Welcome to the SST fourth quarter and fiscal year 2007 Earnings Call. At this time all participants are in listen-only mood and later we'll conduct a question-and-answer session, instruction will be given at that time. [Operator Instructions] and as reminder, today’s conference is being recorded. I would now like to turn the conference over to your host President and CEO, Mr. Bing Yeh. Please go ahead sir.

Thank you all for joining us today for SST’s fourth quarter and fiscal 2007 conference call. I am Bing Yeh, President and CEO. With me today is a Jim Boyd, Chief Financial Officer. Jim will begin the call today with a financial discussion. Following that, I will discuss the status of the company and the current market conditions. Then we will open up the call for questions and answers. Jim?

Thanks you, Bing. During the course of this conference call, we will make projections and other forward-looking statements regarding flash memory and non-memory market conditions, the company’s future financial performance, the performance of our new products, the company’s ability to bring new products to market, the company’s ability to develop new products, the company's ability to secure manufacturing capacity, inventory levels, ASPs, margins, our tax provision, and expected tax rate and other items as may be appropriate. Please keep in mind that these statements are predictions and that actual results or events may differ. Please refer to the company's annual report on Form 10-K for the year ended December 31st 2006 and other filings made with the SEC for additional information in risk factors, which could cause actual results to differ materially from our current expectations. Now, our fourth quarter and fiscal 2007 financial results. Net revenues for the Net revenues for the fourth quarter were $107.4 million, compared with $107.5 million in the third quarter of 2007 and with $118.2 million in the fourth quarter of 2006. The tables in our press release will give you information regarding the distribution of our revenues by geographic location and by application. The following discussion is intended to highlight the changes in these areas. Sequentially, revenue from wireless communications increased by 13%, while revenue from our digital consumer applications declined by 10%. Internet computing applications declined by 6%, and networking applications declined by 15%. Geographically, our product sales continue to be focused in Asia, both China and Taiwan combining to represent 67% of our sales this quarter. Our product sales outside of Asia to Europe and the United States represented 12% of our sales this quarter. Revenues from technology licensing for the fourth quarter were $11.7 million, up by 21% from $9.7…

Thank you, Jim. 2008 represents for us a new beginning on many fronts. Having completed our stock option review and become current on all SEC filings, we are able to close a difficult chapter in SST's history and focus our attention on executing an aggressive strategy for growth that we began more than three years ago. With the recognition that our core memory business would continue to experience ASP pressure that would limit it's revenue growth potential, we began in late 2004, investing in product and technologies that would yield ASPs that's were substantially higher than current business. While our memory business continues to be healthy, we believe that a strategy of diversification would allow for better growth opportunities for our company and more return for our shareholders. Our investment has been focused on both internally developed products that have innovative features as well as companies offering technology and products that enhance our competitive positioning. 2007 was a key year in the execution of that strategy, as we began to introduce and bring to market the first product in a series of both non-memory and non-commodity memory products resulting from our investments. The first product introduced in late 2006 and brought to market in 2007 was the NANDrive. A high performance embedded flash solid state drive. NANDrive contains an integrated ATA controller and NAND flash die in a multi-chip package and it is used as a base computing block of storage for variety of applications such as GPS devices, mobile internet devices, camcorders and portable media players. It is also ideal for many industrial applications such as POS terminals, industrial PCs, medical and instrumental devices. It is currently available in multiple densities up to 4 gigabyte, with high density 8 gigabyte, 15 gigabyte, and 32 gigabyte in development. To date,…

Thank you. (Operator Instructions) Our first question will come from the line of Alexander Paris of Barrington Research. Please go ahead.

Good afternoon, Jim. I think there is a chance to go quickly through all these charges and one-time write-offs and so forth, but adjusting for all of those, do you have rough idea about what the operating earning-per-share would have been excluding all of the one-time and non-cash items and so forth?

Yeah, I do. Unfortunately if I give out that kind of information, I get into the land of pro-forma or non-GAAP numbers, and then I get -- yeah, so I tried to give all the number that you could calculate it yourself.

Okay.

If you want, I can review them with you.

Okay. I'll get back to you on that. Just to review, we talked a lot about all these new products. It sounds like from some of the core products that the NANDrive will start shipping in the second half of '08, FlashMate and All-in-One not until 2009, and the MelodyWing, I don't think you said when you expect that to start?

No, no. For NANDrive and our MelodyWing, we expect the revenue contribution in the second half.

Okay.

Actually our NANDrive, we already get some small revenue base. It going through a very gradual ramp, because of the nature of this product, and also the folks of our market segment, and our MelodyWing, we expect to get our revenue contribution in the second half, more like in the later part of this year. And then the All-in-OneMemory, and the FlashMate, since we are planning to have a commercial sample available in the second half, so we expect the revenue should be starting in 2009.

