Tait Sorensen - Group Vice President of Investor Relations Carlo Bozotti - Chairman of Management Board, Chief Executive Officer and President Lorenzo Grandi - Corporate Vice President and Corporate Control

Sandeep S. Deshpande - JP Morgan Chase & Co, Research Division Francois Meunier - Morgan Stanley, Research Division Andrew M. Gardiner - Barclays Capital, Research Division Amit B. Harchandani - Citigroup Inc, Research Division Tristan Gerra - Robert W. Baird & Co. Incorporated, Research Division Simon F. Schafer - Goldman Sachs Group Inc., Research Division Didier Scemama - BofA Merrill Lynch, Research Division Stephane Houri - Natixis S.A., Research Division Kai Korschelt - Deutsche Bank AG, Research Division Janardan Menon - Liberum Capital Limited, Research Division Jerome Ramel - Exane BNP Paribas, Research Division

Ladies and gentlemen, good morning or good afternoon. Welcome to the STMicroelectronics Second Quarter 2013 Earnings Results Conference Call and Live Webcast. I'm Goran, Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Tait Sorensen, Group Vice President, Investor Relations. Please go ahead, sir.

Thank you, Goran, and thank you to all for joining our second quarter 2013 conference call. Hosting the call today is Carlo Bozotti, ST's President and Chief Executive Officer. Joining Carlo on the call today are Georges Penalver, Executive Vice President and Chief Strategy Officer; Jean-Marc Chery, Executive Vice President and General Manager of the Embedded Processing Solutions segment; Mario Arlati, Executive Vice President and Chief Financial Officer; Carmelo Papa, Executive Vice President, Industrial & Power group; Lorenzo Grandi, Corporate Vice President, External Reporting. This call is being broadcast live over the web and can be accessed through ST's website. 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?

