Tait Sorensen - IR Carlo Bozotti - CEO Carlo Ferro - CFO Jean-Marc Chery - COO Georges Penalver - Chief Strategy Officer Carmelo Papa - General Manager, Industrial and Power Discrete Group

Jerome Ramel - Exane BNP Paribas David Mulholland - UBS Andrew Gardiner - Barclays Sandeep Deshpande - JPMorgan Guenther Hollfelder - Baader Achal Sultania - Credit Suisse Francois Meunier - Morgan Stanley Janardan Menon - Liberum Francesco Previtera - Akros Adithya Metuku - Bank of America

Thank you to everyone for joining our Fourth Quarter and Full Year 2015 financial results conference call. Hosting the call today is Carlo Bozotti, ST's President and Chief Executive Officer. Joining Carlo on the call today are Jean-Marc Chery, Chief Operating Officer; Carlo Ferro, Chief Financial Officer; Georges Penalver, Chief Strategy Officer; and Carmelo Papa, The General Manager of the Industrial and Power Discrete Group. This live webcast and presentation materials 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 this morning, and also in ST's most recent regulatory filings for a full description of these factors. Also, to ensure all participants have an opportunity to ask questions during the Q&A session, 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. Today I’ll begin with the summary overview and then Carlo Ferro will review our financial results in detail. Jean-Marc Chery will then cover today's announcement that related to our set top box business. And importantly our continued focus on the business derived from digital technologies. Georges Penalver will then discuss the market opportunities related to the application areas of our focus. Finally I’ll conclude with our 2016 priorities. So let's begin. 2015 was a year where we made important steps both from a strategic as well as financial point of view. First we focused our product portfolio and application strategy on key investment areas. We also conducted an extensive review of our digital products and today Digital IC's from general purpose and secure microcontrollers to Digital ASIC's, Digital automotive IC's, specialized in the sensors represent more than $2.8 billion of our revenues. And they are at the core of our strategy and they are also a major growth opportunity for us in the year to come. However within this digital we acknowledge the need to reconsider our set top box business, decline in revenues and loss making. Second, we made progress in a number of financial metrics even if overall we did not achieve the level of progress we were expecting at the beginning of the year. To a large extent, our performance was limited due to a weak semi-conductor market particularly in the second half of the year. But also changes in customer plans as we already outlined a few quarters ago, did not allow us to grow revenues as we had expected. However from a financial perspective we consistently delivered results overall in line with our quarterly outlooks and we will manage expenses in capital investments. We saw improvement in operating and net income, excluding the catchup of R&D finding in 2014 and made visible progress in terms of free cash flow as Carlo Ferro will detail. Most importantly with the work accomplish we enter 2016 with sharper strategic focus. In fact during 2015 we increasingly focused our R&D and sales and marketing efforts on two areas, a smart driving enabled by digitalization and electrification and the Internet of Things including portable and wearable systems as well as smart homes, city and the industry applications. Our products, technologies and system application capabilities are optimized for these areas which we address with the digital IC's as I have already mentioned and with our analog products Power Discrete and MEMS. Looking at our revenues, our performance was mixed during 2016. We had businesses that performed well during the first-half despite the unfavorable market dynamics particular in this second-half. Other businesses where instead more affected by the market. And we also had businesses that were affected by specific transitions. Starting with our microcontrollers, during 2015 we delivered year-on-year growth of overall 7% driven by our general purpose STM32 family. This growth was possible thanks to a combination of newly innovative products, now totaling over 600 firm members as well as a strong customer base expansion. We broadened our product range with the new ultra-low-power STM32 L4 series and that the very high performance STM32 L7 series. While strengthening the surrounding ecosystem with the extension of STM32Cube software tool to the complete product portfolio. We had success across a broad customer base, including important wins in many wearable applications. Our STM32 series are at the heart of many Internet of Things applications, and they now serve over 40,000 customers worldwide. Another area of solid performance was our automotive product group which, after having growth by 8% in 2014, was stable year-on-year in 2015 when excluding currency effects. Based upon preliminary data, we believe this performance is better than the automotive semiconductor market overall. Key to our results was the strong progress with our individual products, as well as with our complete system solutions. For example, to help make driving safer we had multiple ADAS wins, including vision processing and new 24 gigahertz and 77 gigahertz radar-based products. During 2015, seven out of the 10 ADAS-equipped cars on the road had our system on board. Our third-generation ADAS vision processor for Mobileye went into full production and we saw the first design wins with the fourth generation, which is being developed with our FDSOI technology. In 32-bit microcontrollers for automotive, we recorded strong growth, materializing business from our impressive design win pipeline that covers body, power train and engine management applications, also for hybrid vehicles such as the new Toyota Prius. And in smart power, we enjoyed strong market momentum based on our important BCD9s and vertical intelligent power technologies. Moving to IPD, our industrial and power discrete product group was the one most affected by the market slowdown, driven by an industry correction in the channel leading to a sales decrease of 6% in 2015 when excluding currency effects. At the same time, we move forward during the year seeding our future growth with a strong pipeline of new products well focused on the fastest growing applications. In automation for smart factories and homes, we’ve broadened our offering of smart power ACs and transistors, and we further developed our ecosystem to make the design-in of the complete ST portfolio for motion control, including MCU sensors and connectivity even easier. For power conversion, we launched new solutions for digital power and LED lighting and server power supply, including silicon carbide-based products. In the area of energy management, we secured wins in automotive in various electric and hybrid vehicle applications, while continuing to develop innovative solutions for energy harvesting and energy management. And finally, in portable, we grew our business of protection devices and introduced innovative antenna tuning solutions. Our analog MEMS and the sensor business continue to go through a difficult revenue transition in 2015. However, during the year, we made progress building a more diversified portfolio and broader customer base that should ultimately allow a gradual return to growth. In Analog, our low power connectivity solutions were well received by the market, with volume sales of our Bluetooth low energy solutions for a top tier wearable manufacturer and wins with our sub-gigahertz RF transceiver for smart home applications. In MEMS and sensors, we grew on automotive MEMS business with sensors for in-car navigation and telematics applications, and with first shipments for airbag applications. We also had motion MEMS wins in active safety for vehicle dynamic control applications. This led us to be identified by IHS as the fastest growing automotive sensor supplier. We grew revenues for our micro-mirror business for Intel perceptual computing initiatives, as well as for our touch screen controllers, while our Piezoelectric MEMS technology helped poLight to develop a fast-focus smartphone camera lens. Our diversification also included new environmental sensors brought onto the market such as the smallest, most accurate pressure sensor in the industry. Of course, smartphones continue to remain a focus for us and we are confident that products, such as our [indiscernible] the latest six-axis device and our gyroscopes for optical image stabilization will soon be found in flagship devices. In digital ASICs a remarkable result was our strengthened position in the network at market, with record dealings in optical modules and a strong ramp of ASICs in leading-edge CMOS technologies, while in our imaging business we started to demonstrate success with our refocused strategy of specialized image and photonic sensors. In fact, our FlightSense technology was integrated in over 20 phones during 2015 and we passed the milestones of 50 million units shipped. These are some of the key product achievement in 2015 supporting our focus on smart driving and Internet of Things. And, just recently, we took two further steps in aligning our organization with our focus. First, we took the difficult decision on our set-top box and home gateway business that Jean-Marc will explain in more detail later. And second, we have today announced the reorganization of our business into three product groups, and we will align our financial report in Q1 accordingly. The first group, automotive and discrete, is led by Marco Monti, and includes all our automotive ICs, both digital and analog, and our discrete products. As you know, power discretes are increasingly important in the growing segment of car electrification. The second group, microcontrollers and digital ICs, is led by Claude Dardanne, and includes our general purpose and secure microcontrollers; our EEPROM memories; and all of our digital ICs outside of the automotive ICs. Clearly, technical synergies between microcontrollers and the other digital ICs will benefit ST in terms of technology leadership and time to market. The third group, analog and MEMS, is led by Benedetto Vigna, and includes our low-power analog ICs; smart power products for industrial and power conversion; and all of our MEMS activity. The technology and the manufacturing reorganization is now under the leadership of Jean-Marc Chery, our Chief Operating Officer. I would like to conclude that this organizational update by deeply thanking a colleague who is here with us today and whom of you all know very well: Carmelo Papa. He's going to retire after a long and successful career. We will miss his business drive and dedication. We warmly thank him for the great business foundation he has established with his management team and colleagues that will drive our business towards future successes. So thank you, Carmelo. We have now to move forward and turn our strong application product focus into revenue growth; I will come back to that. But, in the meantime, let me hand over to Carlo Ferro for the financial review. Carlo?

