Welcome to the Silicon Storage Technology fourth quarter and fiscal 2008 conference call. (Operator Instructions) I would now like to turn the conference over to our host, Bing Yeh, President and CEO.

Thank you all for joining us today for SST's fourth quarter and fiscal year 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 the current market conditions. Then, we'll open up the call for questions and answers.

Good afternoon everyone and thank you Bing. During the course of this conference call, we will make projections and other forward-looking statements regarding the Flash Memory and non memory market conditions, the general economic climate, the company's future financial performance, the performance of our new products, the market's acceptance of those 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, ASP's, margins, cash flow and cash balances, our tax position and expected tax rate, and other items as may be 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 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 fourth quarter and fiscal 2008 financial results are as follows. Net revenues for the fourth quarter were $58.4 million compared with $92.4 million in the third quarter of 2008 and compared with $107.4 million in the fourth quarter of 2007. Product revenues for the fourth quarter of 2008 were $46.3 million compared with $79.8 million in the third quarter of 2008 and with $95.6 million in the fourth quarter of 2007. Segment revenues for the fourth quarter of 2008 were $37.2 million of memory product sales and $9.1 million of non memory product sales, which compares with $68.5 million of memory and $11.3 million of non memory in the third quarter of 2008 and with $86.4 million of memory and $9.3 million of non memory in the fourth quarter of 2007. The tables in our press release will give…

The unprecedented softened demand of semiconductor products during the fourth quarter resulting from the deepening global financial crisis has caused a significant decline in our revenues. This persistent difficult economic environment necessitated that we accelerate our planned changes to our business and focus in late 2008. We took important steps to reduce our inventory, streamline our organizational structure and cut our expenses by focusing our efforts on our most strategic initiatives with a goal of returning the company to a profitable entity. Despite the current dismal market conditions, we do not have a single doubt in our mind that the industry is bound to recover and it is crucial that we plan well now for the next upturn. Our objective is to continue to execute our strategy of diversification and advancement of our technology roadmap through collaborative efforts with our partners while reducing our R&D spending. We are very proud to report that despite the difficult conditions, our cash used in operations for 2008 was nearly breakeven. With reduced head count and organizational changes, we believe now we can counter our expenses while continuing to develop our new products and new technologies and position SST for growth as the economy recovers. Turning to current market conditions, we have experienced a record deterioration in our booking activities since last September and we reached a very low level during October as our customers held back their purchase orders in response to the sudden slow down in demand. Booking activities remained weak through December. In early January, there has been some improvement but bookings remain at low levels. Our customers continue to report a lack of visibility and we believe that there is still inventory in the channel that will need to be digested before bookings will actually reflect demand. Our own inventory…

(Operator Instructions) Your first question comes from Richard Shannon – Northland Securities.

What's your model for getting to an operating profitability? What kind of revenue levels and what's the implied OpEx that you need to get there? Any way you can describe that would be great.

I think the guidance that we gave on OpEx expense for this quarter is in line with our expectations. We did, in our restructuring press release say that we have reduced our expected payroll related expenses to decline by $13 million and that puts us in line with this guidance this quarter. And depending on how the second half does in terms of sales and of course mix of products both between licensing and the product mix itself, we think we can exit the year at a break even level.

Just to help me understand, what's the absolute magnitude of operating expenses that you're hoping to get down to from which you can get to at least operating break even then?

Our guidance is at $23 million to $25 million and we expect maybe we can do a little better than that, but that's the level we're restructured to at this point.

So the amount of revenues per quarter, I guess depending on the amount of licensing which I would expect to be in general the range we're at right now, it sounds like you're going to have to get to a level quite a bit above the $39 million to $45 million, so I'm kind of curious as to where you see that panning out to get to that operating break even.

I think you can work through your own expectations in terms of margins that we've had. We're saying our gross margins are $39 million to $40 million. Of course that's with our higher mix of license revenue, but product margins have been in the range of 20% and we're all trying to target that second half.

It sounds like revenue growth is kind of coming from some of the new products. You've mentioned the NAND drive prominently, but also some of these newer products, to what extent do you expect the growth from the first quarter levels to come from each of those two general categories to achieve that break even level?