Thank you, Tait, and thank you very much for joining us today. Let me share some brief summary comments and then we'll go into a detailed review of the quarter. First, I am encouraged by the progress we are making with regard to each of the 3 objectives: sales growth, gross margin improvement and expense reduction. With respect to sales growth, we had a strong quarter excluding our Wireless product line. From a gross margin perspective, we came in above the midpoint, thanks to manufacturing efficiencies and higher volumes. And with regard to expense reduction, you can see the substantial progress quarter-on-quarter and compared to the year-ago timeframe. Second, we will discuss the product portfolio shortly. But here, let me highlight the sales initiatives to strengthen our geographical coverage, greatly expanding our small to midsize customer base, as well as expanding our sales through distribution. In the second quarter, distribution represented 26% of sales, up about 4 points from last year, and some further improvement from the prior 2 quarters. Our midterm goal is to move closer to 30%. Third, while market uncertainty continues, we saw a progressive improvement in bookings in the second quarter, although we experienced a softening in the smartphone market also impacting ST products towards the end of the second quarter. And fourth, we anticipate the ST-Ericsson transaction to close early August. So let's begin the detailed review with our second quarter sales result. We delivered revenues in line with our outlook, with total revenues growing 1.8% sequentially to $2.05 million, even with the 31% decrease in existing product sales at ST-Ericsson. Net loss attributable to ST was $152 million, reflecting a onetime noncash charge of $69 million on ST's equity value in 3Sun due to the impairment charges reported by the 3Sun joint venture. We saw solid sequential sales growth of 6.8% in our product portfolio, excluding the Wireless product line. The increase came from several key areas: Microcontrollers, Industrial & Power, Automotive and Imaging saw progress in both of our product segments, Sense & Power and Automotive, as well as Embedded Processing Solutions. Turning first to Sense & Power and Automotive products, revenues increased 7.3% sequentially. Automotive had a good sequential sales evolution, and it was broad in terms of sales growth across all of the regions. Second, and in the second half, should see further progress for Automotive with a strong backlog, thanks to our broader customer base and ST's increasing content within cars. We also saw a good sequential progression for Industrial & Power products. MEMS continue to grow sequentially, but was somewhat impacted by softness in the smartphone market. Sense & Power and Automotive products' operating margin decreased to 3.5%, reflecting in part the wind-down process for the ST-Ericsson joint venture, as we assume certain costs for R&D activities for the people who will be moving to ST as we strengthen our efforts on new product development. The decrease also reflects price pressure mainly impacting MEMS and a less favorable product mix. Looking at our Embedded Processing Solutions group, there were some encouraging signs demonstrating that our goal to improve performance in this group is gaining some traction. Second quarter revenues, excluding the Wireless product line, increased 6.6% sequentially. In Imaging, we saw an increase of about 29% on a sequential basis, and we are on track to see a further ramp in the second half of this year. So the recovery is clearly moving forward for Imaging. Microcontroller also delivered strong sequential growth of 17%, thanks to both general purpose and Secure Microcontrollers. Embedded Processing Solutions operating margin was a negative 12.8%, with the improvement reflecting significantly lower expenses, principally in connection with the ST-Ericsson wind-down. Looking forward, we again expect a further significant reduction in expenses and a favorable product mix evolution. Moving to gross margin, it increased 150 basis points sequentially to 32.8% in the second quarter, slightly above the midpoint of our guidance. We benefited from an improved level of utilization at about 81% compared to the 72% in the prior quarter resulting in negligible unused capacity charges. Increased volumes and the resulting manufacturing efficiency also contributed to gross margin sequential progress. Gross margin improvement was partially offset by the usual price pressure. Just a brief comment on inventory. Our goal was to keep inventory steady and in line with the expected growth in the quarter, and we did. Inventory turns were at 4.1 turns or 88 days, so basically flat with the first quarter. Now let me turn to our product highlight. From our Analog, MEMS & Sensors group, our very low-power RF transceivers are gaining traction. For example, Paris, the City of Lights, has begun deploying our SPIRIT1 device to remotely controlled streetlights along the river Seine. We also earned some healthcare successes by bringing to market products that help improve the quality of medical equipment. Products like our Pulser IC, which is used for medical ultrasound applications for weight-shaping and transmitting process of sound. Our MEMS microphones are also gaining traction and our high-end digital top-port microphone will be coming to market soon in an exciting new tablet. We are also continuing to build on our solid leadership position in motion MEMS, ramping production of a 6-axis accelerometer and gyroscope for new smartphones. And we are entering into production with a 9-axis inertial module for several innovative navigation-related applications from top-tier American manufacturers. We are building momentum in Power and Smart Power with solutions that allow our customers to create smaller, more energy-efficient end devices. First of all, with our innovative STLUX platform, the world's first programmable digital controller specifically optimized for lighting and power supply applications. Here, we captured multiple wins for several projects with major European lighting customers. Our ViperPlus high-voltage converters earned design wins in several server switch-mode power supply platforms from a major Taiwanese manufacturer. And again, in Taiwan, our RF antenna-tuner solution was chosen by a leading OEM for its smartphones. We were also pleased to see our discrete IGBTs and IGBT intelligent modules achieve big wins for welding and motor-control applications. As vehicles become safer and more comfortable, our Automotive product group continue to demonstrate its mastery of all the technologies in the car and the strength of our relationships with top-tier customers. The ongoing increase in the pervasion of semiconductor content in vehicle plays to a steep advantage. And this quarter, our successes and design wins have covered the full range of automotive applications, from 32-bit automotive microcontrollers for an airbag application to a microcontroller companion chip that integrates all the key functions for stability control systems. We captured wins in infotainment with a multi-standard digital terrestrial tuner from a leading European Tier 1. And we had success with several awards for vertical Intelligent Power technology in Body Control Modules for leading Tier 1s. We continue to see success in Microcontrollers and Memories. Our STM32 family earned multiple design wins for smart-watch applications at major global OEMs as a sensor hub in various mobile applications at a major manufacturer, and in a next-generation low-power fitness-monitoring system at a key American OEM. We also began to ramp the productions of STM32 controllers for Wi-Fi modules for the Internet of Things applications at various customers. In Digital Convergence, we are winning business in all the key areas of our focus strategy. More and more ASIC customers are becoming convinced by the benefit of our faster, cooler and simpler 28-nanometer FD-SOI technology, and we have been able to add 2 new design wins for networking and consumer applications. We continue with our success with worldwide customers for the new set-top box Class 2 products, and obtained a full certification from Nagra and Viaccess. We also have begun an important design at a key customer for the U.S. cable modem based on our Orly platform. And finally, in Imaging, BiCMOS, ASICs and Silicon Photonics, we made progress in Silicon Photonics capturing design wins for ASICs with 2 of the world's top optical communications manufacturers and winning almost 30 new ASIC projects from customers that use either BiCMOS or Silicon Photonics. We were also chosen to supply an Image Signal Processor to a leading phone manufacturer. So in summary, I think we are making solid progress in improving our product portfolio. And in parallel, we are making solid progress in improving our go-to-market strategy for sales, thanks to the work we did last year, which is beginning to pay off. Now I would like to discuss with you the second area of improvement, which is expense reduction. Net operating expenses totaled $736 million in the second quarter, down $72 million compared to Q1 and substantially lower than 1 year ago when we were at $887 million. Most of the reduction is related to R&D as we wind down ST-Ericsson resulting in the chargeback expenses to Ericsson, as well as cost reduction initiatives. Looking forward, we anticipate closing the joint venture transaction in early August. And as a result, the remaining ST-Ericsson activities will be deconsolidated. We, again, expect a significant decrease in expenses in the third quarter. And we are well-aligned with our objective to be at a $600 million to $650 million quarterly run rate for net operating expenses by Q1 2013. Turning to our cash flow. We had indicated that the ST-Ericsson wind-down would result in a few quarters of negative free cash flow. In the second quarter, it was negative $134 million. While the third quarter we'll experience a similar negative impact, we expect to be significantly free cash flow positive in the fourth quarter based on current market visibility. With our net financial position of $944 million (sic) [$954 million], we will be able to manage -- to well manage through this period and retain our financial strength. As I outlined last quarter, we had anticipated 2 quarters of negative impact on our net financial position in Q2 and in Q3. We will look to rapidly strengthen our net financial position, focusing on free cash flow generation as one of our top financial priorities as we move into the fourth quarter and 2014. Now turning to the joint venture, we are quickly approaching the final days to closure. Carlo Ferro and his team have done an outstanding job of managing through this period. Thanks to them and the team here at ST, we are on track for the plan. And in fact, we have improved the anticipated exit costs. Our total cash costs to exit the joint venture are now estimated at between $300 million and $350 million, net of the expected proceeds from ST-Ericsson sales of its connectivity business and well below the original estimate range of between $350 million and $450 million. Turning to our outlook. The market environment remains similar to what we have shared with you over the last 3 months. We saw positive signals in the second quarter for bookings, with an overall book-to-bill, excluding the Wireless product line, of $1.1 million. And yet at the same time, there is still some uncertainty in the marketplace in particular in the smartphone market. Looking ahead, we continue to expect the ramp of key products in MEMS, Automotive, Microcontrollers and Imaging in the second half of this year, leading to higher sequential revenue results for both the third and fourth quarters of this year. With respect to our sales outlook, we are anticipating sequential sales growth of 3.5%, excluding the Wireless product line, and flat including the Wireless product line. We expect to see sequential gross margin progression in the third quarter on improved manufacturing efficiency, higher volumes and better product mix leading to a gross margin outlook at about 33.5%, plus or minus 2 percentage points. We also expect a further significant decrease in expenses thanks to the deconsolidation of ST-Ericsson and to seasonality. Going forward, we anticipate progressive improvement in our gross margin. First, with fab utilization at a more stable and optimal level, we plan to continue to grow our business in our targeted growth drivers. Second, we are focused on better utilizing and optimizing our technology portfolio. Third, we are now in a position to more aggressively manage our product mix in order to prune lower margin products from our portfolio. To successfully achieve this, we will make gradual structural changes to our manufacturing footprint to ensure that it matches our needs, complemented by our foundry resourcing. As a result, we plan to gradually expand 8-inch capacity in Singapore and Catania, Italy while winding down certain 6-inch manufacturing lines and consolidate our back-end activities in China to Shenzhen. Finally, let me mention yesterday's important news. We had the honor to host the French Prime Minister and 3 other ministers at our site in Crolles, where we announced a key frame agreement with the French government for the Nano2017 program, which supports our proprietary R&D activities for CMOS derivative technology. This program will strengthen our leadership in key technologies, the FD-SOI for logic, the next-generation imaging and next-generation embedded non-volatile memories for microcontrollers. I want to be clear that this agreement was contemplated and is already fully reflected in our plans and financial model. So to close, I believe we have shown that we are moving in the right direction and making progress steadily quarter-by-quarter. We remain focused on delivering on our 3 main objectives: sales growth, gross margin improvement and expense reduction. My colleagues and I are now ready to take your questions. Thank you.

