STMicroelectronics N.V. (NYSE:STM) Q1 2019 Earnings Conference Call Transcript 2019-04-24T07:30:00+0000 Executives Celine Berthier - STMicroelectronics N.V., Jean-Marc Chery - STMicroelectronics N.V., Lorenzo Grandi - STMicroelectronics N.V., Marco Luciano Cassis - STMicroelectronics N.V., Analysts Aleksander Peterc - Societe Generale, Johannes Schaller - Deutsche Bank, David Mulholland - UBS, Achal Sultania - Credit Suisse, Stephane Houri - ODDO BHF AG, Anthony Stoss - Craig-Hallum Capital, Jerome Ramel - Exane BNP Paribas, Matthew Ramsay - Cowen and Company, Guenther Hollfelder - RobecoSAM AG, Operator - Ladies and gentlemen, welcome to the First Quarter 2019 Earnings Release Conference Call and Live Webcast. I am Myra, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. (Operator Instructions) The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Celine Berthier, Group Vice President, Investor Relations. Please go ahead. Celine Berthier - STMicroelectronics N.V. Thank you, Myra. Good morning and thank you, everyone, for joining our first quarter 2019 financial results conference call. Hosting the call today is Jean-Marc Chery, ST's President and Chief Executive Officer. Joining Jean-Marc on the call are Lorenzo Grandi, President of Finance, Infrastructure and Services and Chief Financial Officer; and Marco Cassis, President of Sales, Marketing, Communications & Strategy Development. This live webcast and presentation materials can be accessed on ST's Investor Relations website. A replay will be available shortly after the conclusion of this call. As usual, 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 statements 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 -- if possible, to one question and a brief follow-up. I'd now like to turn the call over to Jean-Marc. Jean-Marc Chery - STMicroelectronics N.V. Thank you, Celine. Good morning, everybody, and thank you for joining ST on our first quarter 2019 earnings call. Let me start with some opening remarks about Q1 results, Q2 guidance and full year 2019 expectations. First on Q1, our revenues at $2.08 billion and our gross margin at 39.4% were substantially in line with our expectations amid softened market dynamics. We were lower than midpoint on revenues -- I will say more on that later -- and better on gross margin. We maintained a solid level of profitability, with an operating margin above 10% and a net income of $178 million. Second, on Q2 -- so we are still operating under soft market conditions. But today we are confirming our plan to return to sequential growth in the second quarter. At the midpoint of our guidance, we see second quarter revenues up about 2.4% on a sequential basis, and we see gross margin at about 38.5% at the midpoint. Regarding the full year 2019, our plan is for revenues to be in the range of about $9.45 billion to $9.85 billion. This means that we plan for strong sequential growth in the second half of the year across our industrial, automotive and personal electronics end markets. This expected level of growth is taking into account already engaged customer programs and new product introductions. It is also assuming improving market conditions in the second half of the year. Indeed, our visibility of the market improved as we progressed through the first quarter. In industrial and mass market, exiting the Chinese New Year, we saw no sign of improvement in Q2 demand. However, March and April point of sales revenues at distributors are showing signs of recovery. This, coupled with the financial stimulus programs in China, is increasing our confidence level for improved market conditions for the second half of 2019. Automotive is still growing, although tracking at a softer pace than planned. While confirming our revenue dynamics for sequential growth in Q2 and a stronger second half compared to the first half, our 2019 plan is lower than what we expected entering the year. Therefore, we have started to take actions. First, on inventory. Our goal is to decrease it to a level in line with our current revenue expectations. This is an action already embedded in our Q2 gross margin guidance which includes significant unsaturation charges. Second, to adjust our capital spending, we have moderated our 2019 CapEx plan to a range of $1.1 billion to $1.2 billion as the decrease is essentially impacting short-term capacity additions. At the same time, we are protecting our strategic programs that support our future growth. In 2019, we will maintain a solid capital structure. Importantly, as part of the proposed Annual General Meeting resolutions, our Supervisory Board is proposing to shareholders to declare a cash dividend of $0.24 per common share, payable to shareholders in equal quarterly installments. Now let's move to a detailed review of the first quarter. Net revenues decreased 6.7% year-over-year and sales of microcontrollers and memories, analog and imaging were lower. On the other hand, we had strong growth in power discrete and automotive as well as growth in digital and MEMS. On a sequential basis, net revenues decreased 21.6%. Compared to our midpoint target, we were lower by 90 basis points, mainly due to ADG revenues, below expectation in discrete and in traditional automotive products. As expected, all product groups decreased on a sequential