Thank you, Carlo. Good morning, everyone. As Carlo said, 2015 has been a year of progress across most of our financial metrics, in line with the journey towards higher profitability that we are taking in what we call the post-merger phase of our Company. Despite missing revenue expansion in a market much weaker than expected, particularly in the second half of the year, we managed to slightly improve operating income to consolidate a net profit, and to expand a free cash flow generation. Our operating income before impairment and restructuring charges totaled $174 million. This represents a year-over-year improvement of $13 million, excluding the $97 million of well funding included in 2014 operating income that related to the prior year. Moreover, we turned from $173 million operating losses in 2013 to a sustainable profit. Also, the P&L bottom line turned into a sustainable profit from the severe losses incurred two years ago; and we posted $104 million of net earnings. Importantly, on an annual basis, free cash flow again increased significantly. In 2015, in fact, we generated $327 million of free cash flow, reaching the highest level we have recorded in the past five years. As a result, we ended 2015 with a solid capital structure, with a net financial position positive by $494 million; and total liquidity of $2.21 million. However, the revenues line is not progressing yet, due to a combination of market conditions, particularly the overall semiconductor market correction in the second half of the year; and, the few specific products and customer circumstances, in addition to the progressive wind-down of legacy products. For the fourth quarter revenues were $1.67 billion, sequentially down by 5.5%. This is slightly better than midpoint of our outlook. But for the full year, the $6.9 billion of revenues was below the initial expectation. Year over year, revenues were down 6.8% as reported. I would rather say that 3.3% as a meaningful reference when excluding unfavorable currency effects and mobile legacy products. By group, MMS recorded a remarkable performance, increasing 7.2% year-over-year, or 9.4% excluding the currency effects. MMS represented 23% of our total sales for 2015, and is a very strong and healthy portion of our portfolio. Similarly, we are well positioned in automotive, which represents 25% of our total revenues. APG was stable, excluding the currency effects, and reflected market uncertainties, particularly in China and in Japan, and particularly in the second half of the year. Uncertainties that now look to be behind us. Turning to industrial power and discrete, ST has a stronger portfolio of products. They represent 25% of net revenues during 2015. IPD sales decreased in the year, closely linked to the market with conditions, especially in China and in the computer and in the lighting market. AMS saw a continuation of this additional experience in 2014 with MEMS, I would say temporarily aggravated by specific issue with a supplier delaying our ability to ramp microphones at the major customers. Revenues for AMS in total were just under $1 billion. DPG was clearly reflecting different reflecting different trends with networking ASICs growing and set-top box and imaging decline. Looking forward to the coming quarter, we anticipate a sequential revenue decline by about 3% at the midpoint, reflecting the further impact of the ongoing industry corrections. However, we are happy to see APG expected to return to growth with a pretty healthy sequential increase. Turning to our customer base, our 10 largest customers were distributed geographically and by end market, accounted for approximately 34% of our total revenues in 2015, with no-one exceeding 10% individually. Our customer base continued to evolve; and as a testimony of our customer expansion efforts we saw now Huawei enter our top 10 customers for the first time. We continue to make progress in terms of our mix of OEMs and distributions. Revenues from distribution were 32% of net revenues in 2015 compared to 31% the year before. We are encouraged that this trend will continue as we advance on our strategy to strengthen our mass-market programs. Moving now to our gross margin. We delivered Q4 at the midpoint of our quarterly guidance. 2015 gross margin of 33.8% was 10 basis points higher than the prior year, and this is not so much. It reflected manufacturing efficiencies as well as favorable currency effect. Also, we still have the opportunity to capture an additional 80 basis point of gross margin from the current currency rate not having as yet, due to the hedging. Gross margin is moving in the right direction, but not fast enough, particularly due to the drag of unused capacity charges. In 2015, we lost 90 basis point of gross margin due to unused capacity charges affecting both of our segments, SP&A and EPS, particularly in the first quarter. So we continue to take action to improve the loading of our fabs, particularly for our 12-inch fab. Looking at our first quarter 2016 gross margin, we are estimating a midpoint of about 33%, mainly reflecting both unused capacity charges in the range of 70 basis points and less-efficient manufacturing performance we have experienced during the last quarter. The expenses: Net operating expenses in 2015 remained well on track with our objectives. Net of grants, operating expenses in the year averaged about $545 million on a quarterly basis, while we kept an R&D effort of about 21% of sales to boost future growth. Currency played an important role in 2015, despite some unfavorable effect on the top line. Due to our denominated -- euro-denominated contracts, we began to progressively benefit through the year from the stronger U.S. dollar, as our existing hedges are rolling off. We estimate the further operating margin improvement from currency assuming the euro/dollar rate to stay around €1.08/$1, in the range of 1 percentage point. Turning to the balance sheet. ST again maintained a solid net financial position. As anticipated, today we adjusted our capital expenditure, net of proceeds of sales of assets, to $467 million, to ensure we spent the appropriate level of investment. In the year we reported $174 million in operating income before restructuring and impairment, or 2.5% as a percentage sale. Sense and power and automotive margin at 6.5% was compressed by lower revenues, and also hit by unused capacity charges. Only IPD operating margin has been resilient compare to the prior year, thanks to the manufacturing initiatives in 6 and 8 inches, and in the backend, as well as, thanks to the turnaround of the power discrete division. In EPS, we saw MMS well progressing into the high-teens' operating margin. DPG is still posting substantial losses, lower than the previous year and this result reflected the lack of profitability of the set-top box businesses, we generated about $250 million losses in 2015; and the ongoing investment for the transition of imaging, from the camera modules to the specialized images sensors. As Carlo said, we have entered 2016 with a renewed focus on our product portfolio, and with a revised organization, targeting growth in smart driving and the Internet of Things obligations. To start to introduce the new product groups, will be more detail and more specific with the Q1 earnings release, here you have an initial picture of the pro forma revenues in 2015, and their relative ways on the ST sales. Automotive and discrete, $2.73 billion revenues, this is 40% of the total Company sales. Microcontrollers and digital ICs, $2.02 billion revenues is 29% of the total ST sales. Analog and MEMS $1.67 billion revenues is 24% of the total ST sales. You see this not match to 100%. Indeed, the remaining balance on ST total sales is related to the discontinued businesses, like the former wireless legacy product, camera modules, and now the set-top box. It also included initial sales in the new field of specialized image sensors. More importantly, you see in the chart the strong synergies among the new product groups, and the comprehensive breadth to serve smart driving, smart homes, smart cities, smart industry and smart things. To conclude, we are encouraged by the profitability of each of the three new reporting segments, as a starting point for future improvement in operating income. All three groups in 2015 are profitable. Before unused capacity charges, the microcontroller in digital ICs group, excluded set-top box, had a double-digit operating margin, and the other two were mid-to-high single digit, while we continue to invest in the specialized imaging business. All in all, ST made important steps during 2015. Our potential to generate operating income is much stronger than our bottom line indicated in 2015; and we are focusing on creating growth and creating shareholders' value. At this point, allow me to hand over to Jean-Marc to share with you the details of today's announcement. Jean-Marc Chery: Thank you, Carlo. Good morning, everybody. So today's announcement, to discontinue the development of new platforms and standard products for set-top box and home gateway is a result of an extensive review of value assumptions, that started in May last year, with the objective to fix a loss-making situation for DPG in a sustainable way. You may recall that in 2013 we put in place a turnaround plan for our set-top box and home gateway business. The plan was based on a combination of the first market adoption of our new product and high success rate with those products through on-time execution. However, the turnaround could not be completed for a number of reasons, including a much slower than expected market takeoff; M&A at the operator and box manufacturer of delaying rollout; increasing competition on low-end boxes; and high level of R&D costs. Then, losses are unsustainable; about $0.5 billion collectively in the last two years. So as a result of this plan, we have announced a global workforce review, including the redeployment of about 600 employees, currently associated with the set-top box business, to support, principally, ST growth ambition in digital, automotive and microcontrollers. A global workforce realignment that may affect approximately 1,400 employees worldwide, of which about 430 in France, through a voluntary departure plan; about 670 in Asia; and about 120 in the US. Deployment of the plan by country or site will be subject to applicable legislation and will depend on local negotiations. In 2016, the workforce realignment is anticipated to affect about 1,000 employees, out of which about 150 in France. Annualized saving at completion are estimated at $170 million per year. Restructuring costs are anticipated to be about $170 million. We expect to recognize savings positively forward 2016 and by the end of 2017. We should have completed over 85% of the estimated savings. The remaining 15% of savings will depend on the lifespan of the residual products. But now, let me recap for you our digital business. Digital, analog, mixed signal and power technologies are clearly all instrumental to the strategy and the future of ST. Therefore, our commitment to digital is very material. Digital ICs, including our microcontrollers, are at the core of the car digitization trend, and of all Internet of Things applications. As Carlo mentioned, in 2015 our digital ICs revenue were about $2.5 billion of total revenues. Our general purpose and secure MCUs; our memories; our digital ASICs; our specialized imaging sensors; our digital automotive IC; our digital technologies that are increasingly integrated with traditional analog and power products, to provide smart solutions. All of that is a proof of the value of the business for ST today, and in the future. You will see some example of the digitalization opportunities in our next section, with Georges Panalver.

