Micron Technology Inc (MU) — Q1 2015 Earnings Call Transcript

Thank you Karen and welcome to Micron Technology's first quarter 2014 financial release conference call. On the call today is Mr. Mark Durcan, CEO and Director; Mark Adams, President; and Ron Foster, Chief Financial Officer and Vice President of Finance. This conference call, including audios and slides is also available on our website at micron.com. In addition, our website has a file containing the quarterly operational and financial information and guidance, non-GAAP information with reconciliation, slides used during the conference call and a convertible debt and capped call dilution table. If you have not had an opportunity to review the first quarter 2014 financial press release, again it is available on our website at micron.com. Our call will be approximately 60 minutes in length. There will be an audio replay of the call accessed by dialing 404-537-3406 with a confirmation code of 48295415. This replay will run through Tuesday, January 13 at 11:30 pm Mountain Time. A webcast replay will be available on the company's website until January 2016. We encourage you to monitor our website at micron.com throughout the quarter for the most current information on the company, including information on the various financial conferences that we will be attending. You can also follow us on Twitter @microntech. Now please note the following Safe Harbor statement.

During the course of this meeting we may make projections or other forward-looking statements regarding future events or the future financial performance of the company and the industry. We wish to caution you that such statements are predictions and that actual events or results may differ materially. We refer you to the documents the company files on a consolidated basis from time to time with the Securities and Exchange Commission, specifically the company's most recent form 10-K and form 10-Q. These documents contain and identify important factors that could cause the actual results for the company on a consolidated basis to differ materially from those contained in our projections or forward-looking statements. These certain factors can be found in the Investor Relations section of micron's website. Although we believe that the expectations reflected in the forward-looking statement are reasonable, we cannot guarantee future results, levels of activity, performance or achievement. We are under no duty to update any of the forward-looking statements after the date of the presentation to conform these statements to actual results.

I'll now turn the call over to Mr. Mark Durcan, CEO. Mark?

