Tait Sorensen - Group Vice President-Investor Relations Carlo Bozotti - President & Chief Executive Officer Carlo Ferro - Chief Financial Officer Jean-Marc Chery - Chief Operating Officer

Amit Harchandani - Citigroup Sandeep Deshpande - JPMorgan Jerome Ramel - Exane BNP Paribas Kai Korschelt - Merrill Lynch Janardan Menon - Liberum Achal Sultania - Credit Suisse David Mulholland - UBS Gianmarco Bonacina - Equita SIM Veysel Taze - Oddo Stefan Slowinski - Haitong

Good morning. Thank you, everyone, for joining our third quarter of 2016 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. This live webcast can be accessed through ST's Web site. A replay will be available shortly after the conclusion of this call. This call will include forward-looking statements that involve risk factors that could cause ST's results to differ materially from management's expectations and plans. We encourage you to review the safe harbor statement contained in the press release that was issued with the results this morning and also in ST's most recent regulatory filings for a full description of these risk 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. I'd now like to turn the call over to Carlo Bozotti, ST's President and CEO. Carlo.

Thank you, Tait, and thank you for joining us this morning on our third quarter earnings conference call. We had a solid quarter in terms of revenues, gross margin, operating expenses and free cash flow. These results are fully in line with the objectives we outlined during our capital markets day in May. First, restart revenue growth on a year-over-year basis leveraging our strategic focus on smart driving and Internet of Things. And second, improve our operating profitability through the combination of revenue growth, gross margin expansion and operating expense control. Three words, growth, discipline and leverage, summarize our focus and will drive ST forward. Now let's review our key figures. Net revenues increased 5.5% sequentially to $1.8 billion, exactly in line with the mid-point of our guidance. More ST content in smartphones, wearables and IoT applications from 6-axis gyroscope to Time-of-Flight imaging sensors, to STM32 microcontrollers, drove the sequential increase. Also, amid an improving semiconductor market we continued to see positive momentum in industrial, the mass market, and in particular the distribution channel with point of sales up 12% year-over-year. We also made progress towards our goal to return to growth in 2016 as revenues in Q3 increased 1.9% year over year, or 3.4% excluding the business undergoing a phase out. Third quarter gross margin significantly improved to 35.8%, up 190 basis points sequentially and 100 basis points year-over-year. This gross margin result was better than the midpoint of our guidance and was mainly driven by manufacturing efficiencies. As anticipated, unused capacity charges in the quarter negatively impacted the gross margin by about 60 basis points. Combined R&D and SG&A expenses were $542 million in the third quarter, in line with our expectations. We continue to exercise discipline controlling our cost and again I can confirm that we are on track to capture about $100 million of annualized cost savings from our set-top box restructuring program exiting 2016. We also delivered a substantial improvement in operating profitability. Third quarter operating income before impairment and restructuring increased to $119 million, or 6.6% of revenues from $40 million and $102 million in the prior and year ago quarter respectively, on higher revenues and gross profit and lower operating expenses. Free cash flow in the third quarter significantly improved. Before the business acquisition of Near Field Communication and RFID reader assets in Q3, free cash flow increased sharply to $178 million compared to $47 million and $85 million in the prior and year ago quarter respectively. Now let's move to a more detailed business review. In ADG, our automotive and discrete group, revenues decreased 2.3% sequentially to $704 million, reflecting seasonality in automotive and substantially flat revenues in power discrete. On a year-over-year basis, automotive revenues grew while power discrete products were negatively impacted by the weak PC and computer peripheral market. ADG operating income was $58 million in the third quarter with an operating margin of 8.2%. Year-to-date, sales growth and operating margin improvement in ADG came from automotive and from our focus on smart driving. Therefore, let me turn now to some of the wins that ADG achieved during the quarter in this focus area. Regarding greener driving, we continue to generate wins for a variety of car electrification products. We had design wins with silicon carbide diodes with a major Chinese manufacturer and wins with low-voltage trench technology for leading Asia Pacific and European manufacturers. In addition, we launched a strategic cooperation with a European Tier 1 for a new generation of car body applications, using our 40 nanometer 32-bit microcontrollers. We also captured a win for our 40 nanometer powertrain microcontrollers for an automatic transmission from another major European Tier 1. In the area of infotainment for connected cars, we further expanded the market presence of our Accordo tuner families with a high volume car radio win with a major American OEM. We also earned additional wins for our audio amplifiers in telematics platforms for a European car manufacturer. In the area of automotive safety, we continued to grow our position with one important win for the 24 gigahertz radar and two wins for the 77 gigahertz radar applications with major European and Asian Tier 1s. The momentum of ADAS designs, the advanced safety systems, was strong with several wins during this quarter. Moving next to AMG. Our analog & MEMS group performed well in line with our expectations. AMG revenues increased 7.1% sequentially on double digit growth in MEMS, driven by motion MEMS and microphones. Importantly, our analog products also contributed to the sequential increase. AMG's operating margin increased sequentially in the third quarter to 5.8% compared to 0.2% in the second quarter, thanks to higher revenues as well as improved product mix within MEMS. Year-to-date, operating performance for AMG remains below the year ago period, reflecting lower sales as well as price pressure but we are making progress in terms of customers' opportunities and I will now share