Earnings Call: Q3 2020

Jun 29, 2020

Ladies and gentlemen, thank you for standing by, and welcome to Micron Technologies Third Quarter 2020 Financial Conference Call. Please be advised that today's conference may be recorded. I would now like to hand the conference over to your speaker. Head of Investor Relations, Farhan Ahmad. Sir, please go ahead. Thank you. And welcome to Micron Technologies' fiscal third quarter 2020 financial conference call. On the call with me today are Sanjay Mehrotra, President and CEO and Dave Sintzer, Chief Financial Officer. Today's call will be approximately 60 minutes in length. This call, including the audio and slides is also being webcast from our Investor Relations website and investors. Micron.com. In addition, our website contains the earnings press release and prepared remarks filed a short while ago. Today's discussion of financial results will be presented on a non GAAP financial basis, unless otherwise specified. A reconciliation of GAAP to non GAAP financial measures may be found on our website. As a reminder, a webcast replay will be available on our website later today. 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 follow us on Twitter at MicronTech. As a reminder, the matters we will be discussing today include forward looking statements. These forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from statements made today. We refer you to the documents we filed with the SEC, specifically our most recent Form 10K10Q for a discussion of risks that may affect our future results. Although we believe that the expectations reflected in the forward looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of the forward looking statements after today's date to conform these statements to actual results. I will now turn the call over to Sanjay. Thank you, Farhan. Good afternoon, everyone. I hope that you, your family and your colleagues are safe and healthy. Along with Dave and Farhan, I'm doing this call from Micron's offices. Micron's strong execution in the fiscal third quarter drove solid sequential revenue and EPS growth. We are ramping the industry's most advanced DRAM node and increasing our mix of high value land. Our strong competitive position and diversified product portfolio put Micron in an outstanding position for the many exciting growth opportunities in the memory and storage markets. I'll start with an update on our operations. Due to the excellent work of Micron's operations team, Most of our fab and assembly sites operated at full production throughout the quarter with our Singapore and Taiwan assembly and test facilities achieving record production. COVID-nineteen's impact to our production early in our third quarter was limited to our backend assembly and test sites in Moir and Penang, Malaysia, and we quickly offset this impact with production adjustments at our other facilities. All our production facilities are operating normally at this time. We continue to prioritize the health and safety of all team members and contractors and have strong COVID-nineteen safety measures in place at all our sites worldwide. We are taking a conservative, phased and site specific approach to returning our team members on-site prioritizing our manufacturing workforce and engineering teams. Now turning to the market environment. The pandemic has impacted the cyclical recovery in DRAM and NAND causing stronger demand in some segments and weaker demand in others. Market segments driven primarily by consumer demand has seen a negative impact. Calendar 2020 analyst estimates for end unit sales of autos, smartphones and PCs are meaningfully lower than pre COVID-nineteen levels even though estimates for enterprise laptops and Chromebooks have increased. The reduced level of global economic activity tales near term demand. The pandemic is driving the epic change in consumer and corporate practices around the world. Consumers are significantly increasing online activity, including e commerce, gaming and video streaming, all of which drive additional data centered capacity requirements. Trends like working from home and online learning are likely to drive long term changes in how we think about workforce flexibility and education. Several governments around the world are considering ways to ensure the level playing field by considering significant programs that provide Chromebooks or tablets to students who cannot afford them as online learning becomes a necessity in these times. Additional government fiscal stimulus programs are also supportive of economic activity and will accelerate trends like electric vehicle production. Emerging technologies such as drone based deliveries and the increased use of robotics across many applications are now being pursued with urgency. Technology solutions are rapidly helping society adapt and manage the temporary and permanent changes stemming from this pandemic. Clearly, certain trends that would have taken 2 to 4 years to develop have been accelerated into months. It is easy to see how these changes will drive higher consumption of memory and storage in the long term. The faster pace of digital transformation in the economy is here to stay. Looking ahead to the second half of calendar twenty twenty, let me discuss certain key market trends. First, we expect the data center outlook to remain healthy. 