Thanks, Kipp. We had another strong quarter benefiting from continued favorable market conditions and solid execution from the team. We set a new record for quarterly revenue of $4.6 billion. GAAP net income was $1 billion. Free cash flow was $923 million, based on record operating cash flow of $1.6 billion with CapEx of $669 million. The investments we are making in the business are putting us in position to continue generating strong cash flow. We expect continued favorable market conditions for 2015 led by constrained supply in DRAM and solid demand for both DRAM and NAND. Demand growth in our business continues to be driven by our customers rapidly increasing memory content to enable them to enhance the performance of their products, as opposed to strictly unit growth of end systems. The resulting demand outlook remains very encouraging. A few good examples of this growth include mobile DRAM, server DRAM and solid state drives, all of which are expected to increase memory content per system by 30% to 50% in 2015. As just mentioned, the outlook for DRAM supply remains tight. We continue to expect industry bit growth in the low to mid-20% range in 2015 with the development of advanced process technology proving to be disruptive to wafer production. Our belief is that even with steps taken to address the otherwise declining gross wafer production in DRAM, the net wafer output in the industry will stay relatively steady or decline slightly going forward, leading to a relative stability of bit supply growth even beyond 2015. As we have said for some time, compared to DRAM, we expect the NAND market to have more volatility although very attractive over the long term. We are projecting industry supply growth in the high 30% to mid-40% range for 2015 with a significant portion of the range based on deployment of TLC or Triple Level Cell memory. TLC has a compelling cost and price point; although there are still some variability in terms of the adoption rate for systems requiring higher performance, including certain mobile and SSD applications. We are often asked about the impact of 3D NAND on the industry supply. We don’t believe 3D NAND will significantly change the current supply growth rate in the industry given the trade-off of more bits per wafer offset by fewer wafers produced per fab and the capital cost associated with either planar conversion or greenfield additions. The key supply variable over the long term is the extent to which demand and economic returns dictates the need to add incremental 3D capacity. Micron’s approach remains steadfast to focus on returns as opposed to growth or scale when we evaluate this market. We are entering an interesting year in our business, deploying evolutionary but increasingly challenging process technology in our fabs while also moving more revolutionary technology closer to commercialization. We are very pleased with our recent progress on DRAM. 25-nanometer deployment has been relatively smooth and 20-nanometer enablement is well underway with many milestones being hit early. The extra R&D resources we have brought to bear and the alignment of manufacturing and R&D resources at Hiroshima are clearly bearing fruit. I will come back to how this deployment is impacting our short-term bit growth outlook in a minute. We also remained very comfortable with the status of our 3D NAND technology development, which of course is occurring in collaboration with our JV partner, Intel. 3D NAND enables cost and performance optimization beyond the capabilities of Planar NAND with enhanced product performance across a broad portfolio of applications and significant cost per bit reductions over time. We commenced early 3D samples in calendar Q4 of 2014 and expect volume commercial production in the second half of calendar year 2015. Given the confidence in our technology, we recently announced plans to add additional clean room space in Singapore to enable our ramp of 3D NAND as well as other emerging memory technologies. This addition effectively doubles the existing fab 10 clean room space and once completed will create additional economies of scale for our non-volatile memory operations in Singapore. The CapEx for this project is estimated to be about $4 billion spent over a number of years with tool installs and production expected to begin in calendar '16 and calendar '17 respectively. We expect to reserve a portion of this capacity for Intel under our supply agreement. Note our fiscal year 2015 CapEx guidance of $3.6 billion to $4 billion is unchanged as spending this year on the new clean room is primarily for design and early construction work. Our Q2 revenue guidance is $4.1 billion to $4.3 billion. Keep in mind we will be moving back to a normal 13-week quarter in Q2 from the 14-week quarter we just completed. In addition to the 13 to 14 week comparison, DRAM production is expected to be down sequentially as we prepare fabs for advanced technology deployment including 20-nanometer in subsequent 1x and 1y nodes, which we have on our roadmap. These nodes are increasingly challenging which is a good thing in terms of industry supply outlook but can be a short-term headwind in terms of bit shipments. This production will always occur in a normally seasonally slower demand period. We continue to focus on product excellence, customer service, and margins on returns rather than simply shipping additional bits into the market. To give you an update on our longer-term bit growth, we now expect our DRAM production to come in below the market for calendar year 2015. There are several factors leading to below market growth this year. These include product disruption for technology upgrades, just mentioned, 20-nanometer technology which is being deployed in calendar year '15 which reduces wafer outs about 15% to 20% for a given square foot of clean room space compared to 30-nanometer. Although we are taking steps to minimize the impact, our wafers produced will decline year-over-year. By the way, I should note we do have cleaning space available to replace or potentially add net DRAM capacity if and when it makes sense from an ROIC standpoint but at this time we are not planning to make that investment. Finally, product mix optimization is a factor which continues to grow in importance relative to pure bit metrics. As we diversify and optimize our business, ASP per bit, cost per bit, and bit growth are all increasingly a function of these decisions. Of course, the goal is to provide the most value-added products to our customers within the constrained supply. By way of example, this year we are shipping production from DDR-3 to DDR-4 and continue to grow other value-added specialty DRAM products in the mix. Turning to bit supply and our NAND business, Q2 is marked by a significant shift in the mix towards the mobile segment. The mobile NAND is characterized by higher ASPs, higher cost per bit, and lower bit output per wafer compared to our portfolio average. These mix effects are included in the more detailed guidance Ron and Mark will provide in a minute. This shift to mobile is part of the reason our NAND bit growth will also be below the market for calendar year 2015. Of course, we were somewhat above the NAND market growth rate in 2014 following the conversion of our Singapore DRAM fab to NAND. Additionally, as I mentioned, we will begin manufacturing our 3D NAND in the second half of the year and expect what we believe is industry-leading 3D technology to have a significant and positive impact over time. Before I wrap up, I would like to take a minute to discuss our partnership and supply agreement with Inotera. The supply agreement has a three-year term, renewable on an annual basis. As with any agreement, dynamics can evolve over time and changes are sometimes required to ensure fair economics between all the parties. At this point, we are in discussion with our partners regarding the terms for renewing the agreement and we will provide an update when appropriate. I want to congratulate the team at Micron for a very strong quarter. We have a tremendous opportunity to continue delivering for our customers and shareholders and we are looking forward to an exciting and productive year in 2015. I'll stop here and turn it over to Ron and Mark before returning for Q&A.