Thank you, Jean-Marc, and good morning, everyone. As Carlo mentioned we are firmly focused on two areas, smart driving and Internet of Things, addressing a serviceable market of about $150 billion. As ST is already a leading provider of products, systems and solutions for these areas, we are starting from a very good foundation. The next few years are expected to be a period of growth for many application areas, served by the semiconductor industry, and ST is focused on those that are expected to grow the fastest, as you can see in the chart. So how are we going to address them? Let's start with smart driving. Smart driving is about making driving safer, green and more connected. This is very much in line with the forecast development of the automotive market in the coming years, with areas such as safety and infotainment, showing above average growth. Both mixed signal and digital technologies here are key. A key example are the add applications that are fully digital, and we are addressing a very large portion of them. Smart driver covers all of the key application areas in the car: active and passive safety systems; electric and hybrid vehicle electrification; infotainment and telematics; and all the body, chassis and powertrain-related subsystems. ST is very well positioned here with the right portfolio to be an ideal partner for established and new car makers, and for all their suppliers. Our broad range of technologies allows us to build every kind of part; and, our deep system knowhow enables us to offer complete optimized subsystems. Moving now to Internet of Things, as you know the Internet of Things is an umbrella covering a number of application areas. For example, the smart industry is about the evolution of manufacturing and our industrial sectors, through the application of a range of smart technologies, to achieve better efficiency, flexibility and safety. Factory automation is an example of an area where Internet of Things is bringing ST new opportunities to add sensors, intelligence and connectivity, while continuing to lead in power and motor controls. Moving to the smart home and the smart city, STs portfolio is very well adapted and our ability to offer solutions involving multiple ST products tailored to specific vertical applications positions us well to address this area of the Internet of Things. And with our own sales channel and customers, we will benefit from the above average growth forecast for home and building control, LED lighting and metering, and this is among the many principal opportunities. And finally, the connected devices in the Internet of Things, that we call smart things, alongside the existing well-identified markets, like smartphone and wellbores [ph], we see a huge opportunity for new connected devices. Some will be products we already know that become smart and connected, and others will be completely new categories of devices. What they all have in common is a need for the same core electronics building blocks, which ST offers, as well as the need for fast and easy development tools, such as our STM32 open development environment. Thank you for your attention.