Based on our current plan, we should expect, if the market recovers, a slow recovery in the second half will help to start a ramp up on those new products, particularly the higher ASP product, that's a main driver which will help us to reach more gross profit than in the past. To exit in 2009 with break even we require certain assumptions that the second half is doing better than the first half.

One last question on the competition on your base memory business. It sounds like one of your larger customer expansion is having some questions about what they're going to be doing going forward. I'm wondering if you're seeing any changes in the competitive environment either more difficult pricing and they're trying to liquidate inventory or backing away from the market at all.

That certainly is the case. Even though there are a lot of customers starting to approach us for competitive quote so the problem that we saw there is the low price set, making it very, very difficult to make money in that business. But I expect this is going to be short term. In the long run the street will start to change.

Your next question comes from Lawrence Fisher – CFC.

I'd like to ask a little bit about the investments that you had. I noticed that Grace was wrote down again and I'm not sure of the numbers off the top of my head, I believe the original investment was somewhere around $83 million. Maybe it had been written down to half that. At one point you owned about 10% of Grace. Where do you stand right now with that, and do you see Grace still having SSTI as its largest customer and what do you see happening at Grace going forward?

Grace is going through a new round of financing and they are already placed to get new funding. At this point, because of the current market environment, the new funding certainly is much substantially reduced the price compared with the price level between our investment many years ago. So as such, we basically have suffered a reduction in our credit dilution. Fortunately, they are somewhat building in the dilution protection agreement previously. So essentially, we are roughly at about 4% to 5% range after this valuation.

And what is that Grace investment today? I think it was originally $3 million. Is that somewhere in the 30's?

It was at $83,150,000. That was the original investment. It's now currently carried at $17.6 million.

And the investment of ATC that was written down, were they acquired now by another private company? I'm not sure what actually happened to them, and was that cash you received? Do you now own shares in the company that was they acquired?

We continue in our investment and roll over to this new company, new acquired company. It's important to ATC that the technologies that we have developed together with them. We have been shipping product based on the patented technology developed at ATC for probably more than 10 important customers in the early small volume stage. But altogether we've shipped over 5 million units of our small packaged products. The issue with a small company is that it takes time for our customers to qualify this product and it has taken longer than we originally planned, and unfortunately with the current market environment the company continues capital in order to continue operations, so we make a decision that we agree with the company for them to be acquired by an entity so we can continue to produce our products. I can assure you that those products are far more important than the current evaluation of the company. So we take unfortunately a set back at this point. However, we believe that the technologies that we have developed there have a very important impact to our revenue down the road.

Going forward now, last quarter you had about $58 million revenue, $12 million of which was license, so there's about $46 million in product revenue. Looking forward to Q1 you say that revenue will be $39 million to $45 million. Backing out license fees, now I'm not sure what those will be going forward. Obviously you said they reduce due to the fact that they're one quarter in arrears, even say they're $6 million to $8 million, whatever they are, we're now looking at obviously a much lower product revenue, somewhere in the 30's perhaps. Can you break down at least at a rough level where that revenue is coming from? Percentage wise, how much of it is perhaps 16 megabytes and under Legacy products how much is NAND drive and so forth and have you seen those percentages changing going forward?

At this stage, due to the current environment the memory business is always the toughest. I see many companies, they are memory suppliers, they are already declined substantially. Our Flash Memory is no exception. So basically the memory portion has declined more than the other business so essentially the non memory portion which includes the NAND modules, that's less decline than the memory products. Further to that, the gross product contribution also comes from the non memory portion and I believe that's the strength for while, until the markets have recovered. When the market recovers, then I believe the memory portion is going to grow faster than the rest of the product groups.

Was that $12 million license fee that you booked in Q4, how much of that was upfront fees and how much was royalty?

It was all royalty.

I assume then that you'll see those numbers turning downward at least through Q1 as they're booked in retrospect.

The royalty portion is expected to go down because of overall market. Product revenue goes down, so does our license as part of our revenue which will translate to our royalty income.

Your next question comes from Richard Shannon – Northland Securities.

In terms of cash flow for the first quarter, I think you mentioned you're expecting inventories to come down. I'm kind of curious where you're expecting total cash or operating cash flow to be in the first quarter generally speaking.

I think we'll see low single digit reductions in cash.

We have no further questions in queue.

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