Thanks Mark. The first quarter of fiscal 2015 ended on December 4th. We posted to our website a file containing the financial information I will cover, including GAAP and non-GAAP results, certain key metrics for the first quarter of fiscal 2015, as well as guidance for the second quarter. Our fiscal 2015 contains an extra week, as Mark mentioned, to synchronize our 52 or 53 week fiscal calendar with the August year-end. By policy, the extra week falls in our first fiscal quarter. So our first quarter of fiscal 2015 contains 14 weeks while the rest of the quarters will contain the customary 13 weeks. The results for the first quarter include net income of $1.003 billion or $0.84 per share on net sales of $4.573 billion. Gross margin came in at 36%, up about three points compared to the previous quarter. Part of this improvement is coming from higher costs in the fourth quarter related to the Tessera license and last time sale of legacy phase change in memory products that we mentioned on our last call. Our reported income from equity method investments for the first quarter was $124 million substantially all of which is attributable to Inotera. On a non-GAAP basis, net income for the first quarter was approximately $1.1 billion or $0.97 per share. Non-GAAP adjustments resulted in a net increased income of $135 million or $0.13 per share and included the following: The amortization of debt discount and other costs of $38 million includes imputed interest on our convertible notes and the discount on the MMJ installment debt; the loss on restructure of debt of $30 million related primarily to the repurchase and conversion of convertible notes in the first quarter; the $21 million loss from changes in currency exchange rates, particularly for the yen, arose from the variances in the forecasted balances of non-USD assets and liabilities that resulted in an over-hedged position in the quarter; non-cash tax expense from the MMJ and MMT operations was $38 million. Finally, there was a $27 million share anti-dilutive effect of capped calls based on the average stock price during the first quarter of $32.35. In the second quarter of fiscal 2015, we expect the following significant non-GAAP adjustments: approximately $35 million for amortization of debt discounts and convertible notes and MMJ installment debt; non-cash taxes related to the Elpida acquisition are expected to be approximately $30 million in the second quarter. Also, the anti-dilutive effect of our capped calls will be based on the average share price for the quarter. Please refer to the convertible debt dilution table included in the earnings call data file posted on our website. Let’s turn now to our results by technology and guidance for the second quarter. DRAM revenue increased 9% compared to the fourth quarter primarily due to an increase in bit sales volume and stable average selling prices. DRAM gross margin improved a couple of percentage points into the low 40% range. DRAM gross margins for the second quarter using quarter-to-date ASP and projected mix for the quarter should be down slightly compared to Q1 based on bit production, down high-single to low double digits, ASPs flat to down low-single digits, and cost per bit relatively flat. The key items affecting our DRAM guidance for the second quarter are continued favorable DRAM market conditions with like-for-like pricing generally stable to down slightly in most DRAM market segments; lower levels of production primarily due to the normal 13-week period in Q2 and equipment upgrades in preparation for the next generation process technology, as Mark Durcan mentioned earlier. On the trade NAND side, revenue increased 14% in the first quarter with a 20% increase in bit sales volume, partially offset by a 6% decrease in average selling price. Trade NAND gross margin was down slightly to the mid-20% range as cost reductions per bit partially offset decreases in selling prices. Trade NAND gross margins for the second quarter using quarter-to-date ASP and projected mix for the quarter are expected to be down low to mid-single digits compared to Q1 based on bit production flat to down low-single digits, with the normal 13-week period in Q2 as I mentioned. ASPs flat to down low-single digits and cost per bit up mid-single digits primarily relating to mix. Key trends for the second quarter affecting this guidance are like-for-like pricing is down mid-single digits, pricing pressure in the spot market and with client SSDs early in the quarter, although these markets have begun to stabilize of late, and a shift in mix to a higher concentration in mobile and managed NAND products which has a slightly improving effect on margin with increases in both ASP and cost per bit. On a consolidated basis, we're guiding total revenue for the second quarter in the range of $4.1 billion to $4.3 billion which reflects the normal 13-week period. Looking at other P&L and cash flow results and guidance, SG&A expense in the second quarter is expected to be relatively stable when compared to Q1, which came in just below our guidance. R&D expense in the first quarter was below our guided range primarily due to improved execution of product qualifications. We expect a higher level of qualification activities in the second quarter which is contemplated in our guidance. Depreciation and amortization expense for the year is estimated at $2.9 billion but will vary based on the changes in the timing of equipment receipts. As Mark mentioned, the company generated record operating cash flow in the first quarter of $1.6 billion and ended the quarter with $5.3 billion in cash and marketable investments. During the first quarter we spent $532 million on dilution management relating to our convertible notes. We also replaced our $175 million U.S. AR-backed credit line with a $600 million AR and inventory-backed credit line. No amounts have been drawn under either of these facilities. During the first quarter we announced Board authorization to repurchase up to $1 billion of our common stock. Any repurchases under the authorization would be performed opportunistically in open trading windows. There were no share repurchases during the first quarter. Expenditures for property, plant and equipment in the first quarter were $669 million. We continue to expect capital expenditures for the fiscal year to be between $3.6 billion and $4 billion. Note that beginning of the first quarter we are combining substantially all payments for property, plant and equipment into a single line in the investing section of the statement of cash flows. Historical periods have been reclassified as well to facilitate comparability. In prior periods, our disclosure of capital expenditures was the sum of expenditures of property, plant equipment and payments on equipment contracts. So there is no change in the disclosure of total capital expenditures, just a landscape change on the cash flow statement. We estimate that for every one yen change in the U.S. dollar-yen exchange rate, our cash expenses in Japan changed approximately $2.5 million. Our Q2 guidance contemplates the U.S. dollar to yen exchange rate at the end of Q1, which was approximately 120 yen to the dollar. As a reference, the average exchange rate during the first quarter was approximately 110.