Well, thank you, Georges. And this is our market-driven focus based on our system application capabilities, our products and our analog and digital technologies. So let me now close with our three main priorities for 2016; first, of course, sales growth. Here, we have set a number of objectives and we are targeting growth both with major OEMs, including smartphones and automotive customers, and in the mass market, especially in Asia. We believe that our stronger system and application approach on top of our leading-edge products allows us to have much more opportunities than in the past. In the mass market, across all the regions and particularly in Asia, we have recently strengthened our local marketing applications and the sales teams, and we plan to grow this set of competencies even more during this year. And with sales growth, our manufacturing efficiencies can and will significantly improve and unused capacity charges can and will be significantly reduced, benefiting our financial performance. Second, with our anticipated capital expenditures of about $600 million in 2016 combined with our product roadmaps in R&D, we will make sure that we benefit from the resources devoted there and from the about 600 talents moving to our strategic focus areas of digital automotive and microcontrollers. Third, we need to flawlessly execute on our decision to discontinue platforms and standard products for the set-top box and home gateway. We expect a meaningful portion of the plan to be well underway during 2016, which will benefit our cost structure. There is lots of work ahead of us, but we are moving forward with a clear strategy and plan and a sharp and deep focus on execution. Now, my colleagues and I would be happy to take your questions. Thank you.

The first question is from Mr. Jerome Ramel from Exane BNP Paribas. Please go ahead.

Carlo, with the restructuring plan you are implementing, what could be the mid/long-term target of the business model of STMicro? You have been saving the 10% EBIT margin for a while. Do you think the implementation of the restructuring plan you announce today will be enough to get back to 10% EBIT margin eventually? Or is it also a question of the top line? And what kind of a revenues level do you need now to get back to the 10% EBIT margin with the new perimeter of STMicroelectronics?

Jerome, Carlo Ferro speaking; perhaps I take the question. I believe that certainly, the strategic review on the product portfolio will move in the direction of expanding margin and certainly the model we have cited, targeting a 10% operating margin is within the potential of the Company. There are many ingredients on top of the mechanical one on the currency, on the unused capacity. The contribution of this plan that, as you see, is quite significant. We consider the impact the combination of low expenses at completions and improved average gross margin of the Company to be in the range of about 3 points. The various initiatives we have in manufacturing all moving in the right direction. And of course, we need more in terms of volume of growth. At the end of the day, I believe that we need at least $1.8 billion of revenues per quarter not only to, I would say, leverage on the revenues growth, but really to give our manufacturing machine all the comfort to smoothly run. It's not only a matter of the unused capacity; it's also a matter of the overall efficiency of the fabs and their performance, and their scale that very much expected the wafer cost. So overall we remain comfortable on this model. We have a lot now of ingredients to work on. We have also some detail to be finalized, including the end -- the modality and the timing of the deployment of the revised plan for set-top box. That is subject to a consultation process that is not final yet. So give us a little bit more of time. I believe that we have already good data in the month of May for our Capital Market Day and we'll be happy to take back the question at that time.

