in relation to the thing that we are discussing at this point, three major initiatives. One is the Sense & Power. It's global. Geographically, of course, with a lot of focus on analog, on sensors, and some selected power. And in all our regions, we have deployment of -- sales, I think, is moving on aggressively. The second one is on the 32-bit microcontrollers. And this is for -- also for secure microcontrollers. So again, it's a lot of new products, a lot of new applications. We have deployment in all the regions. And the third one is medical. I think we have a major effort now in our medical products in the healthcare. And I'm sure it's a new field where also, thanks to our -- to certain proprietary technologies that we had in medical, we can really achieve good results. So it's a very focused approach. We've got Sense & Power, 32-bit microcontrollers, and medical applications. Tristan Gerra - Robert Baird: Great. Thank you.

Thank you, Tristan. And we'll take the next question please.

The next question is from Sandeep Deshpande of J.P. Morgan. Please go ahead, sir. Sandeep Deshpande - J.P. Morgan: Yes. Hi. Thanks for taking my question. Sorry to go on about this, but one more question on your costs essentially. I mean, you talked about where you will breakeven in your analyst day. I mean, would you now see, given what you've seen in terms of your cost progression, where ST's breakeven point is at this point?

Well, Sandeep, we are, as we've said, executing the plan. And, I would say, mentioning the 1,500 headcount to be completed under the OpEx restructuring plan. I gave also for you a flavor on what is the opportunity for bringing down the operating expenses going forward. And obviously, translating this into precedence depends on many other ingredients, including the level of the gross margin of the company. Overall, how to repeat the end, we are on track, we said in New York that we are committed on moving the company to generate a substantial free cash flow when reaching a level of phase between $2.3 billion and $2.4 billion and some profitability at that level. You may have not noticed by the way that the company turned to generate positive free cash flow in the second quarter, and we are on track on this plan. Then whether will occur on the six months of certain amounts of (inaudible) requisitioning to where we were in May, so whether we will occur in Q4 '09 or Q2 '10, this is still pending and very much depending on demand dynamic. Sandeep Deshpande - J.P. Morgan: Okay. And then a follow-up on the mix itself you did comment earlier that the gross margin guidance in the third quarter is to some extent an impact of the mix. Can you comment on the mix? Is it because of this China-Taiwan impact or is it some end market impact of product impact Baseband versus other handset chip impact or some other kind of mix impact, which is causing this or are you seeing a clear decline in ASPs, which is causing the impact?

When we look at the mix impact, the group, the product group by product group at the end, we experienced -- expect a normal price trend improvement in mix amid innovation, of course in second quarter is more evident in one group and other quarter is more evident in the other according to the ramping up of the new product, and the devolution of process are through the learning curve. While, what we have negatively experienced in this current quarter is that -- is the impact of the geographies. When selling higher ways of total sales to China. This has two effects, in deed. One is that overall -- the overall profitability of that market irrespective to other, and the other is the mix of products and applications, which is more exposed for this market to a lower end of products, and this is what we have experienced in the second quarter, we expect that could mitigate, but not disappear in the current quarter in Q3 and if our current visibility on demand will be confirmed as we see currently the backlog, Q4 could be different as the some recovering in Europe and to a certain extent in the US as well can mitigate this effect going back at I would say more a normal balance of sales by geographies. Sandeep Deshpande - J.P. Morgan: Thank you, sir.

Thanks, Sandeep. We will take the next question please.

The next question is from Mr. Kai Korschelt of Deutsche Bank. Please go ahead sir. Kai Korschelt - Deutsche Bank: Yes, thanks for taking my question. My first one is to kind of rephrase maybe the inventory versus end demand question, do you believe you are over under shipping end demands at Q2 and Q3? And then I have a follow-up please. Thank you.

I think so. I think that we are under shipping. Overall I think this is case and this is particularly true in Asia. Kai Korschelt - Deutsche Bank: Okay. And my follow-up is if I look at CapEx, it was obviously still a low level in Q2, and I think there has been some headlines of sort of larger CapEx plant in France, I mean what kind of normalized CapEx level looking into 2010 should we expect?