Thanks, Ron. I will cover a review of our Q1 operating performance as well as share commentary on market insights, key segment trends, and memory industry dynamics as we enter calendar 2015. Our Computing and Networking Business Unit, referred to as CNBU, had an outstanding quarter recording $2.1 billion in revenues. Our operating margins came in at 30% compared to 26% in Q4. CNBU benefited from slightly higher DRAM prices and lower costs, leading to improved operating performance in the quarter. The growing diversification of our end market is reflected in a favorable mix across our computing, server, networking, enterprise, and graphic segments. Demand in the PC-client segment remained strong in our first quarter. These shipments in clients grew heading into the holidays and pricing held firm in Q1. We commenced volume shipments of our 25-nanometer technology into the client PC tier 1 OEM customer base which resulted in improved costs. Driven by continued growth in cloud computing and data analytics, we achieved both record revenue and bit shipments in our server business. Server DRAM bit growth is forecasted to grow 40% year-on-year. The growth in server-based memory is based on increasing server workloads that require higher DRAM performance and density. Our server business remains a very attractive segment with a demand profile that is less sensitive to price fluctuations in the market. The Networking segment delivered revenue growth of up 5% quarter-on-quarter. Demand remained strong, driven by LTE build-out in China and other emerging markets. We are optimistic that bandwidth requirements from increased data, audio video, and gaming content projected to grow roughly 20% in calendar year 2015 will drive higher demand from Micron's memory products in a business that yields attractive gross margins. Our Graphics business, which is another market segment that delivers favorable ASP and margin uplift, grew Q1 revenues 18% when compared to fiscal year Q1, 2014. Last year, consoles doubled their memory content per box and we feel that there will be digital content growth this year as the use of these devices continues to expand beyond gaming into more compute and home entertainment functions. We had a strong quarter in DRAM technology enablement. We are pleased with the team's execution on DDR4 as major OEMs are in qualification for their value-added configurations. While coming off a relatively low base, shipments of DDR4 increased four times quarter-over-quarter. We are seeing very strong demand signals for DDR4 in the coming quarters, in particular from the enterprise server customer base. DDR4 ASPs remain at a significant premium to DDR3 given the enhanced performance. As the market for DDR4 begins to take shape over the next 12 months and beyond, the rate of growth should positively impact our average ASP. We're seeing good progress on our eight-gigabit GDDR5 technology as we're shipping engineering samples to two of our larger enabling partners. And finally, the research and development team saw fantastic progress in the enablement of our 20-nanometer technology DRAM process. We are evaluating ways to accelerate this transition ahead of our current plan. Our Storage Business Unit or SBU achieved $987 million in revenue in Q1, up 9% quarter-on-quarter. Our SBU operating margins were stable this quarter despite some challenging pricing dynamics. It appears there has been some additional TLC capacity in both the channel components and client SSD segments which applied downward pressure on pricing towards the end of our first quarter and into our current quarter. As we produce primarily MLC technology, we are focused on finding higher value opportunities that require best-in-class performance and are trying to minimize our exposure through aggressive market pricing. We are making good progress in driving our SSD roadmap to our award-winning 16-nanometer technology. We successfully qualified the M600 drive at a tier-1 PC OEM customer and anticipate additional commitments over the next 90 days. In addition, today we are announcing two crucial branded client-SSDs enabled by Micron’s 16-nanometer process for shipment in this quarter. We expect to have 50% of our client-SSD shipments on 16-nanometer by the end of our first quarter. On our last call, I outlined the steps we were taking to improve our overall NAND competitiveness. I wanted to give you an update on our progress. Our focus is in three areas: process advancement, system-level enablement, and higher value end market applications. We successfully hit the forecasted milestone to deliver engineering samples of our 60-nanometer TLC device by the end of calendar 2014. We are targeting late spring shipments of TLC components to the channel and consumer segments and expect to commence shipping at TLC client-SSD drive into the market during the second half of 2015. Micron will continue to increase our leadership in overall NAND scaling demonstrated by our vertical cell 256-gigabit MLC and 384-gigabit TLC 3D NAND devices, which we believe will have the highest density per square inch of silicon in the industry. We are now sampling our 3D NAND component and remain on track for initial commercial production during the second half of calendar 2015. Beyond innovation at the technology level, we continue to add controller and firmware resources that are helping to accelerate product development and enhance the quality of our enterprise datacenter and client-based SSD products. In addition, we are investing in packaging capabilities that allow us to integrate technologies to offer performance, power, and/or reliability benefits. Such capabilities are the foundation for driving into more solution-oriented products designed to meet specific customer needs. Finally, we are continuing to diversify our NAND business into more attractive end market applications. As an example, revenue for NAND sold into the mobile segment was up over 45% quarter-over-quarter. Coupling NAND with DRAM in the form of eMCPs is a high growth opportunity which I will discuss in the Mobile segment shortly. Our Enterprise SSD business set a revenue record in Q1 and margins were up quarter-over-quarter as the team drove qualifications of our M500DC product into cloud and datacenter customers. We are evaluating options to accelerate growth into this expanding segment of the market that includes datacenter, cloud, networking, security searching and e-commerce customers. The fundamentals for long-term growth drivers, such as