Well, certainly, growth is our most important priority. I think we are targeting, as we said, a market that is about one-half of the semiconductor market, it's about $150 billion, on two areas that are growing. The digitalization trend in the automotive is very, very important to ST. It is our major effort, particularly in the area of safety, advanced safety and, in the future, nearly autonomous driving on one side. But also, the electrification of the car, we have all the products. For instance, we will exploit better the synergies between our specific ICs for automotive applications and our power discrete that are certainly instrumental to the electrification of the car, including very promising not silicon technology, like silicon carbide. And on the rest of the Company, it's very much centered around our microcontrollers. Our microcontrollers are successful. We are now moving many more resources. So we will have more products; we will have more peripherals; we will have more application boards, the referring designs for our customers. So we will try more and more to provide solutions to our customers centered around our microcontrollers and complementing the microcontrollers with our sensors, with our power products and with our analog and connectivity devices. So, I think it's a little bit more focused, but broad and a portfolio pretty much optimized to serve these two major blocks in the electronic field, where we expect growth will be significant. We certainly want to participate to this and starting growing again.

Thank you. And maybe just a quick follow-up. Any update on the dividend, following the announcement of today? Are you going to address it or how should we think about the dividend going forward?

Well, this is premature. I think we will start working on this, in fact, at the end of March and the process is always the same. Based on our results, the projected capital requirements, the business conditions, the prospects the Management Board will make a proposal to the Supervisory Board of ST for a dividend distribution. Then our Supervisory Board would decide and propose to the Annual General Meeting. So, the process for us will start as normal, later on and towards the end of the month of March of this year.

Thank you.

Thank you, Jerome. Next question, please.

The next question is from David Mulholland from UBS. Please go ahead.

A couple of questions, if I could, just, firstly, on the cost savings, I wonder if you could give us some breakdown as to how much of that should be expected through the cost of sales line and how much is coming through from OpEx savings? Also, just on that, if you can give us a new expected OpEx run rate for the business once you've completed those savings, and then I'll come back for the follow-up, if it's okay.

Yes, I'll take your question, David. Indeed, the detail of the cost savings, resulting from the set-top box plan that Jean-Marc has presented, refers to the operating expenses only. You are right to ask, thank you for asking the question, as, of course, there is another ingredient, which is the fact that the set-top box gross margin is below company average that will contribute to the Company profitability progressively towards the execution of the plan and the wind-down of the residual lifespan of this product in the next years. In general, at the end of the day, I have to say that for our operating expenses we are quite comfortable that we have executed our target for expenses net of grants at the low level of the range of $550 million/$600 million. Indeed, that was the result of the prior quarter; that was the result of the average for 2015. This additional contribution, of course, will move expenses down and perhaps below the low level of that range progressively and, again, is a matter of now working on the detail of the deployment and eventually reverting to you at our Capital Market Day about some more specific indication on this respect. Meanwhile, we remain, at the end, confident that, for the current year, at the end we can run expenses at the low level or below the low level of our range, below the $550 million in each of the quarters of 2016; of course, talking about operating expenses net of tax.

That's great, thanks. And then just on the revenue run rate within DPG, you mentioned in the comments that it might improve sequentially in Q1. Can you just clarify if that is within the set-top box business, given the Sky Q launch that you have coming up? And also, if you can just then give us some color on how you expect the revenue ramp down within the set-top box business to progress from the $220 million level you had -- or $209 million you had last year over the next two/three years?

Okay. First of all, a clarification. If you refer to my introduction on the first quarter 2016 outlook when talking about the Group coming back to -- in a healthy sequential dynamic, I was talking about APG, the automotive product group. This is very much welcome and it is also very much related to the overall situation of the industry which is clearly improving after some correction in the second half of last year. Going to your second question -- to your question about the revenues' dynamic for the set-top box business, of course, those products are at the end very much established on the final devices, so we see, frankly, a phasing out which is very, very progressive. Should I say the estimate of revenues lost this year we expect to be about $210 million of the prior year, I would say between $60 million to $70 million under Jean-Marc's control.

That's great. Thank you very much.

You're welcome.

Thank you, David. Next question, please.

Next question is from Andrew Gardiner from Barclays. Please go ahead.

I was interested in some of your comments around the first quarter. Carlo, you just mentioned the improvement in the automotive segment. Is that the main source of strength or relative strength within first quarter or can you talk us through some of the moving parts around some of the other end markets that you see and perhaps, from a regional standpoint, what you guys are seeing, there are certainly some comments out there, particularly overnight from one of your bigger customers talking about China and showing more recent signs of economic softness. So, anything you can talk about what you're seeing within the food chain in the last few weeks as we started 2016. Thank you.