[Operator Instructions] The first question is from Mr. Sandeep Deshpande from JPMorgan. Sandeep S. Deshpande - JP Morgan Chase & Co, Research Division: Carlo, I have a question on your gross margin. You clearly seem to be showing great progress on your OpEx. It is declining in line with what your guidance is for Q1 '14. But your gross margin progress is slower than what we were expecting in the market. Can you try to explain what the mechanism on the gross margin is and how does gross margin of ST can move towards historically more normalized levels that you have? And secondly, what the utilization you had in Q2 and Q3? And is utilization, say, of Crolles2 impacting this gross margin because of the wind-down of ST-Ericsson?

Yes. So we are working on 4 main drivers for gross margin improvement. The first you mentioned, of course, is loading. In Q2, we have achieved 81% of loading. Our target was, in fact, somehow, somewhat a little bit higher. And we had anticipated 85%. We now plan to be at 85% fab utilization during the course of the third quarter of this year. So this is an important driver. Another important driver, of course, is the stability of this loading. This, of course, is to give our manufacturing operation the proper time to improve efficiency. Another important driver is the decline of the ST-Ericsson products. In fact, this is playing positively. Unfortunately, in Q3, I mean unfortunately will not pay positively, The Ericsson gross margin moving from Q2 to Q3 is material. And this is impacting about 40 basis points, the overall gross margin. And then we have the fourth initiative that is in the new configuration. As we already discussed, in fact, during the Investor's Day in London, we will become more aggressive in terms of pruning low-margin products, and with a plan that we have started to implement in manufacturing that is not new, by the way, but is along the roadmap that we had already defined. This new manufacturing program will allow us to be more aggressive in terms of pruning the very low margin products. So these are the 4 main drivers. And we expect to grow quarter-after-quarter. As you know, in our model, we have plugged to a gross margin to achieve the 10% profitability and gross margin in the range of between 37% and 37.5%. This is the level of gross margin we are targeting to land there. And the other consideration, of course, is the continuous focus on innovation and the contribution of the new products. So while I understand that the progress is only gradual, but we are on track to achieve what is our roadmap here. And there will be an improvement in Q3. There will be another improvement in Q4. And of course, our objective is to land into the 37%, 37.5% as quickly as possible. Sandeep S. Deshpande - JP Morgan Chase & Co, Research Division: Carlo, just one follow-up. I mean, so you are saying that the gross margin will improve in Q3, and you are indicating based on what you know today, that it will improve in Q4 as well?

Absolutely, absolutely. I think in Q3, the gross margin improvement is what we have put in the guidance. Of course, we do not give a guidance today for Q4, but we expect a further improvement in Q4. And importantly, we will continue to reduce very significantly our expenses including in Q3. And the combination of the 2, I think, will give us a further significant boost in the earnings per share. Our earnings per share, the clean earnings per share in Q1 was negative $0.13, in Q2 is a negative $0.06. We expect another significant jump in Q3, and of course another significant jump in Q4. Also, we do not expect in the second part of the year to have too many of the one-off-related items that we have now mostly due to the ST-Ericsson winding down.

Next question, please.

The next question is from Mr. Francois Meunier from Morgan Stanley. Francois Meunier - Morgan Stanley, Research Division: Carlo, my first question will be about the Nano2017 program and how should we put that into the model. I think previously, I think it was up to 2000 maybe '11 or '12, we were putting something like EUR 100 million of the income in the P&L. Is it -- do you still think we should model like that? And shall it -- will it change the OpEx guidance? So basically you will spend more because you get some money from the French government?

Yes. Well, it's very simple. I think during the presentation and also the material that we have left to our investors during the Investor Day in London, we have quantified what was the contribution from fundings. There is a chart where there is -- where we have flagged all the various elements for us to decrease the expenses from the $808 million in Q1 of this year to a range between $600 million and $650 million. So this is more or less what we had in the past for you to flag. But if you refer to the recommendation that we left during the Analyst Day, this is, let's say, flagged in our model, and is to be considered for future modeling. Francois Meunier - Morgan Stanley, Research Division: Okay. Now the next question would be about the MEMS market. I think in your introduction, you were talking about pricing pressure in MEMS. Is that the reason why the margins went down in the SPA business despite revenues going up? And can you explain why is this sudden pricing pressure coming? Is it because of the high-end smartphone market is not so glamorous, as you would say? Or is it because there is a risk of being dual soft at Apple with InvenSense?