client enterprise storage, mobile storage, and embedded applications driving NAND consumption, continue to be positive. We are meeting the milestones we set in our plan to improve the long-term operating competitiveness and feel optimistic about our position going forward. The Mobile Business Unit or MBU had another outstanding quarter. MBU revenue came in at $940 million. Operating margins were 32% in Q1 compared with 22% in our last quarter. We continue to see strong demand in mobile. The iPhone 6 launch was a catalyst for strong holiday demand. Memory content per device is driving customer forecast in 2015. On the high end, the Samsung Note is shipping with 3 gigabytes of low-powered DRAM and Chinese competitors such as Xiaomi are differentiating with larger memory configurations. The low to mid-range priced smartphone market is driving additional memory content as well and even the feature phone segment is evolving from phones with virtually no DRAM to new products such as the Android 1 which has 1 gigabyte of low powered DRAM. We are also seeing higher memory content in Flash where mid and high end smartphones have shifted configurations from 32 gigabytes and 64 gigabytes to 64 gigabytes and 128 gigabytes. On the product front we are growing our managed NAND business with increased shipments of the eMCPs. The rapid adoption of the eMCPs by the mid-range market where there is strong growth has created significant opportunity for Micron. With our capability of supplying known good die flow from the former Elpida operations and our 16-nanometer NAND technology, Micron is uniquely positioned to capture this growth opportunity as eMCPs move to replace eMMC in the largest mobile segments. The team is also working on low power DDR4 enablement with our chipset partners that will allow for key customer differentiators in the future. As Mark and I’ve said in prior communications, we are focused on a returns approach to the mobile business. We are pleased with the progress the team has made to date. We are constrained to meet our customer demand forecast and continue to evaluate how to best balance our overall capacity to support Micron’s valued customers. Our Embedded Business or EBU set a quarterly revenue record achieving $539 million in sales. This is our 8th consecutive quarter of revenue growth for EBU. Our operating margins rose to 22%, up from 16% last quarter. This growth was driven by record shipments to the automotive and industrial and multi-market segments. Automotive revenues were up 18% quarter-on-quarter. The automotive segment continues to benefit from memory content fueled by both infotainment and advanced driver assistance systems in the new offerings. Our commitment to the unique needs of this market in areas such as quality, reliability, product longevity, and service have enabled us to strengthen our market leadership in Q1. The broad category of industrial and multi-market was up 12% quarter-on-quarter driven by continued growth in factory automation, machine-to-machine, and aerospace and defense. As we see strong demand growth in areas such as automotive entertainment, consumer electronics, connected smart homes, and machine-to-machine systems, we remain optimistic for a strong demand environment in our EBU business for fiscal year 2015. It is worthy of note that we have recorded our fourth consecutive quarter of growth in NOR product shipments with over 470% now on our 45-nanometer process. We will continue to seek opportunities to leverage our portfolio of DRAM, NAND, and NOR to drive continued growth and profits in the embedded market. Coming off a strong fiscal year ’14, our operations team is focused on managing through a number of transitions to ensure long-term competitiveness. On the integration front, we implemented Micron’s manufacturing information systems in our fabs in both Hiroshima and Taiwan in Q1. We are also driving expanded 25-nanometer technology at MMJ and MMT. In conjunction with our R&D organization, MMJ is preparing for a second half calendar year '15 conversion to 20-nanometer which looks very promising with a focus on pulling end-of-day metrics for volume production. In preparation for these technology transitions, we will see lower DRAM bit production in Q2 which will result in small production downside already contemplated in the forecast that both Mark and Ron mentioned in their comments. The team is also busy preparing our plan for the recently announced fab expansion in Singapore, which we feel offers us the flexibility to efficiently expand the 3D and emerging memory production in the future as the market conditions warrant. Finally, in the backend of our business, we signed a strategic agreement to partner with PTI to provide local assembly services on our Xi'an campus which will both lower cost and overall cycle time. I would like to now briefly discuss what we are currently seeing in the market post-holidays. Pricing environment for our portfolio of DRAM products remains favorable overall. We have seen modest pricing pressure in the PC segment which is not surprising due to seasonality. Mobile DRAM pricing remains relatively stable as we remain very tight on supply in Q2. On the NAND front, pricing saw some softness during the last month of Q1 and the first month of Q2. That being said, we are seeing some signs of improved price in NAND of late, including tightening of supply in certain segments such as low-density consumer NAND. Our sense is that client SSD inventory at Tier 1 OEM is still somewhat high post-Christmas. We also saw increasing TLC supply from what had believed to be one of our competitors, shifting NAND production away from their own internal mobile consumption to the channel and client SSD business. Despite these short-term pressures, which could potentially cause short-term margin compression, we feel these effects are temporary and remain bullish on the longer-term outlook for NAND, and we feel we are taking the right steps to optimize our business over the long run. As the industry converts to 3D NAND, we feel our performance and cost will continue to improve, driving accelerated adoption in NAND in the client, mobile, and enterprise market segments. In closing, I too want to congratulate our team on another great quarter. We are excited about the enablement of a number of the technology advancements I referenced in my comments and feel we are well positioned for continued success in a diversifying memory business. With that, I will hand it back over to Kipp.