some examples. In Q3, we recorded the highest quarterly shipment of devices since we started our MEMS business, thanks to the design wins we discussed in the previous quarters for our consumers MEMS business, with the Smartphone and wearable leaders and with customers across the globe. Our 6-axis motion MEMS devices integrating an accelerometer and a dual core gyroscope for optical image stabilization and user interface, has become the solution of choice for this market, thanks to its performance and ultra-low power consumption. Our MEMS microphones have also recovered in the third quarter and we continue to grow our MEMS business for other IoT applications and for automotive. Overall, in MEMS and across our broad customer base, we see the opportunity for another quarter of sequential growth. In connectivity we are continuing to see good market traction for our Bluetooth low-energy and SPIRIT sub-gigahertz RF products for consumer and industrial applications, and we expect further progress with the market introduction of our latest generation single chip Bluetooth low-energy solution announced this quarter. We also introduced a high efficiency wireless battery charging chipset which enables manufacturers to design smaller and simpler wearable devices. Smart industry is another key area of focus for AMG and for ST. In the third quarter, we registered an important win with our IO-Link solution for a leader in factory automation. Real time control of sensors and actuators is critical in factory automation and the IO-Link standard enables this while significantly reducing electrical installation cost versus previous standards. We also continued to expand our STSPIN family with the introduction of the world's smallest drivers for controlling the motors at the heart of devices like portable medical pumps, personal wellness devices, portable point of sales devices, miniature robots, precision tools and portable printers. Turning now to our microcontroller and digital ICs group. MDG's net revenues increased 5.5% sequentially and totaled $587 million. Microcontrollers represented the large majority of the sales in this group and were the principal driver of sequential revenue growth thanks to our general purpose STM32 family. We also saw growth in digital ASICs for networking. Year over year, microcontroller sales were higher by about 4%, while digital ICs revenues reflected the ongoing phase out of discontinued products. In Q3, MDG's operating margin increased sharply to 7.5% from 1.5% in Q2. The operating margin expansion reflected both higher revenues for microcontrollers and digital ICs, and a further important reduction in operating expenses resulting from the ongoing set-top box restructuring plan. Year to date, MDG's operating income is up substantially. Turning to the products in this group, I will start from our general purpose microcontrollers. In Q3, we again achieved record billings for our STM32 family with half of the revenues generated through our distribution channel. Here, I would like to mention a couple of wins that showed the breadth of applications we address with our STM32. A smart watch from a major Chinese OEM with our high performance F7 device and gas meters, and motor controls for industrial pumps at major European OEMs with our ultra low power L4 device. To support our focus on Internet of Things applications, we released a new STM32 based LoRa Kit for low power, wide area wireless connectivity. We also certified the STM32 cryptographic library according to the U.S. Cryptographic Algorithm Validation Program as part of our offer for security in the IoT. Moving to security, let me detail the acquisition of ams Near Field Communication and RFID reader assets that we made in the quarter. ST acquired IP, technologies and products to strengthen our secure microcontroller solutions which embed near field communication connectivity. We also welcome 46 highly skilled engineers who have become a very important part of our secure microcontroller division. We are already sampling products, integrating this technology to customers for a broad range of applications such as next generation mobile and Internet of Things devices. In addition, the acquisition of RFID readers complement our NFC/RFID EEPROM tag offering. ST acquired the assets for a cash payment of $78 million plus a deferred earn out contingent on future results. Finally, in our silicon business, we shipped our 1 millionth ASIC to a networking equipment market leader, a remarkable achievement for this type of business. Moving now to our imaging product division which we report in other. We had a very strong sequential increase in sales due to the success of our new specialized image sensors based on our proprietary Time-of-Flight technology. In fact, we are seeing strong momentum globally. During the third quarter, we were present in 11 new smartphones, including a new product in flagship phones launched on the market. In addition in Q3, the imaging product division turned to profit. Now let's move to our business outlook. We are targeting to grow revenues on a sequential basis by about 3.2%, plus or minus 3.5%, reflecting continued strong demand in the Smartphone market and positive automotive and industrial trends. At the midpoint on a year-over-year basis, this would represent a growth of 11.2%. From a macro perspective, we see less near-term risk than we did in the second quarter. We also expect to continue our gross margin progression targeting a fourth quarter gross margin of about 37%, plus or minus 2 percentage points. Let me now conclude with three remarks. First, based upon our fourth quarter revenue outlook, we expect to achieve a substantial year-over-year growth for the second half of 2016, as we outlined during our capital markets day in May. All of our product groups are expected to contribute to this growth, except discontinued business. Second, thanks to our strategic focus on smart driving and IoT, the increased traction we are seeing with our new products and positive semiconductor market trends, ST is positioned to achieve year-over-year-growth for 2016 driven by automotive, specialized image sensors and microcontrollers. Third, based on this anticipated revenue growth and product mix, we expect to improve the utilization of our fabs and also to leverage manufacturing efficiencies to expand our gross margin in the fourth quarter. My colleagues and I would now be happy to take your questions. Thank you.