I think and this is we said, I think this is a big difference in ST, and we're spending much more in R&D, and we will get a return on that. And we are spending much less in capital. In ST, we had a capital expenditure of $1.5 billion per year, and now we are moving to 5% to 7% of sales. This is the number that I gave in New York and this is the number that I can reconfirm today, of course so this is what we want to do is -- and this is sustainable, it is not something that we can do one year and then we cannot, you know we need to stop and this is something that they believe is a sustainable number for what we have today. And on the other end we are investing much more in R&D, of course today particularly considering the size of the company, we are all investing, I mean Carlo mentioned this reduction of 1,500 people to be down during the next few quarters, but this of course is very significant. The question is, why not right away? I mean - apart, the legal instrument in the various geographies that we need to comply, I mean this is normal, I think that the other thing is the disruption of the customers and on the products that we are developing and the teams that we need to dismiss is -- is not that we are just waiting and is that we need to complete certain products, we need to support certain customers. So, I think overall we have become much lighter, so we are going to invest 5% to 7% of revenues. Today, we are almost spending in R&D. This with time quarter-after-quarter would become, of course, more under control. Kai Korschelt - Deutsche Bank: Just be clear that 5% to 7% of sales includes the -- I think sort of $1.25 billion investment that you were planning according to some press reports in France.

Absolutely that all includes and eventually to add some color on this number. This number refers to an investment period from Q4 ’07, included through the end of 2012. So, a substantial portion, a good portion of this amount has been already incurred and you know that at the end in the five quarters from Q4 ‘07 through 2008 when paying the bill of divorcing with our former partners, we had taken a substantial charge of capital expenditure, and this is part of this number to verify the number. Kai Korschelt - Deutsche Bank: Okay. That's great. Thank you.

Thank you, Kai. We will take the next question please.

The next question is from Mr. Mark Lipacis of Morgan Stanley. Please go ahead, sir. Mark Lipacis - Morgan Stanley: Thank you for taking my question, just a clarification and a question please, just on Clear, I think you suggested that the channel inventories had declined. So I guess that means that you under shipped demand in Q2 despite the 20% sequential revenue growth. Is that a fair interpretation?

In our distribution in Asia yes. It is a fair interpretation. I think it is a little bit more difficult for me to understand Europe and America because both U.S. and inventory decreased, but for sure in Asia we under shipped absolutely. Mark Lipacis - Morgan Stanley: Okay, fair enough. And then the question is, what do you think it will take to get your customers and distributors to start restocking, if you believe that they are -- the inventories are below normal levels, is it simply a matter of your utilization rates going up and your lead times extending and as part of that could you discuss what your manufacturing lead times have done. I understand that you probably have a quote to your customers, but if your utilization rates are low my guess would be that your customers ask for expedited orders, you can accommodate those quickly, but as you move to 75% and 85% utilization, my guess would be that your lead times, your effective manufacturing lead times would stretch out. If you could comment on that that will be helpful? Thank you.

Yes. I think I said earlier, the number of expediting requests that we are receiving is significant. It is becoming bigger and therefore I believe -- this is not sustainable and this would be positive of course, but there is a concern and the concern is that the underlying demand and this is where of course, we do not have an answer, it is not that simple, but we need to be prudent and this is why -- so supported there is -- you know it will not be the first time that in our industry we have double dips. And I think we need to have the degree of the flexibility for restructuring in September, if we some form of correction to reduce loading. Now, is this in our numbers today? Not at all, our numbers for Q4 of course are rolling back to log number are showing a strong increase. Okay, but the concern is really the trend of the underlying I mean of the consumer demand, and here is not that easy for us to understand. Of course we talked to our customers, most of them have the same question mark, so I think it is not sustainable, if the recovery of the demand is moving on, I think inventories are too low. Mark Lipacis - Morgan Stanley: Thank you very much.

Thank you, Mark. Next question please.

The next question is from Mr. Odon De Laporte of Cheuvreux. Please go ahead sir. Odon De Laporte - Cheuvreux: Yes, good afternoon. On a sequential basis, I know it seems the telecom segment posted, it was a funny 14% which is less than the wireless unit which grew a 19%. So if my math is correct, the non-wireless part of the Telecom business was done sequentially in Q2, so I was wondering what are the issues there due to ST-Ericsson sales business. Can you update us on this point? Thank you.

Yes. Carlo Ferro is speaking. Your understanding is absolutely correct. At the end, we have two portions of business out of the Wireless and ST-Ericsson business. In Telecom, one is -- we have two port infrastructure. Now we have still some product of ATM and we have grown substantially nicely. Then we have the camera modules. Camera modules did grew a little bit substantially below the average of telecom and I am sure many of you would not claim about that when looking at the managing impact there. And ACCI, the third block is ACCI for infrastructure, and this is another area that -- (inaudible) substantially, but less than the average of telecom. Odon De Laporte - Cheuvreux: And just last question, could you tell us what is cash on Numonyx balance sheet? Thank you.

We have estimated in a range of $380 million at the end of June. Odon De Laporte - Cheuvreux: Thank you very much.

$480 million.

$480 million. Odon De Laporte - Cheuvreux: $480 million?

Yes. $480 million, yes.