Well, of course, it's not that simple to interpret. Let's be, as much as we can, factual here. The point of sales of our distributors during the fourth quarter was not bad. We had some, let's say, decent performance with a moderate sequential growth quarter-over-quarter, including a pretty good performance in China on the POS, in what we define Greater China and South Asia as a region. On the other hand, inventory adjustment was pretty important. Of course, POS is an important indicator. Another important indicator is the formation of the backlog. And in terms of formation of the backlog, what we saw is an important recovery but more driven by Europe in our automotive business. Therefore, this is driving us to be more positive and confident on a significant sequential growth of our automotive business overall, but driven by major European customers. I think, to go through -- well, of course, there are also on top of the Chinese question mark, as you mentioned, at a macroeconomic level, there are also some concerns coming from certain major smartphone manufacturing on their volume that clearly remains a concern. I think to comment and go to the product group on top of automotive, certainly we do not see, during the course of Q1, the opportunity to maintain the same very-very strong level that we had in our microcontrollers. So we expect some decline of our microcontroller business after a fantastic rate that we have done in the second half with two quarters in line of record billing -- historical record billing in our MMS. And on the other hand, a certain degree of stability both for our, let's say, IPDs, the industrial and power discrete products and AMS products, starting, however, from a pretty low base of Q4. Please consider that one other effect in Q1 is, of course, the Chinese New Year. And traditionally, our IPD and AMS businesses are declining in Q1. And this year, as I said, starting from a low Q4 base, we see more stability. I hope this is giving an overall view of the market trends and the way that we see our products in moving from Q4 to Q1.

Next question is from Sandeep Deshpande from JPMorgan. Please go ahead.

My question is, again, similar to what an earlier question was, but on the numbers itself, Carlo. If you look at your gross margin, your gross margin is at around 33%. It has been depressed by 100 basis points, you say because of the lower utilization but then it would be possibly 34%. You are doing 21% R&D to sales, which along with the SG&A gives you a very small margin, so that 10% is not achievable. Historically, you used to be at around 40% gross margin. So what has happened with the mix in the product, which causes this 34% gross margin at the current time? And how will that shift over time towards a much higher gross margin, such that you can have more sustainable double-digit margin?

Yes, I see your questions, Sandeep. Frankly, I'm not sure I could follow all the pieces of your math, so I don't want to imply a number on my answer. Qualitatively, at the end it's obvious that our gross margin is not yet where we want to see it. And again, when you have and you run fabs that are not enough loaded, you have at the end three major implications. Implication number one is the unused and you will capture it, I guess, in your analysis. Implication number two is that the overall efficiency of the fab is affected. And implication number three is that, firstly, you have to load and then you have the opportunity of growing in scale. And growing in scale is one of the key factors in the semiconductor manufacturing model to reduce the wafer costs. And wafer cost reduction, at the end in the model of this industry, has somehow also to be shared with customers over the time and the life of the product. So what I believe at the end has happened in the recent quarters to our gross margin is that we lack enough growth in the revenues in order to take advantage of these virtual processes of growing in scale, get wafer cost improvement and improving margin. And overall, at the end there is some ingredient, as you said, of the product mix. Today, the most dilutive division to our gross margin is the set-top box division. And this is something that, as I said, we are tackling. And finally, once all of these will be solved, the benefit from the currency could be, of course, and must be more visible in our gross margin evolution.

Carlo, there's actually one follow-up question to you. You've probably seen that there has been an M&A deal, which will displace you in your top three position in the microcontroller market. Do you see that as a problem? Or do you see that you will continue to gain share overall in the microcontroller business?

No, we believe that we will continue to gain share. Now, we have this additional opportunity that, of course, is very, very important for our microcontrollers is the employment of, I would say, a significant part of the 600 engineers. And, so we are working on new ARM conversions, we are working on many new peripherals; major effort in everything that is radio frequency for microcontrollers; and a huge effort in building up more reference boards and application systems for our customers. Also, secure microcontroller is an area where we will certainly do more in the future. I think we are very committed. We have been able to anticipate the market by introducing first into the marketplace the ARM for the mass market, for the general purpose applications. We have built up a strong ecosystem. As we said before, we have 40,000 customers. I mentioned the proliferation of the peripherals and the technologies, but I'd also like to mention the major effort that we have in terms of expansion of the customer base. That is a very important priority. So I am convinced that we will keep growing and the additional resources, of course, will give another boost to our capability to enlarge the reach and cover more applications and expand the base of customers.

Thank you.

Thank you, Sandeep. Next question please.

The next question is from Guenther Hollfelder from Baader. Please go ahead.

The distribution channel situation you described, so do you expect in the first quarter, also in the non-automotive areas in the distribution channel, that the sell-through is pretty much in line with what you will ship in the first quarter? So is this correction, basically, completed?

No. I think that we expect in Q1 to keep going with the good point of sales. And, we expect that the correction in the area of IPD and AMS will be completed by the end of the first quarter. This is, in fact, the same position that we had three months ago. The difference that we have seen is more in the automotive, where the backlog already built up pretty strong in Q1. But for both IPD and AMS, while we expect to keep going with a good point of sales performance, I think it will take another three months to complete the inventory adjustment.

Okay. And concerning the car market, you talked about a recovery, especially in Europe. I assume also you were affected with your infotainment business, car radio business aftermarket in China over the past months. Could you tell us what you see in this car radio aftermarket in China right now?

Yes. I confirm this is still one area of relative weakness even if we see, in China, opportunities for recovery in the automotive during the first six months of this year, certainly while we do not see this yet in Japan that is another area of weakness for the automotive.

Maybe one more question on --

For the first six months, just to make sure.

Okay. You mentioned CapEx for 2016, I was just wondering, will you get some tailwinds coming from D&A in 2016. So what should we model in for D&A, to further decrease?

Depreciation and amortization.

Yes. I will say that there should be something in the range of $750 million for the full year.

Okay, many thanks. And all the best for Carmelo. Goodbye.

Thank you, Guenther. Next question, please.

The next question is from Achal Sultania from Credit Suisse. Please go ahead.