2nd, we expect smartphone and consumer end unit sales to continue to improve, accelerating inventory consumption across the supply chain. And third, new gaming consoles will drive stronger DRAM and NAND demands. Despite these trends, Our short term visibility across end markets remains limited due to COVID-nineteen, macro and trade uncertainties as well as customer inventory changes. The recent restrictions on Huawei are also impacting our opportunity in the near term. As these risks recede, we expect the resumption of industry growth with a long term bit growth CAGR of mid to high teens for DRAM and approximately 30% for NAND. This growth will be supported by powerful secular technology ranging from AI and machine learning to cloud computing, 5G, and the growth in edge computing and the industrial IoT economy. Turning to industry supply, second half twenty twenty supply growth may be somewhat muted compared to pre COVID-nineteen expectations. Some suppliers have commented about delays and equipment deliveries, which can result in slower node transitions and lower bid growth. Specific to Micron, we are proactively aligning our bit supply to market demand. Our fiscal year 2020 front end equipment CapEx is down more than 40% from fiscal year 2019 and is at its lowest level in the last 5 years. While we expect to increase fiscal year 2021 CapEx to support high ROIC note transition, this CapEx will be meaningfully lower than our pre COVID 19 plan. We have also made changes to our DRAM utilization to align with the current lower demand in the automotive market. As end market conditions evolve, we will remain flexible to make any needed adjustments to our supply. Since 2016, Micron has made tremendous progress narrowing the competitive gap on leading edge technology nodes. In DRAM, we are ramping 1z technology, which is the industry's most advanced node and achieving yield improvements that reduce our costs. We have several customer qualifications underway for this technology. Our 1Y and 1Z node together now make up more than 50% of our bid production. We continue to make progress on our 1 alpha node which we expect to introduce in fiscal 2021. We have begun sampling our first high bandwidth DRAM memory product which is competitive with the industry's most advanced product and will expand our AI data center opportunity. We are excited about entering this new high value segment of the DRAM market and look forward to ramping this product after it is qualified with our customers. In NAND, our 128 layer 1st generation RG NAND technology entered volume production in FQ3, and we are pleased to announce that we have recently initiated customer shipment. We are also making good progress on our 2nd generation RG node which will be deployed broadly across our product portfolio. We remain on track for RD production to make up meaningful portion of our NAND outputs by the end of calendar 2020. Micron also continues to make progress with QLC. QLC Bets now represent more than 10% of Micron's overall NAND production, contributing to our NAND cost improvement. Fiscal 2020 has been a year of extraordinary gain in the mix of our high value solutions in NAND, which now make up over 75% of our quarterly NAND beds. We remain on target to increase this to 80% for fiscal 2021. The new Micron is undergoing a dramatic transformation to combine product leadership with technology, manufacturing and supply chain excellence. Across our entire portfolio of DRAM and NAND product, we will continue to focus on product differentiation and portfolio expansion to grow our share Turning to end markets. We had record quarterly revenue in solid state drive as cloud SSD revenue more than doubles quarter over quarter. We continue to introduce new NVMe products in our SSD portfolio, while maintaining our leadership in the enterprise SATA market. Customer qualifications are progressing well for our next generation products for both NVMe and Sata markets. Our client NVMe SSDs have also contributed to our SSD growth. In May, we announced that TLC client SSD and our first QLC client SSD, both using Next Generation 96 layer NAND Technology. As the only company with a portfolio of DRAM, MAND and CD Crosspoint Technologies, Micron is uniquely positioned to benefit from the secular data growth that is driving the cloud, enterprise and networking market. Our cloud DRAM sales grew significantly quarter over quarter with strong demand due to the work from home and e learning economy and significant increases in e commerce activity around the world. This quarter, we started early sampling of 1 Z DDR5 for enterprise applications. Additionally, we also started sampling our higher frequency DDR4 modules for Intel's Islay server platform, which we expect to drive server DRAM content growth. In networking, our DRAM bit shipments expanded significantly on a sequential basis, driven by rapid work from home infrastructure the it due to COVID, our mobile business delivered healthy sequential and year over year growth due to continuing momentum of our DRAM and NAND solution. The outlook for calendar 2021 is promising with 5G expected to drive a resumption in smartphone unit sales growth with a multiplier effect of higher memory and storage content. 