[Operator Instructions] The first question is from Amit Harchandani from Citigroup. Please go ahead.

My first question relates to your outlook, if I could go back there, and the strength you have talked about, particularly in the analog and MEMS side of the business. Could you maybe elaborate a little bit more in terms of which are the products driving this strength and how sustainable is this strength going beyond Q4? Maybe if you could give some initial thought heading into 2017. That would be my first question.

Okay. So I think overall, we are experiencing a strong booking trend for ST. I can mention that in Q3 the growth of our bookings was above 15%. Okay. And also we see that this trend is continuing in October and so we are experiencing a similar trend in the month of October. I would say that in analog and MEMS, we are experiencing a good pattern of bookings. In the area of analog is the products that I mention, and on top is a very strong performance with our distributors. So I think the POS of our distributors are pretty good. In Q3, the POS growth year-over-year with all our distributors worldwide was more than 12%. So this is broad. So is the motion control that we mentioned before, for instance, but it's also products for industrial applications and, of course, operation amplifiers for our automotive applications. Also, general purpose analog products. So it's pretty good and we want to keep going because we are not yet at the level we want to be with our analog activity. So it's pretty broad. I think if we move to MEMS, the growth in the automotive is continuing but it remains, let's say, a limited part of our overall activity, while we see a very strong traction in smartphones. Very broad accelerometer, gyroscope for, again, the user interface applications in the phone, 6-axis solutions for the IoS applications. Also MEMS microphones, pressure sensors. So it's broad and it's broad also geographically. So it's crossing Asia from north to south in China and also in United States. And we see a good momentum in Q4, but we see also the opportunity to continue with this good momentum moving from Q4 to the next year.