basis. Our gross margin was 39.4%, 40 basis points higher than the midpoint of our guidance, mainly due to the lower sales pressure and a better than expected product mix. On a seasonally low quarter, our net operating expenses were $607 million, which is the range already shared with you in January. And as anticipated, they included some catch-up of 2018 R&D costs (ph). As a result, we maintained a solid level of profitability as our operating margin was 10.2%, net income was $178 million and diluted earnings per share were $0.20. Turning to cash generation. Our net cash from operating activities was $341 million in the first quarter. Our CapEx in Q1 '19 amounted to $322 million. After the cash outflow of $76 million of the acquisition of 55% of Norstel share capital, free cash flow was negative $67 million in the first quarter. We paid cash dividends totaling $54 million and executed a $61 million share buyback as part of our ongoing program. Now let's move to our second quarter outlook. In Q2, we plan to return to a sequential revenue growth. We expect revenues to increase about 2.4% at the midpoint. Sequential revenue drivers will include growth in imaging and power discrete. On a year-over-year basis, imaging, automotive and power discrete, mainly driven by high-voltage MOSFET and silicon carbide MOSFET, we expect that to grow, while general purpose microcontrollers and analog products are expected to be the main detractor, leading to a year-over-year decrease of 6.3% at the midpoint for our total orders. Our gross margin guidance is 38.5% at the midpoint. This represents a decrease of 90 basis points quarter-over-quarter and 170 basis points year-over-year, respectively. The main reason for the sequential gross margin decline, about 80 basis points, is related to unsaturation charges resulting from our actions to align inventory with our 2019 revenue expectations. We expect net operating expenses to be in the range of $625 million to $635 million in Q2 in a seasonally high quarter for this metric. Let me now share with you some important business, market and product dynamics we saw during the first quarter, starting with automotive. In Q1, this part of our business grew high single digits year-over-year. Late in March, we started to see some backlog adjustment in the traditional part of this business. This was due to the decline in the number of car registrations, especially in China. We believe that this trend is likely to be reversed based also on the recent market forecast. The demand for components supporting car electrification and digitalization, ADAS and MCUs, continued and continues to be strong. In car electrification, we had a number of significant design wins during Q1 for various electrical car and charging designs. These include smart charging controllers, smart power products for electrical vehicle application and the 32-bit safety MCU for an electrical vehicle battery management system for a major European player. For silicon carbide, we announced the agreement to acquire the wafer manufacturer, Norstel, on top of the multiyear supply agreement with Cree we'd already announced. In Q1, we also started to provide global car makers with sample of our hatchback drive module with silicon carbide embedded. In car digitalization, we continue to benefit from our close cooperation with Intel Mobileye. We won the program for the EyeQ5 from the European carmaker. We also won a major project in Japan with our 32-bit microcontroller family. Moving now to industrial, we see two different trends. First, the ongoing inventory correction in the channel, acknowledging short-term lead time. This is impacting our analog portfolio and general purpose microcontrollers. However, as I mentioned earlier, our business plan assumes better market condition in the second half, with March and April point of sales revenues at distributors showing sign of recovery. Again, this, coupled with the financial stimulus program in China, is increasing our confidence level for improved market condition in the second half of 2019. Second, power device demand is still strong with a capacity shortage worldwide. And here, we have a good backlog visibility. As you know, industrial is a key area of focus for ST, where we want to accelerate our growth. Progress was visible during Q1 as we continued to -- our strong push with new product introduction and key design wins across many applications. For example, we announced the next step in our strategy to build a stronger leadership position in embedded processing solutions for industrial. With the launch of our first STM32 microprocessor, we also extended our already broad STM32 ecosystem for microcontroller, with further advanced artificial intelligence features and with USB-C support. We launched new sensor for the industrial market, including a device with an embedded machine learning core for machine vibration detection. We also received awards from global player for industrial-grade motion sensor in asset tracking applications. Finally, Q1 also brought many design wins in power discrete for industrial applications. Let me conclude this products and market review. Sharing with you some points on personal electronics, where we target primarily smartphones, wearables and accessories with a selected approach. The 2019 global