So you had, you said, 20 wins in the NANDrive, so you don't have any wins yet in the FlashMate or the All-in-One, is that correct?

For FlashMate, we just announced that technology last year, and the product is not even taped off yet, and we will need to announce the technologies in order to walk with our several OEM customers to do some joint development. That was the reason we announced the technology first, then follow by the -- then we solicit the input from those potential customers in order for us finalize the specification, so we can taped off in the second quarter this year, and we expect a commercial sample to be available in the third quarter. So, as a result of that, and also the long time to get design in, we expect the revenue contribution should be in 2009.

Okay, just one another question on the ASP: the selling price. Your standard, your traditional low density, did you say is -- was that ASP up 4% in the fourth quarter sequentially, did you say?

Yes, but that was including some product mix. In other words, they are different type of densities, but if we remove that product mix, then actually it's about 1% reduced compared with the third quarter of last year.

So putting all your products together, you did have your ASP; you did have a increase sequentially?

Yeah.

Okay. What about unit growth? For a long time you were getting strong unit growth in the low-density area, but declining revenue -- is the unit growth still rising?

No, unit had no growth during the fourth quarter. As we said previously that we had capacity constraint.

Okay.

And as a result of that, we are focusing in some area that is more profitable, and we also focus on certain products that will also have a high density to become more wafers. So an allocation of those situations we basically walked away from many high-volume, commodity business.

Okay.

And because of that, that is going to impact our -- coming back to those accounts this year when our capacity becomes more available.

Okay, thank you very much.

Thank you.

Thank you, and next will go to the line of Eric Singer, Riley Investment Management. Please go ahead.

Hi guys, can I get a break-out of your memory, non-memory revenue on the product side?

Non-memory revenue is still very small. Those non-memory revenue stream was coming from the some FlashMate will commence with the product as well as the Power Amplifier individual components from our data communication group. Actually, though, there is one more item, which is Smart Card ICs, which also have small revenue contribution. So, roughly it is about 10% of our product revenue. That is right.

And how that will break out on the gross margins for that versus your memory business?

Those are higher than our memory business.

Okay. I was just wondering for this quarter?

I don't have that numbers versus by memory and non-memory.

In the September quarter, the non-memory business was around 21%, so it is couple of hundred basis points below memory. Should that trend continue this quarter?

I don’t even see that right in front of me, but I believe it's a about the same range, I would say compared with last quarter.

Eric, I can't find that but unfortunately we didn't have it. We have not prepared the stuff.

We could do of with that one, that’s okay.

Okay.

Is there any way you guys can quantify how much revenue you walked away from in this quarter due to the capacity constrained environment, and how that is going to impact Q1 if you did have access to capacity on some of the high volume memory products?

It's difficult too…

Do you think I would have known those numbers.

In the tens-of-million dollar range.

In the tens of million per quarter, or…

Per quarter. Also there is only two quarters we had that problem.

All right. So we can’t have the [lost fees]?

So we lost this, speaking through memory, we lost about between $20 million to $40 million of revenue opportunities due to the shortage.

Okay. And what type of margin would that revenue have come in, would it have come in slightly below what we had seen you guys do on the memory side in the last two quarters?

No. No, those are not good margin, not high quality revenue.

All right.

It's a good strategy that we decided to walk away from those business.

Okay. On your licensing business, embedded in your guidance for Q1, is there any way you could sort of guide sequentially on the licensing business, if you accept the one-time upfront payments?

We expect that royalty will continue to grow, and this is overall, probably going to be less than what we get in a fourth quarter, simply because the upfront fee is not going to be recurring in the first quarter.

Right. Then as we tape out, Jim maybe you can help me, I'm just going through my notes from what you said, there was $1.1 million in upfront, so if I back that out, it looks like royalty was 10.6, am I looking at that correctly?

Yeah.

Okay. So are you saying, you think there will be growth after 10.6 in Q1?

I think you just think of it as about flat.

Is about flat? Okay, great. And on a year-over-year basis in entire '08 over '07, what type of growth would you expect on the royalty front?

We expect more than 10% increase.

Okay. All right, great. On OpEx, guys, how should we be looking at OpEx, are you taping out a lot of products this quarter, and is that what accounts for the sequential increase in operating expenses in light of the down revenue?

Basically, we are going to have lot of product tape out. Essentially, this new product is on a more advanced technology, and mask cost is quite high. In the past we were working at a film 1A, 0.25 micron, but now all the new technology we are working with, either 120 nanometer or in the 90 nanometer range. So the mask cost is substantially high.

Right, so as you keep out keep out these products, should we expect in the back half of the year, operating expenses to go back down?

The trend seemed to me is going to go down, based on our current plan.