Thank you, Carlo. And maybe as a second follow up, if I may. Shifting towards the OpEx side of things, would it be possible for you to provide us with some clarity on how would you expect OpEx to evolve in Q4, and maybe you could share also the run rate in terms of the set-top box saving plans at the end of Q3 and the target for the end of Q4. Thank you.

Yes. Carlo Ferro will take the question.

Certainly, Carlo. Good morning, everyone. Expenses as you noted, in the third quarter really fall where we were expecting with a contribution of some seasonal impact being third quarter, particularly in Europe, a period with a higher level of vacation. And also, we posted in the quarter a good progress in the execution of our set-top box a restructuring plan. Looking forward to the fourth quarter, we have to consider the seasonal effect since Q4 is less intense in term of vacation. We still plan and we plan to exit the year with contribution from the restructuring set-top box plan in the range of $100 million of annualized savings. The progress versus Q3 is some but not so important given the progress already made during the third quarter. So on this basis I could guide you to consider OpEx, net of grants for the fourth quarter, at the high level of our $500 million and $550 million range.

The next question is from Sandeep Deshpande from JPMorgan. Please go ahead, sir.

My first question is regarding utilization at your fabs, in particular Crolles 300 millimeters. Can you -- your gross margin is going up quite significantly into the fourth quarter, can you talk about this utilization and how this is going to trend into the fourth quarter and then beyond? And have you been able to essentially, the issues associated with the underutilization, have they been resolved now which is why the gross margin is going up? And then secondly, Carlo Bozotti, you've talked about some of these positive trends that you are seeing into the fourth quarter continue into 2017. If you look at the growth that you're seeing, a lot of that growth is coming from the Time-of-Flight sensors which you are reporting in other. Is the rest of the business going to start contributing to the growth or is it mainly from this segment that the growth is coming and going into 2017 as well? Thank you.

Yes. Maybe, I'll take the second one and then one word on the, let's say our main digital fab. and Carlo then will. So now, Sandeep, in the second half we want to have all our product groups contributing to growth. And I think I want to underline that it's very important for us to make sure that this synchronization of growth among all the product groups is continuing. Okay. So it's certainly not the Time-of-Flight, that of course is playing an important role, it's not only that. I think it's other product groups. They need to contribute and in Q4 they will contribute. And, of course, our very strong determination is to make sure that this would keep going. We are not happy yet on the, let's say trend of, for instance on analog products, and it's true that these are accelerating in Q4 and we have, I believe, good opportunities with new technologies to keep going with the growth during the course of next year. So it must be broad. And, of course, microcontrollers, automotive, analog, discrete and sensors is an important part, but certainly is not the only part. Then one word on Crolles. I think, yes, Carlo will give you all the figures of course, but we are not yet happy about the utilization of Crolles 300. So this is a priority for the company and we must make sure that -- and it's not only as you know unused cost. It's the overall volume in this fab, it's the overall efficiency in this fab. We are not yet happy here. So, Carlo, please let us know where we are now in terms of utilization.

Certainly, Carlo. So on that point for the third quarter, the utilization rate has been in the range of 85% in 8-inch fab and south of 70% in Crolles fab. And these, as you noted in the press release, resulted into 50 basis points hit to the gross margin of the company. Fourth quarter will mark a very significant progress in this respect with utilization in 8-inch fab expected to exceed the 90% and the one in 300 millimeter in Crolles north of 80%. As a result our fourth quarter gross margin guidance incorporates 20 basis point negative impact from unused charges. And to follow your question, Sandeep, looking forward to 2017, certainly we have in front of us opportunity of growing revenues, taking advantage of the expanded technology mix in Crolles 300 and on this basis, we are quite optimistic that the issue of unused capacity charges after 2016 will be behind us. In general, I would say that what we have anticipated to you at the capital markets day that revenues growth could be translated in a first phase in absorbing unused capacity, and in the second phase and the opportunity of filling up the size of the fab, particularly in 300 millimeter. In doing so, reducing the wafer cost remains, particularly in this later part, remains an opportunity for margin expansion going forward.