Thanks Mark and we will now take questions from callers. Karen, would you please open the lines at this time. Thank you.

Hi, thanks for taking my questions. First question on the NAND market. If you look at your cost decline and ASP assumptions, the NAND margins are going down again in the quarter. So the question is why not to delay the conversion to 3D NAND and so that there is a lower bit growth in the market and let the market become even stronger before adding more bits to the market?

Monika, I want to emphasize that the NAND market is very appealing to us over the long term, and we see significant growth potential that makes it worth our investment. We regard 3D technology as essential for our future advanced products and our overall success. Therefore, we are ready to invest in this area. While we haven't specified the exact timeline for increasing our supply or the pace of our ramp-up, we recognize the importance of moving forward with our 3D products and allowing end applications to utilize them. That said, we've been clear that our approach will be disciplined; we will continually assess the market to avoid disrupting supply. We believe that 3D technology will not dramatically change how Micron or our competitors manage production, as there are various trade-offs involved. There are necessary capital investments and clean space considerations, and while 3D is significant, we do not foresee it causing the oversupply you mentioned.

Thanks for your response. I would like to ask about Inotera. Can you share when we might expect to see the financial impact of the agreement with them? Thank you.

I don't think that there is a lot we can add to what we've already said relatively to Inotera. It's a three-year agreement, as we said before; it's renewable on an annual basis. We value the relationship, we think the other parties value the relationship and we think that sets a foundation for a reasonable discussion to lead to a long-term beneficial outcome for all parties. But trying to discuss in advance when and what that might look like I don’t think is particularly productive.

Thank you so much.

Yes, thanks for taking my question. I have two. On DRAM can you please help me understand the mix between consumer PC, server and mobile and how this mix changed from November into the February quarter? And then on the NAND, it's great to give us an update on the milestones, but I'm still a little bit confused about what the strategy is. Are you trying to be everything to everyone or are you trying to be more focused on a specific segment of NAND that you are pursuing? Any color there would be appreciated. Thank you.

So I will start with the first question. As it relates to the share in the DRAM segment, it’s best to think of our PC business, the PC DRAM business somewhere in the mid-30% share wise and our mobile DRAM business somewhere in the mid-20% and servers, roughly high-teens. Directionally while these things are really tough to shift in one quarter, you see a mild uptick as we start to shift some more capacity over to server in Q1. Mobile was roughly flat and the server business was like in the client business; the PC business was maybe down a little bit but that’s roughly how it shifted in the relative size of the share in DRAM.

And Mehdi, this is Mark Durcan. Maybe I will take the NAND piece of that question. At a high level what we said is we want to play in a lot of different application segments for NAND, and we acknowledge that takes a lot of resources and then getting the balance of those resources right requires ongoing work, and when you do a better job over the next couple of years than we have done over the last couple of years, relative to how we allocate those resources. Having said that, we talked in our commentary, we feel like it’s important for us to be in the mobile NAND segment. We think we have a lot of synergy with our low power DRAM business there and with our customers. We think there is a lot of value added things we can do for them in the mobile segment. We can’t ignore what is a very large and fast-growing segment in the market, which is the client SSD piece, and we clearly want to be in the enterprise because over the long haul we are going to drive significant value there. So we will continue to put our resources across a number of different applications segments and then allocate our capacity as we see our progress in all of those different segments.

Thank you.

Hi, guys. Thanks for taking my question. When I look at your guidance, it assumes a little bit of challenging environment for you in terms of cost declines. Can you maybe walk us through what is happening at Inotera with the migration and what, if any impact that will have on the DRAM cost per bit?