No. I think, first of all, one comment on the, let's say, profitability of the Sense & Power, Automotive. A major contribution to the decline is, for the first time, we have accounted the redeployment of resources from ST-Ericsson into ST, particularly in the area of power management, but not exclusively. There are resources that we have redeployed also into Automotive, particularly in infotainment, and Microcontrollers, but clearly also on MEMS and Analog. So this is an important contribution. The price pressure, as I just said right before, it is also a contribution. And I think is a little bit of what you're saying, is a combination of competition being more aggressive overall. We are working very hard to be less dependent on major customers. I mean, we are really making great progress at many other smartphone customers, particularly in China, where we have a very strong position. And also, we are focusing very much on new areas for us like Automotive and everything that is related to healthcare, wellness, fitness and wearable applications. So the price pressure is more specific to major customers. And the way to respond, of course, is first of all, through innovation. And second is this function of the customer base in smartphone, and also addressing new markets. Now despite this, with the visibility that we have today, and with a good level of bookings that we had overall in the second quarter, I mentioned the 1.1 book-to-bill ratio in the second quarter, excluding ST-Ericsson, we expect a significant improvement in the profitability of Sense & Power and Automotive in Q3 first and then in Q4 this year.

Next question, please.

Can we take the next question from Mr. Andrew Gardiner from Barclays. Andrew M. Gardiner - Barclays Capital, Research Division: I just wanted to follow up on MEMS as well. Can you give us a rough idea of where the run rate is in that business? You guys have previously said at the Analyst Day, it's around $1 billion a year. I mean, is that still the case? Do you have sort of updated expectations for growth given how you see the competitive dynamics at the moment?

Yes, we are running at this run rate. In fact, in Q2, we grew. I mean, there was a growth in this area in Q2 despite we are running somehow below the expectation. For sure, this will be a very important driver. The ballpark today is in the range of the $1 million including all our MEMS and the micro-machinery applications. And I am encouraged clearly also by all the new opportunities in terms of different products like pressure sensors, the microphone, everything that is related to haves, and the integration of the MEMS functionality in one chip. So clearly, what we do not see is an explosive growth. But just to let you know what we have achieved in Q2, we had a sequential growth that is about 9.5% on our MEMS products.

Next question, please.

The next question is from Mr. Amit Harchandani from Citigroup. Amit B. Harchandani - Citigroup Inc, Research Division: Amit Harchandani from Citigroup. A question and a follow-up by me. My first question is clearly around the weakness that you have talked about in smartphones. Could you maybe shed a bit more light on that? Is it high-end, low-end, inventory-related, more short term, any particular geographies? And then I have a follow-up.

Yes. It's concentrated from what we see on the high end, and is, I believe, is more on the high-end products. And at this point, I would say, is really impacting 2 regions. So I believe that in general, what we see in China is positive. We see a good trend today. The market share of the Chinese smartphone makers reached -- I mean, in the second quarter, from what we have seen and from certain market resource institutions figures, we have seen the Chinese market share, I'm talking about smartphone makers in China, is 25%. So this is growing. The softening that we see, the flattening that we see is more on the higher end on the very high-end smartphones. I think today is very much in 2 regions. And this is pretty recent. I think we have been also reading on the press. And of course, we have a direct visibility with our major customers. Amit B. Harchandani - Citigroup Inc, Research Division: Okay. So do you think that this is more temporary and probably corrects itself over time? Or it's just wait and watch right now?

Well, I think, this is, of course, is a very, let's say, interesting question. It is not so easy for us to comment on this. But my personal opinion here, of course, is that this market clearly will be driven by new functionalities and new applications and more interesting applications for the consumers. So what we are trying to do is to contribute to the development of these new applications with our newer technologies in the area of MEMS, but also in the area of, for instance, everything that is related to the touchscreen displays. Clearly, the autonomy of the battery and the autonomy of the phone with more innovative power management solutions for the application processor, for the peripheral products in the smartphone, but also digital controls for battery chargers, wireless chargers. So of course, these new applications, these new functionalities and our contributions is on the technologies. I mentioned MEMS, I mentioned the power management, I mentioned the touchscreen displays. But for instance, in the press release, we mentioned this, we cannot name the customer, but we are starting an important business with our tunable antenna solution that is making the phone at much higher performance in terms of radio frequency and the stability of the radio frequency functions of the phone, thanks to this tunable antenna architecture. So all of this, and, of course, our motivation and our drive is to contribute with new technologies and new products to the new functionalities and the new performance of the smartphones together with our customers. Amit B. Harchandani - Citigroup Inc, Research Division: Very helpful, Carlo. As a quick follow-up, maybe. This is maybe slightly unrelated, and apologies if you've clarified this earlier. I was going through this press release issued by Micron as a part of their fiscal results for the May ending quarter. And I noticed that they talked about an agreement with STMicroelectronics, wherein around 500 employees from Micron's Agrate facility were transferred to STM, which I found a bit puzzling given the emphasis on reducing OpEx. Could you maybe clarify what that was all about?

Yes. This is clearly not impacting the expenses of the company. There is no relation. This is part of the wafer cost. And we share a facility. It's just the legal configuration of the way we run the operation is a consortium. But we are sharing the wafers. And of course, the management of the fab and the drive here is to reduce wafer cost. The cost of the people is clearly embedded in the wafer cost. And this is not impacting at all the expenses of the company. Amit B. Harchandani - Citigroup Inc, Research Division: Okay. So the 500 employees will transfer to STM, but the costs are being handled by the consortium? So no change to your OpEx plan, so to say?

No. Well, first of all, I mean it's not expenses, all right. This is part of the wafer cost. And there is a sharing of the production activity between the 2 companies. And we have about 60% ownership of the fab while Micron has about 40% ownership of the fab in terms of wafer consumption. Then of course the wafer cost is charged to the 2 companies based on the products that we're running in the facility.

Next question, please.

The next question is from Tristan Gerra from Robert W. Baird. Tristan Gerra - Robert W. Baird & Co. Incorporated, Research Division: Was Wireless the only reason for your utilization rate in Q2 to be slightly below the original 85% target? And if you could go over the catalyst for Q3, is it in terms of gross margin? Is it going to be pretty much driven just by higher utilization rate? Or is there any other factor?