5g phones will have greater content than 4g phone And you can see this already in the phones being introduced in calendar 2020. We see the strongest memory and storage content growth in the low to mid range part of the smartphone market, which is also the largest segment in terms of units. In this part of the market, 5G phones have 6 gigabytes of DRAM and 64128 gigabyte of NAND, versus 4g phone by 2 to 4 gigabyte of DRAM and 32 to 64 gigabyte of NAND. We are encouraged to see sub-two fifty dollars 5G phone, which make 5G accessible to a broader market. This lower price point has been enabled by BOM cost reductions in semiconductor content outside of memory and storage. Micron is well positioned to help our customers win in the 5G era with an industry leading product portfolio including low power DRAM and multi chip packages. We continue to achieve design wins for LP4 and LP5 5G platforms and our most advanced managed NAND product based on UFS 3.1 are now sampling at several major Android OEMs. In PC, our bit shipments declined modestly as we strategically moved supply of compute DRAM to address demand in the data center market. Demand was strong for certain PC sub segments that are supporting increased work from home and remote learning activities and our PC DRAM revenue was up sequentially as ASPs increased. While certain parts of the PC market have strengthened, overall PC unit shipments are expected to decline this year due to weakness in desktop PCs. In graphics, we have started shipping GDDR6 DRAM for next generation gaming consoles, and we expect strong demand in the second due to broad auto supply chain disruption. Despite auto unit weakness, secular content growth from ADAS and autonomous driving platforms resulted in record LP4 DRAM revenue for our auto business in the fiscal third quarter. Automotive production rates improve around the world, our auto business should return to a growth trajectory. I'll now turn it over to Dave to provide our financial results and guidance. Thanks, Sanjay. Despite COVID-nineteen, we achieved strong results thanks to resilient execution from our key members across the globe. Total FQ3 revenue was approximately $5,400,000,000, up 13% sequentially and 14% year over year. Sequential revenue growth was led by the data center and mobile markets. FQ3 DRAM revenue was $3,600,000,000, representing 66% of total revenue, DRAM revenue increased 16% sequentially and 6% year over year. Bitch shipments were up by approximately 10% sequentially, ASPs were up sequentially in the mid single digit percentage range. FQ3 NAND revenue was approximately $1,700,000,000, representing 31% of total revenue. NAND revenue increased 10% sequentially and was up over 50% year over year. Bitch shipments increased in the lower single digit percentage range sequentially. ASPs increased sequentially in the upper single digit percentage range. Now turning to our revenue trends by business unit. Revenue for the Compute And Networking Business Unit was $2,200,000,000, up 13% sequentially and up 7% year over year. CMBU sequential growth was driven by double digit quarter over quarter pricing improvements, and stronger demand for data center products. We were supply constrained for certain compute DRAM products which limited our ability to meet up 21% sequentially and up 30% year over year. The sequential growth was primarily driven by strong growth in our LPD Ram bit shipments. MCP revenue remained strong and was up significantly year over year. Revenue for the storage business unit in was $1,000,000,000, up 17% from FQ2 and up 25% year over year. SBU operating margins increased dramatically to 17%, up from a breakeven level last quarter. This significant sequential improvement in operating margins was driven by improved pricing, stronger data center SSD mix, and overall record SSD revenue. And finally, revenue for the embedded business unit was $675,000,000, down 3% sequentially and down 4% year over year primarily from a reduction in automotive demand. The consolidated gross margins for FQ3 was 33.2%. Sequential gross margin improvement was driven by pricing improvements in both DRAM and NAND, as well as our ongoing improvements in product mix The impact of underutilization at our Lehigh fab was approximately $155,000,000 or 2.85 basis points in FQ3. We expect underutilization to be approximately $135,000,000 in Q4 and expect gradual declines in underutilization through fiscal 2021. Operating expenses were $823,000,000 in Q3, As we said on last quarter's call, we've taken several actions to control our operating expenses given the increased uncertainty surrounding COVID-nineteen. As a result, we continue to expect favorable underlying OpEx trends to continue into fiscal FQ3 operating income was $981,000,000, resulting in an operating margin of 18%, compared to 11% in the compared to $6,000,000 of net interest expense in the prior and subsequent $1,250,000,000 investment grade note issuance in the quarter. We expect an interest expense will be approximately $30,000,000 in FQ4 due to the due to the decline in interest income because of lower interest rates. Our FQ3 effective tax rate was 3%, which benefited from approximately $19,000,000 of one time items. We expect our tax rate in the 4th quarter to be approximately 6%. Going forward into fiscal 2021, we expect our tax rate to be in the high single digit to low double digit range. Non GAAP earnings per share in FQ3 were $0.82, up from $0.45 in FQ2 and down from $1.05 in the year ago quarter. Due to the tax benefits reported in the quarter. Turning to cash flows and capital spending, we generated $2,000,000,000 in cash from operations in FQ3, representing 37 percent of revenue. During the quarter, Net capital spending was approximately $1,900,000,000, approximately flatquarteroverquarter. As we enter the final quarter of FY 2020, we are projecting fiscal year 2020 CapEx to be approximately $8,000,000,000. Our FY 2020 front end equipment CapEx will still be down more than 40% from last year. However, backend CapEx and building CapEx, either of which add to bit supply growth are up from last year. Free cash flow in the This