Welcome to the SST second quarter 2008 financial results conference call. (Operator Instructions). I would now like to turn the conference over to your host, Mr. Bing Yeh, President and CEO. Please go ahead.

Thank you all for joining us today for SST’s second quarter 2008 conference call. I am Bing Yeh, President and CEO. With me today is 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 current market conditions. Then, we will open up the call for questions-and-answers. Jim?

Thank you, Bing and good afternoon everyone. During the course of this conference call, we will make projections or 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 technologies, the company's ability to secure manufacturing capacity, inventory levels, ASPs, margins, our tax provision and expected tax rate, and other items as maybe appropriate. Please keep in mind that these statements are predictions and that actual events or results may differ materially. Please refer to the company's Annual Report on Form 10-K for the year-ended December 31, 2007 and any other filings made with the SEC for additional information and risk factors which could cause actual results to differ materially from our current expectations. Now, our second quarter 2008 financial results are as follows. Net revenues for the second quarter were $83.7 million compared with $81.1 million in the first quarter of 2008 and with $99.3 million in the second quarter of 2007. Product revenues for the second quarter of 2008 were $71.1 million, compared with $69.7 million in the first quarter of 2008 and with $90.3 million in the second quarter of 2007. 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 decreased by 6%, while revenue from our digital consumer applications increased by 17%. Internet computing applications declined by 3%, and networking applications increased by 4%. Geographically, our product sales continue to be focused in Asia, both China and Taiwan, combining to represent 70% of our sales this quarter. Our product sales…

Thank you, Jim. The softening of the market that we began to see in the first quarter continued through the second quarter, particularly in the cell phone market in China. However, our focus on retaining market share, and positive result in our licensing area, enabled us to record revenues and EPS at high end of our guidance range. In our core business, which includes non-memory products and the license revenue from our SuperFlash technology, demand for our product and our licensee's product is growing. Our non-memory unit shipment increased from Q1 by 12%. As a segment, Internet Computing unit shipments were down by 7%, mainly caused by the precipitous drop in hard disk drive applications. Other applications in the Internet Computing segment, including notebook PC, desktop PC, printer and monitor shipments were strong. Digital consumer unit shipments, increased 24%, strongly rebounding from the first quarter, driven by the recovery in portable media players, digital camera, module, video game and the DVD-RW drive shipments. Networking unit shipments increased by 20%, mainly due to the strong growth of our [PA] product in the wireless LAN applications. In the wireless communication segment, unit shipments increased by 17%, driven by strong shipments in Bluetooth, smartphone and the smart card IC shipments, offset by the continued weakness in the GPS and low cost phone applications. ASP also trended down in the second quarter, and is expected to continue to decline over the next several quarters. This is the result of both increasing competitive dynamics in the overall NOR flash market, as well as our force on regaining our market share, as we ramp up new capacity at Powerchip. Turning to gross margin. During the second quarter, we benefited from strong licensing revenue and that positively impacted our total gross margin line. Over the next several…

(Operator Instructions) Our first question comes from Richard Shannon with Northland Securities. Your line is open.

Hi, guys. How are you?

Pretty good. Thank you.

Good, Bing, I want to follow-up on one of your statements in your opening script regarding gross margins. I just want to make sure I caught the exact statement and maybe a couple of quick follow-ups on that. You were you talking about gross margins over the next couple of quarters, next few quarters declining, I want to make sure I understood whether that includes or does not include the effective licensing and whether that includes the effective transition towards 120 nanometer manufacturing?

Okay. We are talking about the total gross margin. Because we expect our memory portion of business, the margin of that is going to decline because of the current market environment, and also, which is not really going to grow. So, it is not having a bigger contribution to the total revenue mix. So, as a result, we expect our total gross margin to decline.

Okay. And did you mention that within your revenue guidance for the third quarter that you're expecting licensing to come down modestly? Is that what I heard?

Yes.

Okay.

In flat to moderate decline because it is very difficult to predict that. Our licensees don't give us projection. So, it’s very hard to look into that.

Sure. And as I look at what’s you commented about last quarter, and I believe I asked the question on your conference call, you mentioned you thought licensing would be flat perhaps down and obviously you had a very good quarter and even if you back out the upfront fees, your royalties were up quite nicely. Does the environment suggest that you could have a similar difference from your opinion right now that you did last quarter?