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

Just to come back on the question for Crolles, I'd just like to know what is the current capacity you have in 300 millimeter. I had in mind 4,500 wafers per week, so I just wanted to check with you where you are today.

Yes. Jean-Marc will comment and give you some color about this. Jean-Marc Chery: The capacity in the current mix, and I would like to say that the current mix is around microcontroller for automotive, microcontroller for general purpose and secure applications, imaging and some analog mix signal technology, is around 3,000 per week. The same is for the fiber, let's say between 4,500 and up to 5,000 per week, is the capacity of what we call the full bit out capacity. It means the capacity of the clean room and infrastructure fully loaded by equipment and of course fully loaded by demand.

Thank you. And just a follow up. Carlo, you said you had two design wins 77 gigahertz radar. Is that the FDSOI 77 gigahertz radar? And when do you expect to start shipment? Thank you. Jean-Marc Chery: Jerome, this is clear that the radar activities on 77 family is based on FDSOI, clearly, because you know that FDSOI has, let's say a specific figure of merit also in low power but also in [indiscernible] feature. So this is clearly based on our 28 FDSOI. And it should start to appear in the course of next year.

The next question is from Kai Korschelt from Merrill Lynch. Please go ahead.

Just a quick question on the automotive side. So just wondering for next year, I think you're now very strong in China. Are there any indications, because the market has been very strong this year, are there any indications -- sorry. I think there were some tax benefits which are expiring, are there any indications that you get maybe from sort of your market intelligence, of a potential pending change? And then the second question was on the U.S., which obviously is only one of several markets. But it looks like the U.S. automotive volumes are getting a bit more cautious. Are you seeing any impact here or is it just basically neutralized by strength in other regions? Thank you.

No. In general, we see good momentum in Germany and in China. The only area where we still have, it's not new by the way, some weakness is in the aftermarket. But, overall, the momentum is good driven certainly by our German customers and by China. For what we call APG, this year we should grow in excess of 5%, which is I believe a good year over year of course, 5%, which is a relatively good performance. So the momentum is good, driven by these two countries and we see a stronger evolution of the backlog for Q4 certainly, but also a good indication for the first quarter of next year.

Okay. And could I maybe just follow up on OpEx, please? Carlo, I think you mentioned a number and I'm not sure whether it was $570 million or $550 million for Q4. And one other question. Is that a net number? Does that include the other income? So if you could maybe just clarify what the OpEx including the subsidies or the other income and expenses could be roughly for the fourth quarter. Thank you.

Kai, [indiscernible] the answer is, both is correct. $570 million gross, $550 million net, about, on the ballpark.

The next question is from Janardan Menon from Liberum. Please go ahead.

My first is on your Time-of-Flight sensor. You said you were shipping in about 11 phones in Q3, but given that this is quite an appealing thing, the autofocus feature that this is enabling in smartphones, would you expect that number to go up significantly in 2017 based on your current discussions and design activity with smartphone vendors around the world? And, two, you seem to have a significant lead over the competition in this product. Are you seeing any signs of any competitors emerging in this category and how long do you think before you will have to be bidding against a competitor in this product? And then I have a follow up.

Yes. Well, I think I'll take the first part. We also need, always, we need to be attentive with the competition. I believe we have a lead here. We want to keep our lead, but I think it's our duty to make sure that we move on with the innovation we are doing. There are a lot of new innovative solutions in this area. And I'll pass the word to Jean-Marc, if you want to elaborate more? Jean-Marc Chery: Yes. Thank you, Carlo. So this is clear that our strategy based on our Time-of-Flight technology is really to accelerate our dynamic on proximity sensing to autofocus assist and more widely in the near future of, let's say, overall camera assist. Whatever our dual camera or that kind of feature. And really, we have a very strong technology and a nice roadmap based on this Time-of-Flight technology, and as far as IP are concerned as well. About competition, this is clear that, and very recently with the announcement of the acquisition of Heptagon by ams, it's confirmed our view that ams is becoming a serious competitor in this field because short term they will be able to offer a combination in a chipset of ambient light sensing and a kind of Time-of-Flight technology from Heptagon. And maybe this competitor will be in a position to win more smartphone positions. This is clear. But as far as this is concerned, I would like to say that more will come into 2017 and for the long term, again, we are strongly confident on our technology roadmap moving to [14] [ph] nanometers soon, moving to 3D integration soon, and ST will demonstrate its capability in this field of overall camera assist. So we are really confident but we follow very seriously the competition.