I'm sorry. Can you say that again, Bing?

Based on our current plan for this year, the following year will go down, and it will be because of the heavy investment of some mask cost in the beginning of the year.

Right, and are these mask costs going to be with you guys through the June quarter as well?

Yes, I think so.

Okay, and you historically had indicated that you expected to drive 30% of your revenue in fiscal '08 from these non-memory products, and it looks like based on the guidance you are giving FlashMate and some of the NANDrive in '09. It looks like that’s probably not a number that we should be relying on. Is that correct?

Yeah, we will say that on a quarter basis and not a yearly basis. There is no way we can we can reshuffle 2008. So, this is, we expect, that in previous -- we were thinking about by end of the year we probably can reach 30%. Coming from the non-memory business, but it is a big uncertainty due to the design cycle already involved. Although we have a taken a lot of customers, interesting in evaluating our technology and even to some actual work to designing but we have no assurance that those design wins, designs confined to a design win. So, at this point, we cannot give a concrete determination when that goal can be achieved. But I would say if not in the late fourth quarter this year, it is going to be happening in next year. Sometime you can’t give the coming because of these new products. Particularly due to the higher ASP nature of this type of products.

Right. Okay, let me just ask you two other quick things, then I will let somebody else jump in. Bing, maybe you can give us some perspective on what's going on macro. Your guidance is down in the sequentially-down period. There are reports out on GPS guys to the handset guys -- that business is really turning down here. Have things deteriorated from your vantage point over the last couple of weeks? Can you give us some perspective on what are you seeing?

We see some softness, but our longer-term projection was not that bad from our customers. Probably that we cannot depend on. What we can see is that near-term, we are going to see some softness. And we also see our competitors also have inventory image in NOR. That certainly going to impact the NOR business for near-term. But as we said, good news for us is that we are sitting at a very low inventory level.

Right. Okay, but are things deteriorating as the month of January went on, or as things have been pretty stable the last couple of weeks?

Well, I know, this is just information [counsel] sent to me the forecast from our sales force is changing. Month-to-month is not -- I don’t see that weekly data you are asking for.

Okay.

I think it's the monthly changes from our sales-force forecast.

Great. Thanks a lot.

Thank you.

Thank you. And our next question will come from the line of Richard Shannon of Northland Securities.

Hi, guys. I'm at the airport, so I might be a little loud, so I apologize. I just got a probably one or maybe two quick questions for you. In response to one of the earlier questions about licensing revenue, I think the previous caller was wondering about the going run rate of royalty revenues in the first quarter and beyond, and I think you mentioned a number of 10.6. I just want to confirm that you expect that to be relatively flattish into the first quarter, is that right?

Yes.

Okay. Is there an expectation that investors should have with that number, that's the kind of number we should expect to see going forward after the first quarter as well?

That number is going fluctuate. Remember the first-quarter number more reflects the fourth quarter number by our licensee base. So even though the first quarter for all of the business generally are slow, but the way we recognize our revenue is really for one quarter earlier of those licensee income after we receive the report from our licensee base.

Okay.

That will include the upfront fee. So they are very hard to predict, and they could make fairly significant differences. They were $1.2 million last quarter. They can make a difference in the quarter.

All right. But even the 10.6 seems to be substantially higher than what we've seen in the past, and if that's the rate that can continue and even grow that would certainly be a nice thing to see. So I'm just trying to confirm that that's kind of a new level that we should see from what you can grow year-over-year?

No. Richard, as I said, that number in fact reflects the fourth quarter income from our licensee base. There is seasonality involved. So, after that we expect the licensing revenue, I mean larger revenues should go down a little bit because of seasonality. But if you take a year-over-year basis, we believe that our licensing revenue should continue to grow.

Okay. A second quick question on non-memory revenues and gross margins. I know in the filings you put out over the last few quarters, the non-memory revenue gross margin has actually been a little bit lower than historically, and even below the product gross margins. I'm curious as to what's the cause of that, and as your newer products that you talked in your opening thought whether that should drive gross margins on these non-memory products higher?

The historical non-memory product is associated with different type of products than what we are going to introduce down the road. Those non-memory products, including the power-amplifier products, which I believe we continue to have a good gross margin, and also some fresh microcontroller products, which also have good margin, but there is one segment which is very weak that is smartcard ICs. As you know, the overall smartcard IC business is in the whole worldwide market, and that's because of lot of competition in that area. And ironically, that was caused by our technology, the success of licensing business. We have been able to enable quite a few surprises. By using our technology, their costs can be substantially reduced, and then, cause the smartcard IC business to go down because of the depressed ASP. However, our strategy going forward is to design more higher-valued product based on the smartcard IC technology we have. So we hope with our new product introduction in the future we will have a good return in that area.