Yes, maybe I will take that. You know as I mentioned, mix is an increasingly important piece of the answer in all these questions because as we move to more value added applications that’s going to drive different bit growth, think about DDR3 to DDR4, there are 10% to 15% die size differences that are moving to that technology depending on exactly how you are positioned. That’s going to mitigate bit growth in the year but it’s going to probably drive value. The customers certainly see a lot of value in getting a DDR4 today. Likewise as we move to more differentiated products to service networking and higher performance computing and move more of our men in that direction, we won’t see the clients we have seen in the past but hopefully, we will see value add commence by the customer. You know beyond that I would say there is not a lot structurally that would change here other than you should recognize that Micron today is deploying capital to support a 20-nanometer ramp that is a large productivity step. And any time you deploy capital, you don’t get a return spontaneously. It takes a while for that capital equipment to be installed and productive and for the load line to be loaded and moved to inventory out in the marketplace. And so you have to contemplate that a little bit as 2015 is an exciting year for us in terms of technology deployments.

Thanks, good afternoon. I have two questions regarding the client SSD market. Can you provide some insight into how much of the current competitiveness is temporary? From Micron's perspective, how much improvement can be expected with the rollout of your TLC product, or are there other strategies to enhance margins? Secondly, could you elaborate on the timing of the DDR4 ramp and its potential impact on your mix and margins? I was under the impression that we would see more progress in the current quarter. Thank you.

So, on the SSD side, we started to see kind of pre-holiday inventory build at the key customers and we truly do believe it's a temporary piece of the market dynamics in NAND. What we have been saying, as I said over the last week or so is that the NAND price actually stabilized a bit in some sense and some segments have gone up. So relative to the question on TLC competitiveness, as we bring those products to market as I mentioned in my comments early in the second half of calendar year '15, we do expect to be able to compete more favorably and will then be able to drive more of our mix to the TLC SSD client products. At this point, as we look at our opportunities there, we're just being careful not to try to compete with lower cost products when we can take these MLC products and trying to pursue better or higher value homes. On the DDR ramp, as I said earlier we're pleased with the ramp, although it still early and we think it's reasonable to see by the end of our fiscal year somewhat in the area of 30% plus or minus of our server bits will be DDR4 and really will let the market dictate what that looks like as far as the ramp and scaling it up.

Good afternoon, guys. Thanks for letting me ask the question. My first question is just kind of a follow up on the bit production for DRAM. Can you quantify how much slower than the market do you expect to grow this year and I guess importantly given the timing of product transitions, technology transitions would you expect big growth to resume sequentially from the February to the May quarter?

Let me take the last bit of that John then maybe Mark can take the first part. I think we will see as we move out in time, a get back to sort of a more normal bit growth rate quarter-over-quarter. As I mentioned just a minute ago when you deploy technology sometimes there are disruptions in manufacturing. In particular, you want to make sure you're facilitating all the equipment to have legs out in the time, and then as you deploy that technology you don't necessarily get the bits and the output immediately. So yes, we would anticipate being back on a more normal trajectory further out in the year.

And John would you repeat the first half of your question for Mark please.

By how much do you think you'll under grow DRAM bit growth this year? You said you'd under grow industry?

Well, we never held a whole lot of position in that but it kind of depends on the mix of DDR4 we put out into the marketplace and exactly how we progress with some of these specialty products I was talking about. We said sort of for the market in the low to mid 20's and we think we'll probably be 20% plus or minus, a little bit lower.

And then guys on the NAND profitability side, you guys have been working hard over the last 12 months to improve that. One of the arguments was that you were just selling bits into the wrong market and as mix improved you would start to see the margin benefit. You are starting to see that mix improvement, it sounds like in your prepared comments that the move to mobile is accretive but not a big enough move in mix yet to actually drive gross margins higher. Can you help me understand where the mix of mobile in NAND is today and given where you think that mix is going to go, are you confident thinking that February might be the gross margin trough for the NAND?

Let me take the first part of that. I think the first part of your statement was right. We are unhappy with the progress. There is not enough of that yet to be really moving the needle in the overall scheme of things. I would comment that the NAND business generally has been a little tougher for our competitors as well over the last number of quarters. The relative improvement is better than the absolute improvement so to speak when you look at it. And we continue to put the pieces together for the longer term and we think we're making progress doing that.

And I can just make comment on the front part where you talked about the product mix, John. And mind you these things are not necessarily things that shift dramatically in a quarter, but to your point you will see mobile as a percent of our overall NAND business just quarter-over-quarter almost double in terms of the share of the business, up to close to 20, almost slightly 20% of our NAND business. And then you will see a healthy shift away from our products and component business as we do this and find better homes and we'll continue to look at ways to drive enterprise storage in client SSDs for markets that make sense. Mark made an interesting comment in his prepared statement today that we are finding customers that are not totally invested in TLC for their client-SSDs where they're finding higher performance requirements or just simply reliability issues that they don't want to bet on in TLC. And so we're going to continue to drive our customers to evaluate our higher-performing MLC-based client SSD storage as we drive that forward as well. And so that should be the trend you see: mobile, a shift away from channel and driving more enterprise and high-performance client SSD.

Thank you.