Understood. And as a follow up, I just want to confirm that your automotive was a little bit, not as strong as one may have thought, in Q3 you are saying it's down sequentially seasonally. Does your guidance into Q4 imply that there is -- I mean does it include any silicon carbide, MOSFET revenue, as you had previously indicated you will start shipping by the end of this quarter, by the end of this year. Does that include that revenue? And is that for one customer or is that for multiple customers? And on the same point, the Chinese design win that you got on silicon carbide, roughly what time span do you expect that to start shipping in?

Certainly, our guidance for Q4 revenues incorporates the automotive business to sequentially grow. As Carlo has already anticipated, the opportunity of ramping volume and generating more substantial revenues in silicon carbide is for 2017.

Understood.

There will be, I would say automotive will be a very important contribution to the year-over-year growth of the Company in Q4. And I think overall in the year our APG business that is not 100% of the automotive business, but it's our main business in automotive are growing much more than -- but the overall APG business in this tier will grow, I believe, in excess of 5%, including Q4.

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

Just one clarification from the previous question. So when you're saying ADG will grow in excess of 5% year-on-year, are you talking about Q4 or are you talking about 2017?

I said that APG, that is one of our sub groups that is the automotive part of ADG, not ADG as a group, that is composed by the automotive part that we define as automotive products, and the other one is the power discrete, basically. The automotive part, that is the automotive part of the company that belongs to this group, will grow year-over-year, '16 over '15, at least 5%. And the growth in Q4 will be very material, Q4 over Q4.

Okay. Thanks. Thanks for clarification. And then maybe another one on the OpEx side. So it seems like given what you've done so far and how you're guiding for Q4, total OpEx net of grants would be somewhere about $2.2 billion, give or take, for this year. Obviously, now it seems you're targeting for growth in '17 so how should we try and think about OpEx long term? Would some of the savings that you're still targeting from set-top box which probably is going to come in outer years, should we assume that those savings are reinvested to drive growth in automotive and MEMS business going forward?

Certainly, we still have to complete the set-top box plan in the course of 2017 and maybe still beyond this period is that the opportunity for the set-top box plan is targeting $120 million normalized savings. We will exit 2016 at a rate of $100 million normalized at least. So at the end, there is more to come in respect to that. Then looking forward to 2017, there are a number of ingredients of our 2017 that at the end we believe could be appropriate to share with you when we will talk in January. Right?

Okay. Thanks, Carlo.

That's not utterly satisfying. Could never anticipate any metrics. Right?

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

Just two questions, if I may. Firstly, within power discretes. Obviously you still have some challenges year on year from PC, but I wonder if you'd started seeing any improvements in that market for you. And then secondly on the imaging business, obviously quite a step-up in revenues. I wonder if you can just give us an update on your strategic view on that business, just given you do allocate within the other group as such within your divisionals. Thanks very much.