Okay. Last question for me, in the past, when you haven't been under stock option, you've historically come to investors twice a year to talk about your yearly revenue and earnings goals. I know you haven't talked them out today, but are you going to do that again at some point in the near future like you've done in the past, in June or in November?

We have not decided whether we want to continue to provide that. Because of our poor quality of our projecting the past, we have decided we want to reevaluate our strategy in terms of providing the long-term guidance.

Okay, it's fair enough.

Especially when we start to ramp-up quite a few new products, and it is extremely difficult to predict the outcome of those new products.

Okay, fair enough. Thanks a lot, guys.

Thank you.

(Operator Instructions) Now we'll go to the line of Bryant Riley of Riley Investment Management.

Hi, guys. Just one comment. I'm glad to see you guys announced a buyback, and that's a great use of cash. I guess, Bing, I just want to emphasize; my sense is that you are in an investment period on your new products, and so given the seasonality, downtick, you'll lose a little bit of money. In the last quarter also you made like $8 million or $9 million in EBITDA, and the way that we've looked at it and we've been pretty clear, you're not paying a lot of money for the enterprise here. And my sense is, in this environment, you're going to get an opportunity to buy back a lot of stock, and if you are confident about the business in six or nine months and going forward, I would just urge you and your Board to buy aggressively at an enterprise value close to zero. So hopefully, the focus of the company will be doing that and realizing that the best use of cash is your own stock. We've entrusted the company with a lot of cash, you guys have lot of cash, you have equity investments, and I think that would be the best way to get it back to shareholders. So just want to emphasize that to you and curious if you any comments.

Bryant, appreciate your input, and I certainly agree with a lot of your viewpoint. And at this time, the Board approved a $30 million of buyback, and that also take into consideration of the uncertainty of the economy this year. If it turns out the economy is not as bad as we thought, I think we may do more of purchase. Of course, we also need to take into consideration of the cash required when we start to ramp up the new products. So they are some of the factors we need to consider. In any case, I appreciate your inputs.

Yeah. My sense is if the economy is better, your stock price won't be here. So there is an opportunity kind of view you've got to take, but I appreciate it. Thanks, Bing. That's all I have.

Thank you.

Anything further, Mr. Riley?

No.

Thank you. And next we'll go to Sal Kamalodine of B. Riley & Company.

Most of my questions have been answered. Just wondering if you can comment on the competitive dynamics you are seeing in the industry currently.

Are you talking about the NOR business?

Yeah, the NOR business.

Yeah. The NOR business continue to be very competitive. Essentially the demand for NOR, low-density NOR, as well as high-density NOR, actually is still there. It's very strong demand. The units continue to grow overall industry-wide. So to stay in this business, I believe requires a lot of technology advances as well as superiority in the technology itself. And I believe we have the right technology. And by working in a couple of new foundries to order smaller geometry and even go to 12-inch wafers, we have put us in a very competitive position. Overall, I have confidence that we can be an eventual survival in this NOR business. I believe in next few years you are going to see a shakeout of companies that cannot survive in this competitive environment.

And as you look out over that time horizon, where do you think your focus will be in terms of densities? When you define lower densities and wanting to stick around the stick around the lower densities, where does that end up as you look at couple of years out and where are the bigger players like Spansion and Samsung, where are they going to be if you look out a couple of years in terms of densities? Is there a risk that they may come down into your part of the spectrum?

We will continue to focus on the low-density portion. Today, we already have the product at a 64-megabit level. And when we continue to shrink our geometry, we may go up to 128 and mostly to 256-megabits. Above that, I think the market is not going to be attractive. And the main reason in my belief has always been that for those high density memories, NAND would be a much better alternative in terms of costs. And by using NAND to get up with some sort of consulting that we also offer, we can create a product that essentially can replace a high density NOR. In fact, that was one of our strategies in driving the NAND module type of products. So, overall, we would stay in the low density, and then expecting the high-density portion going to shrink. And for us, since we can develop product like all-in-one memory as well as the other future product that can address the need of a high density code storage market, we believe we can have a great and a bright future in this business.

Okay, thanks.

Thank you.

Thank you. And there are no further questions in queue. I'll turn it back to our host for closing comments.

Thank you for participating in this conference call. As always, feel free to contact Leslie Green, Investor Relations, Jim Boyd or me directly if you would like to arrange a call or meeting. We thank you for your continued interest in SST.

Thank you. And ladies and gentlemen, this conference will be available for replay after 3:30 PM Pacific Time today until February 13 at midnight. You may access the AT&T executive playback service at any time by dialing 1-800-475-6101 and entering the access code of 907638. International participants may dial 1-320-365-3844. That does conclude your conference for today. Thank you for your participation and for using the AT&T executive teleconference service. You may now disconnect.