smartphone market is forecast to decrease slightly and foresee the introduction of first 5G devices. Our strategy is to bring more semiconductor content per device, and we will benefit from existing and new programs for smartphones as well as for wearable and accessories. During Q1, our imaging sensors business was clearly impacted by the anticipated strong seasonality, but we are progressing well on all our engaged programs with major customers. Imaging products are a key component of our selected approach to personal electronics, together with other sensors, secure solutions, power management and analog products. In the first quarter, we brought in wins for motion and pressure sensors and time-of-flight products in many flagship smartphones and wearables. We also won a motor driver in a smartphone from a major Chinese customer and other designs for smart power and analog products. To conclude my remarks, during the first quarter, we executed substantially in line with our expectation and we maintained a solid level of profitability. For the second quarter, we are confirming today our plan to return to sequential revenue growth. For the full year 2019, we plan for strong sequential growth in the second half of the year compared with the first half and across our industrial, automotive and personal electronics end markets. Our revenue expectation is based on clearer visibility since Q1. It is taking into account engaged customer programs, new product introductions and assuming improving market conditions. We are aligning our production with expected demand and moderating our CapEx. Based upon our plan, we expect to maintain a solid capital structure. Our objective in 2019 is to outperform our served (ph) market and deliver sustainable profitability. Thank you for your attention and we look forward to seeing you at our Capital Market Day in London on May 14. And we are now ready to take your questions. Q & A Operator - We will now begin the question-and-answer session. (Operator Instructions) The first question is from Aleksander Peterc from Societe Generale. Please go ahead. Aleksander Peterc - Societe Generale Yes. Good morning and thanks for taking my question. Just regarding your reduced CapEx outlook and that compared to your revenue guidance for the full year. So it would appear that versus what you had thought at the beginning of the year, we're in the same ballpark, higher revenue broadly flat. And so I'd like to know in which market -- in which end market you've seen this reduction that leads you to moderate somewhat your CapEx expectations for the year. Lorenzo Grandi - STMicroelectronics N.V. Good morning, everybody. I -- Lorenzo speaking. I'll take your question. Yes, you rightly say that in respect to the original expectation, we have some reduction. This reduction in term of revenues for the year has brought some moderate decline -- review of our capital. In which area? We see actually lower than expected the rebound, especially in the area of the microcontrollers. In the area of analog in which, let's say, we were expecting -- if you remember, at the beginning we were saying that we would see the Q1 as the worst quarter and then, let's say, restarting in Q2 some improvement in these products, while in Q2, still we see some difficulties in the area of microcontroller and analog. So these bring us to believe that actually the overall (inaudible) for these two lines will be less brilliant than we were expecting at the beginning. On top of that, we have also seen in Q1 some weakening in the market of the traditional automotive. This is one of the reason, as we are shorter in revenues in respect to our guidance. Aleksander Peterc - Societe Generale Thanks. And just to confirm on automotive, can you give us the growth rates for all of your automotive end markets in the first quarter year-on-year? Lorenzo Grandi - STMicroelectronics N.V. The growth of automotive in the first quarter, year-over-year, is about 10%, is in the range of 12%, 13% is -- so still a significant growth. The -- I would like to remind all of you that when I talk about automotive is not only the Group automotive, but all the sales that the Company does in automotive that is comprising of course also power with our silicon carbide, also microcontrollers, memories, all our products. Aleksander Peterc - Societe Generale Thank you. Lorenzo Grandi - STMicroelectronics N.V. Welcome. Operator - The next question is from Johannes Schaller from Deutsche Bank. Please go ahead. Johannes Schaller - Deutsche Bank Yeah. Hi, good morning. Thanks for taking my questions. In terms of the new design wins and then the ST Company-specific drivers for the second half, could you maybe give us a bit of an indication how much of the growth they will contribute in H2 and maybe, kind of make a bit of a kind of distinction between that and what you assume for the market? I think that would be quite helpful. And then also could you maybe give us an idea just on the underutilization charges in Q1 and what your plan for Q2 and also what your fab utilization would be for the two quarters? That would be helpful. Thank you. Jean-Marc Chery - STMicroelectronics N.V. So I will take the first question and Lorenzo will take the second question. So clearly, at the midpoint of our expectation for the full