Yes. I think in Q3, if we say Wireless, it's absolutely true because if you talk about Q2, Wireless is absolutely true. In fact, is somehow a little bit lower in terms of loading on certain ST-Ericsson products, but also on our MEMS products. So the difference between the 85% that we had given 1 quarter ago and the actual number that we have communicated today that is 81% is very much related to this. There are other lines, and here I would like to mention Automotive, where the booking is very, very strong and remains -- we have a very, very strong backlog in Q3. And here, the challenge is more to respond rapidly to all the remains of our customers. If we move to Q3, I think the major contribution to the improvement in the gross margin of the third quarter is the efficiency, not per se the loading in Q3, but the efficiency that we have achieved in Q2, in our fab because of course our inventory is rolling and is about 3 months. So what we do in Q3 is to sell the production of Q2. So this is a contribution to the gross margin improvement in Q3. I mentioned a negative contribution because there is a material decrease of the gross margin in the ST-Ericsson products despite the fact that the sales will be strongly reduced. And this is impacting about 40 basis points, the overall gross margin of the company. But the major driver indeed is the better efficiency in our fab is in the second quarter that is impacting positively the gross margin in Q3. Tristan Gerra - Robert W. Baird & Co. Incorporated, Research Division: Okay, that's useful. And then in order for you to meet your $1 billion revenue target in MEMS for this year and given what you did in the first half, does this imply an acceleration in your revenue growth sequentially in MEMS in Q3 versus what you did in Q2?

Well, we still plan to grow. As I said, this is not the level of growth that we had, for instance, last year. But we are plugging some more moderated growth, both in Q3 and in Q4 this year on a wider range of products.

Next question, please.

The next question is from Mr. Simon Schafer from Goldman Sachs. Simon F. Schafer - Goldman Sachs Group Inc., Research Division: Just wanted to ask a follow-up question on Auto. I think you just said that loading's still very strong and the backlog indications for Q3 are also good, which I think is a bit unusual just given the summer seasonality. But just out of -- in context, what was the sequential trend in Q2? And what sort of sequential that you're talking about into the September quarter for Auto?

One moment. So sequentially, moving from Q1 to Q2, we have grown 8%. And we do not give all the details of the guidance, but we expect to make another important growth moving from Q2 to Q3. Simon F. Schafer - Goldman Sachs Group Inc., Research Division: Got it. And just coming back to the MEMS a bit, and apologies for asking it a different way, but if there is a more gradual need to diversify, I guess, then also sort of you're accepting the risk of more cost of more diversification amongst one of your customers to competition, is it still feasible for you guys to get to the type of margin goals that you've set for SPA in light of the type of diversification that it now requires, it seems? That will be helpful.

The answer is absolutely yes. And today, even with a moderate -- even with a more moderate growth in MEMS, we expect a very significant improvement in the P&L of Sense & Power, Automotive moving to Q3 and then Q4. And I absolutely confirm the guidance that we have given in London, that these -- for a double-digit profitability, with the ambition to get above 10% and then 15%. But we expect a material turnaround in the short term.

Next question, please.

The next question is from Mr. Didier Scemama from Bank of America Merrill Lynch. Didier Scemama - BofA Merrill Lynch, Research Division: Just wanted to go back to the OpEx development, as well as the gross margin. So first on the OpEx side, excluding the sort of cash contribution from Ericsson to cover the LTE R&D, it looks like your OpEx actually went up sequentially. So I just wanted to understand why the STMicro sort of cost-specific, cost-saving programs have not kicked in? And when they're going to kick in, whether it's Q3 or in Q4, or both? And then the second question on gross margins. So as I understand it, so your gross margins would've been 40 basis points higher in Q2 without ST-Ericsson. And then you mentioned that ST-Ericsson will be...

No, sorry, in Q3, in Q3, what I said. Just to be clear, what I said... Didier Scemama - BofA Merrill Lynch, Research Division: Okay, sorry. I meant Q3. Sorry.

Yes. What I'm saying is the evolution of the ST-Ericsson business moving from Q2 to Q3 is such that we will have a negative impact on the gross margin of about 40 basis points. This is what I said. Didier Scemama - BofA Merrill Lynch, Research Division: Got it. But then going into Q4, where you're going to have a cleaner P&L, without the headwind of ST-Ericsson since it's going to be deconsolidated, so should we see a step-up of gross margins at that point because when ST is not in the mix, and two because your revenue growth is potentially stronger than it is in Q3?

Yes. I think, first of all, let's start from the OpEx. You're right. I mean, there is a contribution on the fact that the modem effect is important. In fact, you'll likely remember March, it was $29 million. We wrote it down. So you made the math. But you should not forget that we also assumed cost from the ST-Ericsson operation. And also, we have, let's say, redeployed all of these resources. So I think we need to look at this at a global level because there is a major redeployment of resource. And this is very, very difficult to track all the elements because everything now is accounted in the new unit of the company. So this is...

If we look at the consolidated level, Lorenzo speaking, our expenses, they went down moving from Q2 through Q1 to Q2 to $70 million. The impact of the modem was in that range, but we do not have to forget that there was also the dynamic of the salary that was totally offset by the reduction in the expenses, let's say, related to the restructuring plan that we have ongoing. So it's not fully correct to say that there is no visibility of that. It is completely, let's say, offsetting this dynamic of salary that was...

Yes. We do the salary increase in the company in the first meeting of the second quarter, the beginning of April. So this is -- this has been completely absolved. And as we said before, we expect another big jump moving from Q2 to Q3 in terms of expense evolution. And you should also consider that in this phase, we are not accounting any grants for the Nano2017 program yet. This will be, of course, done as soon as we will receive the clearance from the European Union, now from the European Union on the Nano2017 program that we just signed. So then in terms of redeployment, these resources are already accounted in the various business units where we have moved the resources. Now in terms of deconsolidation of ST-Ericsson, when we close at the beginning of August, a few days from now, we will deconsolidate the so-called third bucket. That is the remaining part of ST-Ericsson because there is a significant, let's say, transfer of resources to the Ericsson Group. And a part of that we have moving to ST. So the remaining, the so-called third bucket that will be deconsolidated. And we will not see in our operating expenses this any longer.