Just to be clear, that’s in the press release, Odon. Odon De Laporte - Cheuvreux: I am sorry.

That's okay. Next question please.

The next question is from Mr. Jonathan Crossfield, Bank of America/Merrill Lynch. Please go ahead sir. Jonathan Crossfield - Bank of America/Merrill Lynch: Yes. Hi, thanks for taking my questions. First of all, I mean a lot of chip companies at the moment are citing strong demand in China is driving top line growth and many of these are actually beating on profitability. Why do you think ST’s business in the region in inherently so much less profitable than it would be in America and Europe?

Well, I think that -- we are not saying I mean the major problem that we have today vis-à-vis the profitability is two things. Of course, one is the manufacturing machine, okay and this is something that we are feeling. We are restructuring, we have a plan by the end of this year. The overall headcount reduction would be about 2,500 people in manufacturing. So is the lowering of these fabs, inefficiencies in fab that have, of course, determined disruption, and importantly to the P&L. The second is the major reports in R&D, particularly in the wireless and (inaudible) that we decided to merger these three companies just before the major crisis. I think it was absolutely crucial for us that we did this because today we would not absolutely have the scale to run our wireless business without this combination. But it is obvious that when you merge three companies, you need to resolve overlaps. It is simpler of course in G&A and sales and marketing is a little bit more complicated in R&D because you have of course you have customer applications, and therefore this takes a little more time. So these are the two major things and these are the two things that we are curing, and we have given our model in New York in May, and we are moving on with the restructuring just down to reduction, both in manufacturing and as far as the census is concerned, particularly in the wireless demand. As far as the mix, of course the mix is there -- is I believe is a short term challenge. I think in a couple of quarter, one, two quarters, I expect a normalization of the mix with Europe moving back to more normal values and the same for United States. Jonathan Crossfield - Bank of America/Merrill Lynch: Okay. And then may be just as a follow-up, we are seeing some pretty strong growth in sharp manufacturers and you are reporting 36% sequential growth in your business there, I mean do you think that was only de-stocking or do you think you are making progress on market share within the hard disk segment?

Well, I think -- first of all, I am not sure its only disk drives. I think it’s a combination of windows and disk drives. I think we are gaining share. I think we are gaining share geographically. For instance, we have new business coming from -- also from other geographies, and I think for sure we are getting share on printers. And on disk drives, I do not know frankly, but I believe I saw that we have some new programs also outside our traditional customers. Jonathan Crossfield - Bank of America/Merrill Lynch: Okay. Thanks very much.

I think we have time for one last question, if we can make it quick please.

The next question is from Mr. Jerome Ramel of BNP Paribas. Please go ahead, sir. Jerome Ramel - BNP Paribas: Yes, good afternoon. I got a question on the gross margin. If we assume that your full share should be around $2.3 billion or let’s say to the level of Q4 2008. Is there any reason with the dollar at $1.30 roughly thus you should not achieve a 36% gross margin.

Okay. It’s always unfortunate, Jerome, not to be in a position to have a straight and clear -- last especially to the last question of the meeting, but you know our communication policy and of course your question is a little bit earlier than -- came a little bit earlier than expected. But eventually receipt of [ph] our gross margin dynamic for the fourth quarter is that, we do expect another substantial step up. This is based on the current vis-à-vis [ph], there are positive ingredients that these overall inefficiencies in the fab in the prior quarter to mitigate, but not to completely -- we have the ample duration to substantially mitigate, but at 80% of little being you may expect that will incur some house and new charges for a new capacity in Q4 as well and then there is two important positive contribution. One is that cost will continue to go down, they need a progress on the restructuring plan, and the other one is that mix can turn to be positive. Then whether this translate into number you said, if I tell now, no one will attend the call three months from now.

So there is one point here and there is a strong purpose in the company of course on the cash gross margin, gross is crucial. We are driving our capital investment strategy very clearly to a level that is much lower than it was before. Jerome Ramel - BNP Paribas: Okay.

So we think our depreciation will decrease because we would gone with the capital investment in the ranges I said between 5% and 7%. And this will do and of course there is a very, very strong focus on the cash gross margin that perhaps is fundamental indicator and we timed our -- you know, block of depreciation will go down and would be replaced by the new capital investment that is much less than what we did for instance in 2004. Jerome Ramel - BNP Paribas: Okay. Thank you very much.

Thank you, Jerome.

Thank you.

So at this point, Carlo, would you like to make any closing points?

No, I think we will move the slide show and I just want to thank you everybody for their interest and jointly working to make a good Q3.

Thank you, Dino, and that will conclude the call.

Ladies and gentlemen, the conference is now concluded and you may disconnect your telephones. Thank you for joining and have a pleasant day. Good bye.