year 2019, we will grow our revenue in the range of, let's say, $1.25 billion, H2 versus H1. I have to say that 65% of this growth will be related to already engaged programs and new product introduction with customers and around 35% will be related to better market condition, both for some OEM and distribution channel. Lorenzo Grandi - STMicroelectronics N.V. About the utilization rate, the impact of unsaturation. In Q1, our gross margin came substantially with no unsaturation on the front end. If you want, we have around 20 basis point of inefficiency in back end related to the fact that we have some specific lines like, for instance, imaging in which the low level of loading brings us some impact in our gross margin. But this was fully embedded in our original, let's say, guidance, the level of 39% for Q1. The overall saturation for the front end for the fabs in Q1 was in the range of 88%. So they were fully loaded. And this was anticipated when we enter in Q1, saying that we would not, let's say, reduce the level of production in Q1 in respect to the fully loaded fab. Then in Q2, of course, we started to have some correction in term of loading due to the fact that we wanted to keep under control our inventory that has increased as you have seen during the course of Q1. So the level of -- the level of saturation of our fab will be more in the range of 83%. And as we said, this is impacting around 80 basis point, with the unloading charges, the gross margin of Q2. Johannes Schaller - Deutsche Bank Perfect. That's very helpful. And then for the second half of the year, we should assume this unloading chargers to go away, I would assume? Jean-Marc Chery - STMicroelectronics N.V. Well, for the second part of the year, we do expect still to have unloading charges. They will not go away immediately because the level of revenue that we do expect is significantly increasing. But notwithstanding this, we think that at least in Q3, we will still have unloading charges. Then in Q4, for sure, they will be much less than it would be in Q3 and in the second quarter, but we do expect that we have some unloading charges also in the second part of the year. Johannes Schaller - Deutsche Bank Understood. That's very clear. Thank you. Operator - The next question is from David Mulholland from UBS. Please go ahead. David Mulholland - UBS Hi. Thanks so much. Just wanted to ask on the inventory level that you've got at the end of Q1. If I calculated right, it's about 128 days. I just want to ask how you feel about that. Can you give us some color on the exact areas that you've built inventory up through the quarter? And given the comment you just made on what the utilization rate will be in Q2, should we still be expecting inventory levels to be increasing through Q2 or can you start to see that trending downwards in absolute terms? Lorenzo Grandi - STMicroelectronics N.V. Thank you for your question. About inventory, you're right. Inventory in Q1 increased significantly. This was embedded in our numbers. Of course, increased a little bit more than expected due to the fact that our revenue came a little bit shorter in respect to our midpoint. What will happen in the second quarter? In the second quarter, we do expect that the number of days of inventory will remain substantially flat. This means that there will be no significant reduction of inventory during the second quarter. We will start to see reduction, both in number of days -- significant reduction in number of days and in absolute value during the second half of the year. We do expect that to end the year substantially in -- with a number of days similar to the one we enter in 2019 what it was in Q4 2018, so in the range of at the end of 90 days or something like that. David Mulholland - UBS All right. Thank you. Operator - The next question is from Achal Sultania from Credit Suisse. Please go ahead. Achal Sultania - Credit Suisse Hi. Good morning, everyone. Just coming back to the point that you're making on visibility going into the second half. If I compare -- if I look at how you are guiding versus one of your peer groups in Germany, obviously, your peer group is talking about low single-digit quarter-on-quarter growth in June and September quarters. You are talking about 2.4% in June and then probably somewhere between 15% to 20% in Q3. Can you just help us understand like what are these new product wins that is giving you this visibility going into the second half? Can you give us some more color which product areas, which customers? Any color on that would be helpful. Thank you. Jean-Marc Chery - STMicroelectronics N.V. About the second half for engaged programs and new products, clearly, the main contributors are product related to automotive and personal electronics end markets. As you know, on automotive, it is clearly related to electrification of the car and digitalization of the car. On personal electronics, it is a blend of our selected approach on sensors, of course, imaging sensor, secure solution, but analog product as well. On the other side, from a market condition, obviously it is more related to industrial and mass market and the product involved are more general purpose, analog and microcontrollers. Achal Sultania - Credit Suisse And how should we think about the margin profile of these