Any longer, these expenses, right. Let me remind you that we are not going that to the deconsolidated, the revenue in the business. This will remain because this will be, let's say, the portion that will be transferred to ST. So ST will continue to consolidate the top line. And so that's why the comment of Carlo about the gross margin impact on all over the Q3. Didier Scemama - BofA Merrill Lynch, Research Division: Got it. And then as a quick follow-up, just to clarify on the OpEx guidance for 2014. The run rate of $600 million to $650 million bakes in whatever $100 million or $150 million you're going to get next year for the full year for Nano2017, as well as the EUR 360 million program, Places2be, for FD-SOI. Is that correct?

Of course. I mean, first of all, it is obvious then we will not consider all the -- we will have to decide. I mean, we will see what is the best way once we have the approval, the clearance from the European Union. But our $600 million and $650 million is the model. And this model is not based on a one-off catching up of the grants. This is obvious, but this is sustainable. It's a sustainable business model for 2014, '15, et cetera. And as we clearly said, all the R&D effort that is part of this agreement that I repeat is both product R&D in Grenoble and the technology R&D in Crolles, all of this is already embedded in the financial model that we have given. So you should consider the $600 million, $650 million model as, first of all, sustainable and not a function of any one-off adjustment. So this is a sustainable model for us. And number two, clearly, the agreement is covering a wide range of activities on FD-SOI, the microcontrollers and the Imaging, and all of these is already embedded -- was already embedded in our model. It's clear? Didier Scemama - BofA Merrill Lynch, Research Division: Yes, cool. And then on the gross margin front, when you shut down the 6-inch fab in Agrate and in Singapore, when is that going to impact the P&L? And maybe can you quantify the impact?

Yes. First of all, it's not in Agrate. We do not have any 6-inch activity in Agrate. We have a... Didier Scemama - BofA Merrill Lynch, Research Division: I meant Catania.

Yes, we have one in Catania. And this program -- and I think it's good that I could describe it because it is an important program for the company. It's really concerning 4 fabs. It's concerning the 6-inch activity in Catania, does concern the 8-inch activity in Catania. We had 2 modules in the same site. They are very close, but they are 2 modules. And the same in Singapore. In Singapore, we have 2 modules. 1 module is the most mature module, that is 6-inch today. And then we have a second module in Singapore. That is a more modern volume. That is 6-inch, but where we already started an 8-inch mini line, okay. So what we have announced is that we will wind it down, the 2 6-inch activities, 1 in Catania and the most mature 6-inch line in Singapore. At the same time, we will expand our business, growing on this smart power, mostly Smart Power Technologies, PowerMOS, advanced PowerMOS technologies and vertical Intelligent Power, and of course, the IGBT, but also the BCD kind of technologies. For instance, the BCD 8. We will expand on the 2 8-inch fab in Catania and in Singapore. It's clear that I cannot -- we have modeled everything over the next years. I think we will start very aggressively this program. It is a very important program for the company for 2 reasons. The first reason is because we will reach our mix tremendously, replacing all the 6-inch activities with more modern 8-inch activity on the technology that I mentioned. And the second reason because thanks to this, we will enjoy a very significant decrease of the manufacturing variation in the 2 sites and the overall of the manufacturing cost. So this is a very important program for the company. And of course, it is very material in terms of gross margin impact, very, very material for this class of products. I can also state that is very material in terms of cash generation. And it is a program that we are starting now and will play gradually on the gross margin improvement, but is not a small deal. It's a very important initiative that we have.

Next question, please.

The next question is from Mr. Stephane Houri from Natixis. Stephane Houri - Natixis S.A., Research Division: Two questions, if I may. The first one is to come back on MEMS. And I would like to know if you can help us and clarify what's your view in your market share with the IHAND smartphone manufacturer today and what to -- and how we should evolve? And also if you could add some comments about how you're exposed to the Chinese smartphone market? And the second question is about the current bookings. You said that book-to-bill was 1.1, and that you had some weakness in smartphone at the end of the quarter. What's the situation in July?

Yes. Well, I think if we look at the situation of market share, it's, of course, it's not very easy to respond. I mean, I know that there are market research institutions that they publish results on a yearly basis. For instance, last year, I remember that we have been mentioned as the major supplier here with 48% market share in the smartphone. Now clearly, this is not trackable quarter, quarter-after-quarter simply because we do not have the figures. The figures are not available. So we will have to wait. Overall, I can mention what we have read on the publication of WSTS in terms of evolution of market share and what we have also seen starting from Q4 last year. I think the WSTS numbers are available through the end of May. Today, I think, today is the number of June will be published. So we will have the final numbers also for June. But for what has been reported so far by WSTS, we have increased market share in Q4 last year. And the increase has continued in Q1, and which is for us typically a relatively weaker quarter if we look at our history, but also in Q2, through the month of May. So there is a progress of the overall market share. I think if we look at the market that we serve with the products that we have, of course, excluding ST-Ericsson, our last 3 months market share is as reported by WSTS, is 5.5.4% [ph] which is sequentially higher, a little bit higher, and compared to Q1, and then also higher year-over-year. Now if we look at the Chinese market, I think it's important to be in this market with MEMS and with many other products because the weight of the Chinese smartphone makers is increasing. And as I said before, I have seen the numbers for the second quarter and the weight of the -- in Chinese smartphone makers in Q2 is 25% of the overall smartphone volume in the world. And this number is increasing at certain major accounts that are very well-known, of course, but also at many midsized customers. And we are covering all of these accounts with our geographical organization in China. And we want to be present in this business, of course, on the peripheral of the smartphones because we are not in the digital core any longer. And we are reencouraged by the progress that we see with our MEMS and other products on all of these peripheral products. Stephane Houri - Natixis S.A., Research Division: Okay. And on the situation on the month of July on the booking?