As I said, it is very difficult to make that, I know we don't have visibility. That's the main issue. Because our licensees normally does not give us a projection and also, last quarter I commented on that, based on the judgment that our royalty revenue typically is out one quarter and after that our customer ship their product. So, the product should be in the first quarter, then we should expect the second quarter. Normally first quarter in January a down season for almost all major semiconductor suppliers, that's why we projecting our second quarter license revenue, was going to go down. But since actually our licensees, they have a much stronger revenue shipment to some particular accounts. That contributed the increase in our licensing increase.

Okay, and maybe just a couple of quick questions on your new non-memory products. You talked about the NANDrive product, quite extensively over the past couple of quarters, which is great to hear. And I think you mentioned you expect the sales to double here in the third quarter. At what point should we expect to see a level of volume production into a significant material number of customers? I presume we're really seeing a sampling in pre-production volumes at this point, right?

Yes, but at this time, we also have a couple of constitutes higher volumes, so that constitutes the current growth. Now I would say the overall growth we had to wait until our broad base customer begin to ramp up. And that is going to be sometime hopefully next year, or probably more this like to be later part of next year.

Okay. And in terms of the competitive environment with your NANDrive, where are you seeing the competition coming from? I would love to hear what you think your advantages are relative to those other offerings?

Well, our competition comes from a few memory card manufacturers. And I believe our competitive edge is that we have been working with OEMs, throughout all corporate life and we have a very strong sales force working with all type of OEMs. And also, we have a very good quality system that I believe all our retail-oriented in our store card manufacturers are probably don't have that kind of capability, compared with us. We are business supporting OEMs, that require very stringent quality conditions.

Okay, great. Thank you very much.

Thank you.

And our next question comes from Alexander Paris with Barrington Research. Please go ahead, sir.

Hi. Just looking at volume and price trends, in the second quarter, overall, did have you unit growth for your products? You mentioned some had a good increase in unit growth.

Pretty much growth in almost a lot of segments, except a few of them are tough, for instance, I mentioned hard disk shipment has specific drop and also the low cost handset business also dropped significantly. But the rest of the segment almost across the board increased I should say they bound in from the first quarter unit shipments.

And just looking at, I know some of your older prices I got products, you've had a lot of price discounting, I imagine just overall discounting has continued. Just for example, looking at NANDrive, the price that you're getting now, is that lower than you were expecting when you first introduced the product some time ago, where is that?

Yes, the NAND, because the NAND price continue to go down. Fortunately, since we are in the OEM business, so that price volatility is not as severe as a retail-oriented storage kind of market. So, we were able to hold the price longer than those in our retail products.

Can you give us a rough idea what the average selling price is in that family of products?

At this time, we are setting roughly say $10 per device.

Okay, and that’s about what you expected when you first introduced it a year ago?

Yes.

Okay. And just generally, in terms of your new products, you've got three or four of them going, and you say you're talking to hundreds of opportunities. Can you give us an idea, the number of OEMs that you actually have a contract with, where you've got a win with them, where they're going to be in a specific product or still just in the sampling stage?

You see, I’d say quite a lot of design wins. But most of those design wins are with our smaller volume customers. The real high volume one, currently, we have about just a few of them, a handful of them, and in various stage of ramping up, and probably one to two of them are ramping up more faster than others. So, that has been contributing to our recent growth.

So, the high volume ones, what type of products are they in?

These are either in industrial PC or in the consumer product like a set-top box.

Okay. And it still looks like, I thought is your new product volume, it's really 2009, and is it that they’re start ramping up, and is it still more toward the late second half of 2009 rather than the first half?

Well, we expect to see the volume continue to grow, but over the next few quarters, it may fluctuate up and down. And here, the broad base of customers begin to ramp up. And I expect that to be more like a second or later part of 2009 than the first half of 2009.

Okay. Can you, just a couple of words about FlashFlex, your new microcontroller, what are they, the novel features in it relative to competitors?

Well, that is, basically, we have two parts, and easiest and also of a higher performance than our competitors. But overall, the microcontroller market is not large. So, you should not expect that to generate a significant amount of revenue. The higher revenue drivers should be coming from either our core business with the non-memory, or the newer product which is NANDrive, as well as other NAND module, as well as Wireless IF module products.

And just with that, the FlashFlex microprocessor, what kind of prices is that?