The first one is on the restructuring plan. Obviously, you said that there's $250 odd million of loss in the business and you're planning to achieve $170 million of savings. So there is clearly some reinvestment going back into the auto and the microcontroller business. And then at the same point, I think Carlo Ferro, you mentioned that ideally you want to get to 1.8 billion of sales per quarter, which would be 7.2 billion of sales per annum and when I look at the three core businesses that you have, you're basically doing about 6.4 billion of sales per annum. So I'm just trying to get a sense, is there a chance that at some point, if you think that the 7.2 billion revenue number, it looks difficult to get to, is there a chance that we probably can get some more savings at some point in time? Or what gives you confidence that we can see that kind of revenue growth in a market where, clearly, the macro environment isn't supportive.

I think Jean-Marc will take the first question on the plan of redeployment, but more importantly, on the opportunities. But I want to respond immediately to the second one. No, I think this is what we need now. Certainly, I think what we need is this form of portfolio with the right balance between digital, mixed signal and -- digital analog and power to serve these two macro applications blocks that, as I said, is everything that is in the car with the exception of very, very few products in the car in fact. And the Internet of Things covering a variety of applications, as we said, so I think the structure of the products, the structure of guarantee, is what we need and we will stick on it. So maybe Jean-Marc, you want to comment on the plan and the redeployment, and the opportunity to leverage these additional R&D resources. Jean-Marc Chery: Yes. For the redeployment plan, in fact, we have been driven by 2 points. The point number one is, we would like, really, to continue to proliferate our microcontroller product portfolio really to address the widest scope of application, from ultralow power microcontroller to the most performing microcontroller. And we would like also to complete the product portfolio with some products which are a little bit above the high-performance MCU. So this is point number one. The part number two, as explained by Carlo during the speech, this is clear that in smart driving the digitalization of the car is one of the key elements where we are fully committed. We have exactly the people and the skill within the set-box division to support this important ambition to continue to have a leading position, as an example in ADAS system. The main part of the almost 600 people will be redeployed in these two businesses, microcontroller and automotive digital ICs.

Right, okay. Thank you. And maybe just one clarification. What was the loading charge in this quarter? Was it 70 basis points that you said, or?

Yes. Carlo Ferro is taking your question. Yes, indeed, we anticipate that it will be in Q4 at --

He's talking the unused charge.

The unused charges. They've been about $30 million for Q4.

And the guidance for Q1; did you give a guidance for Q1 also?

No. For Q1 at the end we can anticipate that unused capacity charges will be at or south of 1 point impact to the gross margin.

All right. Okay, thank you.

Thank you, Achal. Next question, please.

The next question from Francois Meunier from Morgan Stanley. Please go ahead.

Drew Humphrey here for Francois. Just a follow-up on those -- on the cost to utilization issue, please. Can you tell us how digital in particular impacts capacity utilization in the Crolles fab? I.e., what would capacity utilization in Crolles be if you assume the run rate today excluded the businesses that you're exiting over the next few quarters?

Yes, maybe Jean-Marc, you comment on these and. Jean-Marc? Jean-Marc Chery: Yes. Basically, what I would like to recall is that we have engaged now, since a few years, a strategic diversification of our Crolles 300 in order to move this fab, which was basically a wireless, pure digital fab, to become a specialty furnished fab, in order to support automotive microcontroller, infotainment and IT safety and specifically with the 28 of this as mentioned during the speech of Carlo; so automotive. Second, microcontroller, first with some IT nanometer technology and now moving very fast in the 40-nanometer technology and later on in the 28. Third, our specialty imaging sensor. As Carlo said, so we have just seen in Q4 an important move with our new strategy, because we have moved above the 50 million units sold. And the last but not the least, it's the analog mixing kind of BiCMOS photonics technology to address the communication network infrastructure. So this year we have still struggle with the unused charge and, let's say, a poor loading. We anticipate that starting the second half of this year, we will come back to an adequate loading of Crolles and we could envisage the saturation of the full build-out capacity by end of next year.

And can you give me a number for what that loading would be today, excluding the businesses that you are exiting, or not? Jean-Marc Chery: Today we have allowed a loading in the range of 2,000/2,500 wafer per week for this fab. We will go close to the saturation in second half to the year to 3,300/3,500, depending to the mix.

Next question is from Janardan Menon from Liberum. Please go ahead.

Just as a follow-up to the previous question. So as you lose the $60 million to $70 million of set-top box revenue during the course of this year, are you saying that some of the new product areas that you are expecting will grow at an even faster rate, which will take you to a much higher loading in the second half of the year than your 2,000 to 2,500 wafers right now? Is that the way we should understand it, that you are going to lose this but something else, the other product that you are targeting are going to come up at an even faster rate, which will get you to a higher loading in the second half?

Yes, absolutely, and I think it's coming, of course, from microcontrollers; secure microcontrollers; advanced EEPROM products; also, the growth in the digital ICs, for instance, the vision-based products for radars. Another area is our digital ASIC products. And finally, this new effort on imaging that of course is completely different compared to what we had in the past. Now it is basically absorbed, the commodity camera module. So these are completely new products and new technologies that will also contribute to the fab in this facility. So, this is an effort that started in fact three years ago and is a major effort. But we want to make sure that this is becoming much more sustainable compared to what we had in the past that was very much focused on wireless and now is covering a wider range of technologies and more importantly, a wider range of applications and markets.

Then Carlo if I can complement as a data point to understand the implication, at the end, the set-top box is the division in ST taking the largest portion of the wafer needs from foundry. There is a clear at the end diversification resourcing for set-top boxes. Technologies for instance like 80 nanometers are full at foundries; technology like the 40-nanometer, is a combination of the two sources. Technology like the 28 FDSOI or the 28 bulk at the end the new products have been mostly qualified at the foundry. So, at the end of the day, please do not translate the $60 million -- $60 million/$70 million revenues impact to the loading of Crolles 300. It's not at all the case.