Well, the situation of the month of July, I think there is a continuity of good booking trend in general for the company with the softening of the smartphones. So I can reconfirm what we have seen. I think, of course, is -- I can reconfirm what we said for the second quarter. I think it is important also to be one word on the point of sales of our distributors. The point of sales in the month of June was pretty good from our distributors, in all the regions where we operate. This is a good indicator, of course, because it is not inventory adjustment. And that we track regularly the inventory of our distributors is very, very healthy in America and in Europe, and is around 3 months of inventory, is around 4 turns in Asia, but is significantly higher turns both in Europe and in the United States. This is a good indicator. Now we see we are at the beginning of the quarter, and we see the evolution. But I can reconfirm the same trend.

Next question, please.

The question is from Mr. Kai Korschelt from Deutsche Bank. Kai Korschelt - Deutsche Bank AG, Research Division: I had a couple of first. One was really more of sort of higher level question around your margin target, 10%. If I strip out the Wireless business or revenues. And it looks like your x-wireless operating margins was probably slightly below breakeven the second quarter. And I think you had already mentioned that you need to get to revenues of about 2.25 to get to 10%. Now you obviously have good seasonality in the second half. But sort of beyond that, how do you -- how are you thinking about the sort of the growth drivers maybe beyond MEMS and microcontrollers because these are a relatively small part of the business? And maybe also any sense of timeframe of when you think you may be able to achieve the 10%? Those were my first questions. The second one was really just specifically on MEMS. I apologize to beat a dead horse, but you are not excluding the risk of share loss at your largest customer at MEMS. Is that right?

Yes. Well, let's start from the first question. First of all, I mean it's becoming more and more difficult to see what are the losses in ST-Ericsson and the situation in ST because we have moved. And already, we are already funding resources that were in ST-Ericsson. So it is now the phase where everything is becoming ST. And what I want to say here is that we have done $0.13, a negative EPS in Q1 with ST-Ericsson and UBS. We have done a $0.06 negative in Q2 with ST-Ericsson. And we expect to move on with important improvements during the course of Q3 and, of course, during the course of Q4 of this year with the progressive improvement of gross margin, but also with a very, very significant reduction of our overall net expenses. In terms of models, I think that the plan that we had is exactly the same that we have described last time. We want to go back to a run rate that is in the range of $9 billion per year, which is the $2.25 billion per quarter that you mentioned with expenses in the range of $600 million and $650 million and with a profitability of 10%. What is very important here is that we do not want to achieve this range of expenses just next year, but we want to stay in this range of expenses. And again, I'm talking about net expenses, which is the U.S. GAAP expenses plus the funding contribution for a few years. And of course, there is an inflation related to the salary increase that is in our model. But we should not neglect the fact that we have redeployed significant good product R&D resources to our 6 product groups. I mean, in London, we had even quantified the redeployment by product group. And this is now a boost in terms of product R&D. And therefore, we do not plan to increase further. So -- and we want to stay in this range of expenses for some time, for a few years. At the same time, we want to grow. So -- and clearly, the first step is the $9 billion mark. But then we are serving a market in each of the 2 block of the company that is today in the range of $70 billion each. And our aspiration is to grow and to move forward and keeping the same level of expenses, and of course progressively improve our gross margin. The initiative that we have described today that, of course, was in our roadmap, is an important initiative, and will be accretive in terms of gross margin. So you ultimately, if you want to see a company like ST 5 years from now, I think if we are a $10 billion company, our aspiration is to be a $10 billion company and a 40% gross margin company. And then of course, this would imply profitability more in the range of 13% to 14.%. Kai Korschelt - Deutsche Bank AG, Research Division: Okay. Could I just maybe ask a quick follow-up. I understand you have very good visibility on your future OpEx run rate. But to get to $9 billion, I think that's roughly a 20% increase from the current run rate, if we exclude Wireless. So I guess my question centers more around the revenue growth, where, again, I appreciate second half this year looks pretty good, seasonality and product ramps, et cetera. But sort of beyond that, to get to 20% growth from the current run rate, we probably need a little bit more. So I'm just wondering kind of what your timeframe of that -- of achieving that revenue run rate would be? Would it be next year or beyond?

Yes. The target that we have is, as we said already, is to achieve our 10% model. Of course, this is an ambitious target, but just to achieve our 10% model is not the first time that we stated this in the second part of next year. Kai Korschelt - Deutsche Bank AG, Research Division: Okay. And then just to follow up the question on MEMS?

The question on MEMS was -- on the market share and major accounts. Listen, it's very, very difficult for us to say whether we are single source or not single source. We have major accounts where we are single source. There are other major accounts where we are not single source. And clearly, also, how can we say the dynamics in the Wireless market is continuously changing with the customer gaining market share and customer losing market share. Typically, in our business, we are not single source. So we do not have the hope that we can be single source. It may happen that for some time, we are single source at a certain major customer, but I do not believe this is something that we should plan on, to be single source forever. I think here, what we should do is to make sure that there is a wider portfolio of customers in the smartphone, knowing that the smartphone makers in China are gaining weight continuously on one hand. And on the other hand, we need to make sure that -- and we have started, for instance, in Automotive, to grow in the Automotive, where there is a major MEMS business, and in all emerging applications like healthcare, wearable, wellness, et cetera. So I think this, together with the continuous drive in the innovation and the speed of innovation, shall allow us to continue to grow very profitably in this business. So rather than moving at specific position at certain major customers, I think, is more important for us is the function of the customer base, this function of the product portfolio, not only 1 or 2 functionalities but many more functionalities, and addressing different applications, some already well-established like Automotive, and some that are emerging in terms of volume that for sure will become important in the future.

I think we have time for one more question.