So I comment on discrete and maybe then, because I do not fully understand the second part of the question. So, indeed, discrete will start growing year-over-year soon now, and I think we are working on important plans because we want, of course, to keep them -- this is the first step, year-over-year growth in Q4 and in the second half because our overall discrete business year-over-year in H2 this year will grow. So I think we want to expand. We want to expand. We mentioned the silicon carbide. Of course, our power MOSFET silicon carbide, this is an important driver for 2017, particularly for the second part of 2017 Another big effort is on low-voltage power MOS. We are expanding our family in this area. We are, as you know, we have a very strong presence in high-voltage power MOSs, but not at the level that we would like to have in low-voltage power MOS. Another area that is certainly expanding is the one of protection products for a variety of applications, including very high volume applications in the field of smartphone. So there are a number of initiatives, but of course, as I said before, H1 this year is not good on discrete. H2 is back to year-over-year growth and we want to keep going. And we are confident that also thanks to these new initiatives, we have the opportunity to keep growing year-over-year.

And, David, can you clarify your question on others?

The second one, yes.

Yes. It was just on the imaging product division. Obviously, quite a good step up in revenues. I guess two sub questions. One, could you clarify if that group is profitable today with the run rate of revenue you had in Q3? And then just if you could comment on the strategic importance that you view with that business. Obviously, I guess people would view it questionable when you allocate it within the other division. So if you could just give us some perspective on how important you view that business to the group.

Well, first of all, yes, in Q3 we are profitable on our imaging business. It is all new products. It's new technologies. Has nothing to do with what we had in the past. That has been completely removed. And it's a part of a strategy of the company because we want to be a big sensor company. Today the run rate that we have in sensors is already above $1 billion and we want to keep going. It's all good products. It's very important for many applications from smartphones to IoT to automobile. It is an important part of the strategy of the company. Of course, this specialty in the sensors I think is a lot of new technologies that we have developed, that is also our MEMS. As you know it's pretty broad offer, and so this is becoming a big block of the company and, yes, is an important part of our strategy.

The next question is from Gianmarco Bonacina from Equita. Please go ahead.

A couple of questions, please. The first one is about the smartphone market. You mentioned you see a strong market, but actually if we look at the recent data for shipments, it is not so strong. So I guess you are gaining market share. Maybe can you elaborate a little bit on how much concentrated is the growth you are seeing. If this is related to mainly one big client or it is also here very much divided between different clients. So not just products but clients. And the other one is on your exposure to electric vehicles within automotive, if you can give us an idea of what is your, let's say sales run rate. If it's, let's say, three digits or two digits. And also, if you can summarize how many design wins you have right now for future electric vehicles including, let's say, hybrids. Thank you.

Well, let's start from the smartphone. No, it's broad. I mean of course, as I was saying before, it's crossing Asia from north to south in at least three good countries and it is also in the United States. So I think it's broad. It's certainly very large. Okay. And it's also very large in terms of products. It's several different products. So if you compare with the past, it was mostly one customer, one product. Now it's many products and many customers. In terms of clarifications, I think there is a wave of design wins in all the regions. There are also important strategic partnerships. Of course, we have power MOS products, we have rectifiers. But the value that we see with our silicon carbide here is cheap and we want to leverage on this. We believe it will be an important part of our business. It is not yet, but the wave of designs with customers today in the three continents and the wave of opportunities is continuously increasing and we expect a very important contribution next year.

Okay. And just to clarify. So can we say that the starting base for you is right now on a yearly basis a figure let's say around $100 million, or is a figure which is below. So some tens of millions of dollars?

Well, it's very difficult to provide an accurate number here. I would say this is my -- it is in between $50 million and $100 million.

The next question is from Veysel Taze from Oddo. Please go ahead.

Thank you for taking my questions. Most of them were already addressed but I have a question regarding the power discrete business. It looks to me that your weakness in the business is mainly related to power discrete and also to the analog business. You mentioned already some points but nevertheless, what is the strategy here? Do you see opportunities to improve your competitive position in the high power MOSFET, and also in IGBTs like going into growing markets like renewables, etcetera? What is your strategy around this topic?

Sorry. You are talking about analog or discrete, or both?

No, about discrete. But I guess in your analog business there is a weakness as well, right? Your MEMS business seems to have stabilized or growing, but your analog business is still weak. That was the previous business segment, the discrete and analogs together. Now they are split in the ADG, and what was the other segment?