new design wins? Is it going to be similar to the Group average or a bit different? Jean-Marc Chery - STMicroelectronics N.V. This -- okay. We do not comment the gross margin of our new programs and product. Achal Sultania - Credit Suisse Okay. Thank you, Jean. Operator - The next question is from Stephane Houri from ODDO. Please go ahead. Stephane Houri - ODDO BHF AG Yes, good morning. A question on the second half, again. If we look at what you're guiding, basically it's probably above 25% of sequential growth, H2 versus H1, and when you look at history, it's really never happened before unless in very good market years and you've just commented that two-third of the growth was coming from engagement from your customers and new programs. So, where do you think your growth should be at the end of the year if the recovery does not really happen? And what will be the impact on the gross margin going forward? Jean-Marc Chery - STMicroelectronics N.V. So, thank you for your question. I would simply say that the range of revenue we shared today with you from $9.45 billion to $9.85 billion are already embedding risk and opportunities. More than that, today I will not comment. So we can comment gross margin within this range and maybe, Lorenzo, you can give some color. But I cannot comment, okay, what are this range, because we do believe today with, again, a better, a clearer visibility than entering in the year in January or in December, with a clearer visibility we do believe that this range of revenue already embedding the risk and opportunities. Lorenzo Grandi - STMicroelectronics N.V. About the gross margin, let's say, we have this range today. Our plan is moving between these two -- $9.45 billion, $9.85 billion. Of course, gross margin, it depends on the level of the growth that we will be able post in the second half also because there will be, as I said, there's some level of unsaturation. Of course, I will be glad that during three weeks from now, during the Capital Market Day, to let's say, drive you a little bit more in detail on the dynamics that we see. What I can say is that, if we are substantially at midpoint of this range, we see something in term of gross margin slightly above 38%. If we would fall in the low end of the revenue range, most likely we see something that is closer to slightly above 37%. Stephane Houri - ODDO BHF AG Okay. And -- Lorenzo Grandi - STMicroelectronics N.V. On the high side, let's say, for sure there will be something that is better than this 38% plus and we will get back closer to 39%. Then as I said, we will have the chance in three weeks from now to go a little bit more in detail of the dynamics about this important parameter. Stephane Houri - ODDO BHF AG Okay. And sorry, just a follow-up about the OpEx because you -- it seems that the range is higher than you previously guided. Is it the new guidance, the $625 million to $635 million? Lorenzo Grandi - STMicroelectronics N.V. No, no, no, no, no, no. Maybe -- what I want to -- the guidance that I gave $620 million, $630 million (inaudible). It means that the full year -- let's say, if you take the -- our expenses full year and you divide it by four, you will find that something that will be in this range, between $620 million and $630 million. So it is in the range. Of course, Q1 came at much lower, $607 million, net expenses. Q2, we do expect to be for seasonality a little bit higher. Q3 will be a little bit lower and Q4 will be. So at the end, for Q2 is true, is a little bit higher than the average. But on the average of the year, by quarter, it will be between $620 million and $630 million. I don't know if it's clear what I tried to say. Stephane Houri - ODDO BHF AG It is. Thank you very much. Operator - The next question is from Anthony Stoss from Craig-Hallum. Please go ahead. Anthony Stoss - Craig-Hallum Capital Good morning, gentlemen. Maybe just to put a finer point on your second half growth. Can you share if you expect your content with your largest smartphone customer to be up substantially kind of generation over generation this fall's phone? And then also if you wouldn't mind commenting about the number of expected silicon and carbide customers by the end of 2019 and maybe how you see that ramping over the next few years? Thank you. Jean-Marc Chery - STMicroelectronics N.V. So as I told you in my previous speech, yes, we increased our semiconductor and value content with our major customer addressing the smartphone market. So I confirm it to you. Then about silicon carbide. So our revenue target for 2019 is to be about $200 million, so to double the revenue, addressing MOSFET but also in a certain extent, diodes. Mainly this revenue will come from our engagement with our main customer. But important to say again, and to share with you that we are already engaged with 30 important programs with various customer across the various region in the world to address both electrification of the car and the industrial end market. But clearly in 2019, the main part of our revenue will be linked to our already engaged main customer. Anthony Stoss - Craig-Hallum Capital Thank you. And as a follow-up, Jean-Marc, can you -- you already talked about seeing signs of recovery. Is there a particular region that you haven't seen a recovery yet? Jean-Marc Chery - STMicroelectronics N.V. Well, it is clear that from a region point of view, Europe is in term of trend is a weaker region. Anthony Stoss - Craig-Hallum Capital Great. Thank you. Operator - The next question is from Jerome Ramel from Exane BNP Paribas. Please go ahead. Jerome Ramel - Exane BNP Paribas Yeah. Good morning. Two question. The first one, what is the outsourcing level and how should we model it going forward just to understand how to reconcile the comment you made on the gross margin going forward and the utilization? If you look at anything, the new -- yeah. Lorenzo Grandi - STMicroelectronics N.V. Sorry. The question is over? Or -- I can answer, let's say -- I will answer about the outsourcing and then if you have a follow-up question, we can listen. About the outsourcing, in Q1 the outsourcing was in term of front-end outsourcing that what is the most important for us, in value of production was in the range of 17%. 17% of our value of the production was coming from foundry in Q1. What will happen going forward there? There will be two -- let's say, two-fold. One side, we have some repatriation that will be finalized and not very significant, but still we have some flexibility. On the other side, some of the programs that will fuel the growth in the second part of the year will be, let's say, from foundry. So that means that at the end, the level of the percentage of what we are outsourcing in front-end in term of value production will remain substantially flat in the course of the year at this level. Jerome Ramel - Exane BNP Paribas Okay, thank you. And just a quick follow-up for Jean-Marc. If I look at your guidance for the full year, you will exceed the full year with a substantial higher level of revenue compared to -- even compared to Q4 last year. So the question for investors will be, how sustainable are all these new designs you've signed and you're going to ramp up in the second half of this year going forward? Lorenzo Grandi - STMicroelectronics N.V. How sustainable is the level of the design in the -- Q4 will be -- the sustainability of our design. Jean-Marc Chery - STMicroelectronics N.V. These design are sustainable and sticky, okay? As far as it concern our engage -- current engaged programs and new product, but of course, okay, you know that all this product have a lifetime as any semiconductor designs. But today, okay, this product and this program are sustainable. Of course, okay -- again, for next year, okay, you will have seasonality in the year as we are facing this year and as we faced, okay, during the past year, but the sustainability of our programs today are not questionable. Jerome Ramel - Exane BNP Paribas So just to be clear, are we talking about multiyear program or how should we understand the sustainability of this new product and new programs? Jean-Marc Chery - STMicroelectronics N.V. Jerome, okay -- I guess for the first time, okay, we gave the full year expectation in April. Okay, maybe next year I will give three years', let's say, visibility, okay. Okay, we have a road map. We have a product road map. We have a technology road map. And I do believe that, okay, this product and technology road map are well matching with the specification and road map of our customers. But as you know, okay, semiconductor is a competitive market and for us there is no other way to be the best in the market we address. That's the reason why on the smartphones, wearable and accessories, we are very selective, because we want to offer the best products and the best technology, which is the best driver to be sticky and sustainable. Jerome Ramel - Exane BNP Paribas Okay. Thank you very much. Operator - (Operator Instructions) The next question is from Matt Ramsay from Cowen. Please go ahead, sir. Matthew Ramsay - Cowen and Company Thank you very much. Good morning. I guess it sounded like analog and MCUs were a little bit more challenged (inaudible) longer through the first half of the year than you guys had potentially thought about that part of the year. Maybe you could talk a little bit about the reasons why you think that might be not surprising given maybe a little bit more cautious tone out of TI last night as well. And then the second part of the question is, do you feel like you've now started shipping to end sell-through levels and there should be some inventory build in the back half of the year at the distributors? Or are we still waiting to see signs of that? Thank you. Lorenzo Grandi - STMicroelectronics N.V. Are you going to take? Jean-Marc Chery - STMicroelectronics N.V. I'll take the first question. Again, for the first question, what we have seen in Q1 and the reason why we said the visibility is more clear in that we have seen no sign of, let's say, a short-term demand increase for Q2 for mass market and industrial market and of course impacting the capability to grow of our analog product and microcontroller. And I have to say, this view is well shared among our peers, okay. That -- okay, the short-term demand is basically flat. However, as I already explained in some previous call, in order to understand the market dynamic, especially when you are facing a soft market condition as of today, we short backlog visibility, but basically the short backlog visibility is not alarming ourselves more than