The last question for today is from Mr. Janardan Menon from Liberum Capital. Janardan Menon - Liberum Capital Limited, Research Division: You'd mentioned that in the Embedded Processing Solutions division, you'd seen a decline in your Digital Convergence revenues as well. I was just wondering which product area that refers to? Was that in the set-top box or was that in some other area? And what the outlook there is for the second half of the year? And as a follow-up, you said the 10% margin is dependent on gross margin or based on a gross margin of about 37% to 37.5%. What is the utilization level that you need to be to get to the 37% to 37.5% gross margin? And within that, is there a specific utilization level that you need to achieve in Crolles to support that gross margin level?

Yes. Well, let's start from this one. I think what we are planning, and this is not the first time we'll comment on this, but what we are planning in our model is a fab utilization in the range between 85% and 90%. Of course, 95% is an optimal position and -- excuse me, 90% is an optimal position. Above 90% would be then stretched to respond to customer short-term demand. But so this is the range that we are targeting, between 85% and 90%. We should not neglect, of course, the advantage from structural measures. I mean, at the beginning of the conversation, I did mention what are the major drivers. I think it was the first question today. So there are, for us, 4 major drivers. One, of course, is this kind of loading; the second is the stability of loading; the third, very importantly, is the focus on products that contribute fully to the gross margin. And we will attack this aggressively because now, we also have the means through this manufacturing strategy that we have just presented. And the last one is the mix of products. For instance, in the short term, the fact that we have $150 million, $100 million declining per quarter with Ericsson today in Q3 did not play positively, as I said. But of course, with these revenues phasing out, this will be a positive contribution to the gross margin. Now I think that in Q3 this year, we shall start from a base of $1.935 billion. I think this was the first part of your question, right? And we expect to grow from there and to reach then the $2.2 billion, $2.25 billion per quarter in the second half of next year. I think you had another question that I'm now missing. If you can repeat the first one? Janardan Menon - Liberum Capital Limited, Research Division: Yes. It was on Digital Convergence, is you had said that you saw a revenue decline outside of Wireless. I was just wondering which area that was and how that's looking into the second half of the year?

Yes. Overall, EPS outside Wireless did increase. I think the increase was sequentially 6.6%. Today, in Q2 and in Q3, we have a decline of our Digital Convergence business mostly in Asia in relation to the low end of the products. And this is the phase-out of certain families. And we expect through the new design wins and the many new products to start growing again in Q4 this year. For us, a very important target is clearly the cable market in the United States. We're very pleased to announce that we have now the first major win in the cable -- in the set-top box cable market in the United States. So this definitely is one of our priority. In this unit, however, we have also an ASICs business unit. And during the course of the second quarter, we have gained 2 major wins. And one is very material in terms of revenues, is portable consumer applications, and this will significantly contribute to revenues starting from mid-2015. This is a very important addition. Of course, it's a very important win for us. We need to develop the products, but this is a very, very important award based on the capability of our FD-SOI technology. So the short term is mostly impacted by the low-end market in China. And we are phasing out our products. We are growing up the new families like the Class 2, the Orly[ph] . Cable in U.S. is crucial, is key for us. And we are very pleased that we have now the first major program for us in the United States on this kind of application.

I think at this time, Carlo, do you want to take another question or...

Yes. I think we have another -- for me, another 5 to 10 minutes, and then we can go. I mean, if there are questions?

Okay. We'll take another question, please.

The next question is from Mr. Jerome Ramel from Exane PNB Paribas. Jerome Ramel - Exane BNP Paribas, Research Division: Carlo, I just would like to understand the comment you made on the impact of the shift from 6-inch to 8-inch on the gross margin for Q3. I'm not sure I understood the impact it will have on the gross margin. And secondly, I'd like to understand for what kind of product do we need more 8-inch capacity going forward, it is for microcontrollers? And maybe just a follow-up, on top of all of this, what is the outsourcing level of STMicro? And is there any impact on your gross margin in Q3 coming from outsourcing?

Oh, the outsourcing. Okay. So let's see. I mean, no, it's not microcontrollers. The manufacturing strategy on microcontrollers is based on the low-end products. We stay 8-inch and the fab being busy I would say. And the higher end products are migrating into 12-inch. Today, we have the first 8 new products running the qualification in 12-inch in our Crolles 300 facility. This is both for general purpose and the secure microcontrollers. The 4 fabs that we are mentioning here, the 2 lines in Catania, 6 and 8-inch, and the 2 lines in Singapore, the other 6-inch, and the most modern fab, where we already have an 8-inch mini line. This is intended for products like power management, smart grid, intelligent and industrial control and everything that is related to home automation and factory automation. So what are the technologies in the product is smart power products? In vertical intelligent power, it is BCD 8 products, but it is also advanced discrete products. For instance, PowerMOS at the high voltage or our family, DMD MESH [ph] family. It is also IGBT. So it's all of these. This is taking care in the same class of facilities, and moving from all those 6-inch into more modern 8-inch. There are 2 major contribution. One, as I said before, one is the improvement of the mix of the product. So the venue of the products is increasing. So the average selling price of these products will increase. And the second is a very significant decline of the manufacturing cost, thanks, of course, to the evolution from 6-inch to 8-inch. We, today, we are confident that in the area of PowerMOS, in the area of smart power, in the area of industrial applications in general, we have a mass of new products and new technologies that is giving us the confidence that we can now make the step and feel more on the 8-inch and much less on the more mature 6-inch. This will have a very significant impact on the gross margin, of course, for these products. And the gross margin is improving for the 2 reasons, one is a better mix and the second reason is clearly a very significant reduction in the manufacturing cost. In terms of outsourcing, I think with a decrease of the volume of ST-Ericsson, there is a decrease. I think in Q2, we had about 8%.

Yes. In Q2, we were about 8% to 12% on the overall volume. And that was down in respect to Q1. It was 10% than there is on the Q1.

And in terms of value, this represent about 15% of -- in terms of value of the production. Production value is about 15% of the total.

Okay. I think at this point, we'll probably need to cut it off.

That is fine. I think we need to catch a flight to London. So I want to thank you again, and we'll talk again soon, and clearly for the third quarter results. So thank you again for your participation and interest into ST. Thank you.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.