That’s around $1 a piece range.

$1?

Yes. It is significantly higher than our NOR business, NOR ASP. However, the volume is not that high.

What’s the price, really low end NOR flash business?

Very low end?

Yes.

That could be $0.20.

Okay. Is it showing any signs of stabilizing?

Well, I believe to certain point, you got to stop dropping, because the margin is almost doesn't exist for every manufacturers. So, I believe you're going to bottom at certain point.

Would you say, just putting all of your products together, the average selling price, now and really what it has to get to before you start showing some really good profits?

Well, our core memory business has been profitable. It currently is around $0.50 ASP.

55. Its profitable, but we are investing in our new businesses and so we don't have an operating profit. But it's mainly because our R&D expenses are higher then, we do have positive gross margin on most of our business.

Well, just one other question. Your tax rate, what’s kind of a good, if you're going to be profitable, what kind of tax rate would you be assuming next year? What would be normal for you, given your geographic mix?

I haven't been here long enough to experience all quarters, but I’d say it would be in the mid-20s.

Okay, good. That's helpful. Alright.

Right now, I think of it in terms of we’re about, because we hit certain minimums in our international entity, that we're about 1.5 million a quarter hitting those minimums, given the negative business. Going forward, mid-20s, probably, because a good portion of our sales happens through that international entity.

All right, okay. Thank you very much.

Thank you. (Operator Instructions) And we do have a question from Sal Kamalodine with B. Riley. Please go ahead.

I wanted to ask about the FlashMate product, which I believe it has been launched at this point. Can you give us a sense for what the traction has been with that product?

No, it’s not launched yet. –It’s still in the designing cycle. And we did have an FPGA product to show potential customers, but it’s still in the design.

And what has been the response you've had from the customers, who had seen the FPGA?

The customers certainly are very interested. But this is a very complicated product. So, it probably take longer than we originally anticipated to complete the design. So, at this point, we are still doing the design. And also, through the discussion with customers, we also get inputs. So, we are also trying to incorporate those inputs and those inputs tend to get this even more complicated. So, we had to make decisions at certain point to complete our design.

And is that a part that is compatible only with a hybrid disk drive instead of a notebook? Or is it something that can run on a solid state drive as well?

No. It’s not intended for standalone solid state drive. It’s intended to working with either notebook or desktop PCs, to perform certain functions.

Okay. But the storage, the main storage medium, is it going to have to be hard drive, or a hybrid-drive that has both NAND and hard-drive?

Our FlashMate is the flash portion of the hybrid-drive.

Got it.

So, you have to work together with hard-disk drives. But instead of, you may had another hard disc drive product that in coveted name had become stand-alone hybrid-drive. But in our solution, our FlashMate, we work with a stand-alone hard disk drives.

Okay, understood. And so from the customers that you're talking to, presumably I guess it would be the large HDD suppliers, do you feel like there is a sustainable demand opportunity there, given that most of what we're hearing in the industry that it’s going to go probably straight from HDDs straight to solid state drives? How long is there going to be an opportunity for hybrid-drives and laptops and desktops?

Well, our customer is not HDD manufacturer. Our customers are many the notebook computer manufacturers or the desktop PC manufacturers.

Okay.

And further, I believe that the hard-disk drive cost is going to always cheaper than the solid state solution, in terms of the cost, per megabyte. And therefore, I believe this hybrid-drive and pure solid state drive is going to co-exist, even with the traditional hard disk drive, is going to co-exist for long time.

Okay. Thanks for the clarification.

Thank you.

Thank you. And there are no further questions in queue. Please continue.

Okay. Thank you for participating in this conference call. We will present in at the B. Riley Conference in San Francisco in August and we look forward to seeing many of you there. As always, feel free to contact Leslie Green, the Investor Relations, Jim Boyd, or myself directly, if you would like to arrange a call or meeting. We thank you for your continued interest in SST.

And thank you, ladies and gentlemen. This conference will be available for replay starting today, at 3:30 pm and will run until August 5th at midnight. You may access the replay service by dialing 1-800-475-6701 and entering the access code of 954152. You may also dial internationally 320-365-3844 and enter the access code of 954152. Those numbers again are 1-800-475-6701 and 320-365-3844 with the access code of 954152. That does conclude your conference for today. Thank you very much for your participation and for using the AT&T Executive Teleconference. You may now disconnect.