that. It's simply the translation of short lead time. So when the industry is offering short lead time, customer offer short backlog visibility. What is important for us is to monitor the point of sales revenues of our distribution channel. And as I told in Q3 and Q4 last year, when we have seen the first sign of POS decreasing and the first sign of inventory correction and as an impact, revenue decreased for ST. Now in March and in April, we are seeing the first positive sign in POS. It is not yet translating in short-term better demand for ST, why? Because there is still some inventory correction and still people are cautious on inventory level in the distribution channel. But what is very positive is that March and April has shown positive trend in POS. This is making us comfortable, coupled with the fact that the incentive provided by Chinese authorities about taxes have not been taken into consideration in Q1. People wait to see what is the materiality of this incentive. So with this incentive on taxes by Chinese authorities, we do believe that the dynamic of the market on top of what we have already shown in Q1, make us in the good position to expect better market condition in the second half. Then, as I told, okay, to -- following your question from one colleague (ph), now, in our revenue range we have taken in account opportunities and risk linked to what we call better market conditions. But we do believe that we have really a good confidence level in this range of revenues, two-third linked to programs, one-third linked to better market condition, both for our distribution channel and some other OEM than those which we are engaged on specific programs. Marco Luciano Cassis - STMicroelectronics N.V. This is Marco speaking for the second part of your question. Of course, we are expecting that by the end of the year, the level of inventory at the distributor will be lower than what we have now. But more important than that, thanks to the lower level of inventory, we expect this to be translated in more demand to support the increase of the POS by end of the year. Matthew Ramsay - Cowen and Company Got it. The additional detail was really helpful. Thank you very much. Operator - Today's last question is from Guenther Hollfelder from RobecoSAM. Please go ahead. Guenther Hollfelder - RobecoSAM AG Yeah, many thanks. Just on your automotive business, you mentioned that silicon carbide growth this year is mainly driven by your largest customer. I assume that you're the exclusive supplier for the silicon carbide MOSFET. And we also -- I think there were some indications recently that this technology also now being used in other models or previous models of your largest customer. Is your growth, let's say, in the second half also including that you are penetrating these other models at your largest customers with your technology? Jean-Marc Chery - STMicroelectronics N.V. So the $200 million goal which is part of the full year 2019 revenue range I shared with you today is encompassing the full customer demand. Guenther Hollfelder - RobecoSAM AG Okay. Maybe a second one, if you allow. I mean, right now there's a lot of discussions in Europe also regarding V2X using C-V2X technology or the WiFi-based V2X and I remember in the past you had some agreements -- foundry agreements with Autotalks. Could you update us on this situation here and what's your road map and also let's say, outlook for related sales? Marco Luciano Cassis - STMicroelectronics N.V. Yeah. Marco speaking. As you correctly said, we have an ongoing collaboration with Autotalks and we are very happy about how the collaboration is ongoing. And of course, having deployment around the world of V2X standards, we'd say, we are well positioned to leverage on what will happen in the market. But again -- and it is clearly widening and increasing. But, is your question -- before it was about the WiFi only but now it's covering both WiFi and 4G, 5G connectivity. Guenther Hollfelder - RobecoSAM AG Yeah, yeah. And you are mainly engaged with Autotalks on the WiFi side? Or-- Marco Luciano Cassis - STMicroelectronics N.V. On both now, both sides. Guenther Hollfelder - RobecoSAM AG On both sides. Okay, good. Many thanks. Celine Berthier - STMicroelectronics N.V. Okay. With this, Myra, if there is no -- is there any further questions? Or -- Operator - There are no more questions. Celine Berthier - STMicroelectronics N.V. So I think with this, this will conclude our call for today. Jean-Marc, do you want to -- Jean-Marc Chery - STMicroelectronics N.V. No. Again, we will -- very pleased, okay, to receive you in London on next -- May 14. Clearly, we will -- really pleased to discuss with you our plan. All we want to improve our leadership in the market we address, all we want to accelerate in industrial, all we want to improve our leadership in embedded processing solution for industrial, all we want to take advantage of our selective approach in the smartphone, wearable and accessories, I think it will be a great opportunity for all of us to share the ambition of ST, again, to outperform the market and being a sustainable, profitable company, growing better than the market we serve. So looking forward to see you in London. I wish you a good day. Operator - Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.