Thank you for taking my question. The DRAM results continue to perform exceptionally well, surpassing expectations. To summarize, it seems that the markets are likely to remain strong throughout 2015. However, the NAND segment is disappointing, with gross margins decreasing and projections indicating further declines next quarter. My question is whether this disappointment in NAND, or the delay in its recovery, is due to a worse-than-expected market resulting from oversupply or execution challenges. Also, when can we expect improvements in NAND? It seems the recovery might be two quarters away, and it’s been noted that TLC and SSDs are significant parts of the solution. I’ve noticed that there’s a shift towards mobile in your mix, so I would like to understand the updated plan to enhance NAND profitability. Thank you.

Good, Mark, this is Mark Adams, thanks for the question. If you look back over the last couple of quarters, our margins have remained relatively stable compared to our competition, actually narrowing the gap somewhat. While we're not fully satisfied with that, it's worth noting. This quarter, our gross margin was relatively flat amidst challenging market conditions for NAND. Regarding your question about our strategy, I don’t believe there’s been any confusion. It’s important not to conflate TLC with the end application products. The mobile enterprise and client SSDs have always been part of our strategy and they continue to be. TLC serves as the technology foundation enabling low-cost solutions, and we continue to invest in it. Over the past year, both Mark and I have highlighted that we would begin sampling by the end of this calendar year. We are on track with that and are starting the qualifications process. We expect to ship components and consumer applications by late spring, which is the end of the calendar's second quarter, and we will be launching client-based TLC SSDs. These are all strategic steps to deploy TLC where it makes sense. Additionally, leveraging our DRAM and NAND technology, potentially from Elpida along with our MLC and future TLC, we plan to target the mobile market. We’re also committed to investing in controllers, firmware, and software for both enterprise and client SSDs. While we don’t yet see TLC entering the enterprise market, we will evaluate that path as needed. On the client side, we will continue producing MLC drives, but in markets seeking lower-cost alternatives where performance may be compromised, we will implement TLC. The mobile, enterprise, and client storage segments are the three key areas where we are investing to advance applications, with both MLC and TLC being central to our efforts.

Got it, that’s very helpful. Which area do you think is more favorable in terms of margins for Micron among the NAND businesses such as client SSD, enterprise SSD, mobile, and others? How would you rank them?

I think the best way to look at it is enterprise SSDs are likely to garner the highest margins, mobile would probably be second and client SSDs third of those three and then there is still healthy in terms of volume, is a components channel out there for consumer applications and embedded application so on and so forth. So that can vary depending on the overall market dynamics.

I see. And then looking forward to later on this year, do we expect that the market is going to become healthier in NAND flash? Do we need to see a healthier market in NAND for margins to get back up significantly higher than this, do you think?

Well, as it's always tough to project, I would say I want to caution you. The gut feel right now based on the feedback from our customers is that NAND is going to be relatively tight now. When we talk about this changing business we are in, it doesn’t mean that you won’t have small periods, temporary periods where there is an oversupply in certain segment of the market, whether it be a client SSD issue, whether it be something else. So we think overall with the growth in demand drivers in mobile, enterprise, and client, that overall we think it’s going to be in pretty shape and the type of demand forecast we are seeing from our customers suggest that things will remain in balance and be pretty positive in the remainder of our fiscal year.

Great, that’s very helpful. Thanks very much.

Thank you Mark. And Karen I think we have time for one more caller.

Thanks a lot, thank you for taking my call. So I was wondering here what has basically changed, maybe from your perspective in the past 90 days, is this more the DRAM business, more the NAND business? Because it certainly looked like 90 days ago there was more of a thought here that the NAND business might be in a change, demand remains pretty solid for DRAM but now you are looking at maybe lower bit growth here. So has something surprised you on the negative side or was this kind of a thought process 90 days ago of the business? Thanks.

Thank you for your question. In response, we don’t see any significant changes in the structure of our business. Regarding NAND, we believe there has been a shift of some capacity from competitors towards the lower volume segment, which has impacted pricing slightly in the spot market and entry-level client devices. However, we remain optimistic about NAND demand. As for DRAM, Mark has already explained the reasoning behind our long-term capacity and investment decisions. Overall, we consider the DRAM business to be stable, with average selling prices remaining relatively flat, and we maintain a positive outlook.

All right, great, thanks.

Thank you, Daniel. And with that we would like to thank everyone for participating on the call today. If you please bear with me, I need to repeat the Safe Harbor protection language. During the course of this call, we may have made forward-looking statements regarding the company and the industry. These particular forward-looking statements and all other statements that may have been made on the call that are not historical facts are subject to a number of risks and uncertainties and actual results may differ materially. For information on the important factors that may cause actual results to differ materially, please refer to our filings with the SEC including the company’s most recent 10-Q and 10-K. Thank you.