No. I think there's, let's start from discrete. I just said in H2 we expect an important contribution from discrete on growth. And H2, of course, is now what we have achieved in Q3 plus the guidance that we have given in Q4. So if you take our discrete business, I think in the second half of this year will contribute to the growth of the company. And in the first half, I think it was on one hand some weak position with personal computers and computer peripheral customers and also some inventory adjustment, negative inventory adjustment in distribution. While I believe that in the second half, discrete will contribute to the growth of the company. And we want to keep going. Now moving from the second half of this year to this day 2017, on top of what we have today, as I said before, there will be important contributions in the area of silicon carbide, in the area of low-voltage power MOS and in the area of protection products. So we are confident that the discrete growth that we will experience year-over-year in the H2 2016 would be able to maintain in the course of 2017. Analog, as you know, is the part of AMG and again is improving. And we expect, as I was saying at the beginning of my discussion here, we expect a lot of opportunity for growth in analog even if in the first part of this year it was not what we wanted, our ambition was higher. And again in analog, the problem that we had in the first half of this year was mostly related to computer peripheral products. Okay. But we have a broad range of opportunities and similar to discrete we see a much stronger momentum in the second part of this year.

Okay. Great. And a follow on on the R&D grants. I think they are running out end of next year. Any discussions about those topics that they will be prolonged going beyond 2017? A view on this will be really very helpful. Jean-Marc Chery: Jean-Marc speaking. So, no. We have not initiated any discussion. As I said during our July communication, this is not a concern from a timing point of view. So I have no more comment on that.

[Operator Instructions] The next question is from Stefan Slowinski from Haitong Securities. Please go ahead.

As investors start to look more closely at 2017, clearly an important part of your company's evolution will be the management transition. There have been some recent news stories about the ongoing search process. Could you maybe take this opportunity to provide us with an update on that process and what you expect in terms of timing of any announcement? Presumably, when you announce Q4 results would be the right moment to maybe communicate on this topic considering the May deadline. Thank you.

No. I think it's a good attempt, but I can certainly underline that I have absolutely no comment in this respect. The management of the company is focused on our execution. We have a lot to do. I think we have great opportunities in front of us and we are focusing on these opportunities, and certainly I will not make any comment in this respect.

Do you have a follow up, Stefan?

The next question is a follow up question from Jerome Ramel from Exane. Please go ahead.

Two quick ones. What should we expect about CapEx going forward? And second one, maybe for Carlo, we see further consolidation in the industry more M&A. How do you feel about your current size? Thank you.

Yes. I think I'll take this one and then Carlo will comment on CapEx. I think we have the scale of R&D, we are investing in R&D between $1.3 billion and $1.4 billion per year to grow a lot, and this is our priority. So we are investing in R&D because we want to transform. Of course this R&D can grow up. So we have the dimension of scale in terms of R&D to compete and succeed in the areas we are focusing on. And it is a lot about automotive; it is a lot about smartphone, even if we do not have the digital core of the smartphone, but a lot of products that contribute. And, of course, very, very strong presence in the IoT, very much driven by our STM32 in a large number of applications from smart things but also smart industry, smartphones, etcetera. So we have done much in R&D. Now today we do not have any things on the table that we want to talk about in terms of M&A. I think we also have the solidity and the capital structure that would allow, but it's not a priority. The priority for the company today is to transform our intense R&D effort into growth and we want to make sure that in the second half of this year we are back to substantial growth and we want to make sure that this will continue next year.

Jerome, on capital expenditure. We confirm the expectation for this year will be in the range of between $610 million and $620 million in the year. So you note that from where we are there is some exploration in the course of the fourth quarter. Nevertheless, we expect the solid free cash flow generation in the fourth quarter certainly exceeding the dividend and overall I'm positive that the net cash position at the end of 2016 will be better, higher than the one that we reported at the end of 2015.

Thank you, Jerome. At this point, we do not have any more questions. So thank you very much for your participation.

Thank you all.

Thank you. Jean-Marc Chery: Thank you.