So can we understand from that since your newer products are in-house and your more lagging-edge products are foundry the initial drops in revenue will probably be more on the foundry side and less on the Crawl side?

No, I just said that the set-top box the newest product, for instance 28, is mostly at foundry, while we have in Crolles 300 the 28, for instance, for the ASIC ICs or the digital automotive.

Just on another topic, you said that, there was a comment that in the automotive digitalization you're moving the manpower over from set-top box there, and you're looking at products which are more powerful than 32-bit microcontrollers. Can I assume that that is a reference that you are going to be attacking the automotive apps processor market? And if so, what is the time line for you to get a product out?

No, I didn't say that. I said that in the automotive we have a very-very good coverage of almost all the products that you can find in a car. There are two exceptions. One exception is of course we will not have the modem and the second exception is the very high-end application processor that you can find in a car. All the rest we cover. That is a very broad offer from microcontrollers to advanced safety, with very, very complex solutions for advanced safety, but we do not have a very high-end application processor for car infotainment. So the two products that we do not cover is the modem and is the very high end car infotainment processor. All the rest we cover, including electrification with our power discrete, the silicon carbide cover all microcontrollers, we cover all areas. We cover the very large part of car infotainment and, of course, all the body, all the power train with our smart power technologies.

Got it. A very small last question the 80 basis points of additional margin from currency, which you mentioned, Carlo Ferro. What is the timeline if the currency stays at this level for you to realize that?

These will came through the next couple of quarters, so say between Q1 and Q2.

Thank you very much.

Perhaps if Tait allows me, I would like to go back to Guenther questions about depreciation and amortization, to be more precise. Indeed $750 million rate is how we do begin the year and, basically, this is a good reference for the first two quarters of 2016. Then we will have some substantial roll-out of certain investment in the second half of the year. So for the full year I would guide to model between $710 million and $720 million. Sorry for the inaccuracy of the prior answer.

Thank you, Carlo. Thank you, Janardan. The next question please.

The next question is from Francesco Previtera from Akros. Please go ahead.

First of all congratulations to Carmelo Papa on his retirement; best wishes.

Thank you.

My question is in your reporting the exit of the set-top box operation will be an occasion for a restatement of the figure? Or we will see a set of the collage of revenues and we will not have the segregation of revenues into a discontinued operation and in evidence of the restructuring cost?

Today we announced also the new organization of the Company based on the three product groups. Obviously, when we will set together also with the individual accountants the way of reporting the segment reporting on these three reportable segments, we would, at the end, accordingly realign for competitive purpose the result of the prior year. I intend today to give you really a very preliminary and not necessary final indication of the revenue size and the operating margin of these new three product groups. For this pro forma purpose I have reported the microcontroller and the digital ICs group, excluding the set-top box business in 2015. Then how actually will fall in the reportable segment in the accounting for each quarter from first quarter 2016 we'll present when reviewing the earnings in April. Of course what we'll do, as we have done in the past, is talk with you the full comparability April to April to the prior periods.

So the current guidance for first quarter is on the same reporting basis we used to have?

Absolutely, the current -- the guidance has not changed in the perimeter of revenues and gross margin for the Company.

Okay, thank you.

Okay, and at this point I think we'll move on to our last question please.

The last question is from Adithya Metuku from Bank of America. Please go ahead.

I had a few, firstly on the revenues in the set-top box business in Q4. Can you give us some color on what the revenues were and over what timeframe do you expect these revenues to roll off? Secondly, on the phasing of the cost savings and restructuring charges, how should we think about these? Also, if you could comment a bit on the contribution margins from the set-top box business, i.e., excluding depreciation in the fourth quarter that would be really helpful? Thank you.

Okay, I'll try to take your questions. On revenues we have already indicated that in year 2015 the revenue for set-top box has been about $210 million. We expect a very progressive phase out and for 2016 we anticipate between $60 million to $70 million revenue erosion than perhaps would have been about $100 million in 2017 and even going forward. But we still expect the revenues from this product based on the product lifespan in 2018 as well. It will be very progressive as we have also experienced with prior cases in the past year. Second question is the restructuring charges. Out of the overall $170 million expected over the completion of the program we may consider about $100 million -- between $90 million to $100 million to be posted in the P&L of fiscal year 2016. Of course, this also very much depend and is contingent to the discussion around -- and the consultation around the execution of the plan and the largest part of that will be in the first quarter.

So largest part will be -- so about $100 million will be in the first quarter?

In the first quarter, correct, yes.

And the second question on the gross margin excluding depreciation?

Sorry, yes, you're right. This I believe I have already mentioned, at the end the gross margin of set-top box is well below company average. It's substantially below the company average even without considering unused capacity charges as really a reference point, not a details indication. I would say that it's about a half of the average gross margin of the company.

So was it around 22% or its [depreciation]?

It's even less, it's south of 20%.

That's excluding depreciation?

No, excluding unused capacity charges. But you know there is a lot of waivers for set-top box coming from foundry.

Yes, what would the gross margin be if you exclude the unused capacity charges, because at the end of the day those charges are not going to go away when [indiscernible]?

In the range of half of the Company average, so south of 20%.

Thank you, Adi. At this point, we'll go ahead and close our fourth quarter and 2015 year conference call. We appreciate your participation. As a final note, STMicroelectronics will be in Barcelona for the Mobile World Congress. We will host an investor event on February 23rd, of which we'll send out the details shortly. Again, thank you for your participation.

Thank you all. Thank you.

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