represents the 14th consecutive quarter of positive free cash flow, reflecting the structurally improved profitability and working capital improvements of the new Micron. We repurchased approximately 999,000 shares for $40,000,000 in FQ3 at an average price of $43.54. In the 9 months of FY20, We've returned $134,000,000 of capital through repurchases and paid $266,000,000 to settle conversion of convertible notes. Combining the convert premiums and share repurchases, we have used $338,000,000 or 135 percent of FY20 free cash flow towards reducing the share count. Ending FQ3 inventory was $5,400,000,000 or 131 days versus 134 days last quarter. Our overall days of inventory are above our approximately 110 day target level, partly due to elevated NAND inventory as we transition to replacement gate. We are also carrying higher raw material levels as a precaution given the increased supply chain uncertainty due to the pandemic. We ended the quarter with total cash Total liquidity was approximately $11,800,000,000, up from $10,600,000,000 at the end of the second quarter. In the quarter, we issued $1,250,000,000 of investment grade notes and those proceeds together with $1,250,000,000 of cash on hand was used to repay the $2,500,000,000 revolving credit facility we drew at the beginning of the fiscal third quarter. Prior to providing our outlook and guidance, Now turning to our outlook. As Sanjay mentioned, while visibility remains limited overall, data center trends are strong. And new gaming consoles will be a tailwind to demand in the second started to recover we are seeing an impact from the recent restrictions imposed on Huawei. It is also important to remember that we are a lagging indicator relative the end demand. In addition, the risk of a second wave of COVID-nineteen infections is continuing to drive greater uncertainty for the economic recovery and our business. Lastly, inventory strategies of our customers are difficult to predict. We continue to closely monitor market conditions and respond to changes in the market environment in a timely and disciplined manner. With all of these factors in mind, Our non GAAP guidance for FQ4 is as follows. We expect revenue to be $6,000,000,000 plus or minus $250,000,000. Gross margin to be in the range of 35.5 percent, plus or minus 150 basis points. And operating expenses to be approximately $850,000,000, plus or minus $25,000,000. Finally, Based on a share count of approximately 1,140,000,000 fully diluted shares, we expect EPS to be $1.05 plus or minus $0.10. In closing, we're extremely proud of Micron's performance in this unprecedented period of market uncertainty and operational challenges. The tenacity, creativity and dedication of our team members around the world drove strong results that surpassed our initial expectations. Micron remains on very solid footing with an investment grade balance sheet, ever strengthening product portfolio and secular industry trends will continue to drive long term Thank you, Dave. The pandemic has impacted our financial performance trajectory, which was shaping up for the robust outcome this calendar year. Nevertheless, we have moved with agility to leverage the new opportunities in the marketplace and have further strengthened our product portfolio. Myron's portfolio is now dramatically better positioned from a competitive perspective and we have driven a tremendous transformation here over the last 3 years. In the coming quarters and years, we will continue to strengthen our business foundation. And as the industry environment improves, Micron is exceptionally well positioned to take advantage of long term trends and drive superior returns for our shareholders. Of course, preparing Micron for a bright future has to be about more than just quarterly business performance. We also have to be leaders in creating positive outcome for all of our stakeholders. In that context, there are two topics that I would like to touch upon before we move to Q And A. First, earlier this month, we issued our 5th annual sustainability report. This year, we set challenging new goals for energy use, emission, water use and waste generation that aim to dramatically improve the environmental sustainability of our operations worldwide over the years ahead. He also established an aspirational future vision that will drive us to achieve even more. Reaching our goals will require investment, and we plan to devote approximately 2 percent of annual capital expenditures to environmental sustainability initiatives amounting to about $1,000,000,000 over the next 5 to 7 years. These initiatives underpin our commitment to achieve significantly higher standards and help create a better planet. 2nd, I would like to address the social unrest and racial division that have gripped our country. The senseless and tragic deaths of people in our black community in the U. S. Must be addressed with real and lasting reforms. Hate, racial discrimination, violence and social injustice had no place in our society. Micron is committed to creating a welcoming and safe work environment for everyone. And we are taking concrete actions to increase technical training, career preparedness and opportunities for underserved populations. We're also actively engaging and investing in community programs that aim to create a more just and fair society for everyone. There is much work to do, and we look forward to being part of the solution. Thank Our first question comes from the line of John Pitzer of Credit Suisse. Afternoon guys. Thanks for letting me ask the question. Sanjay, David, congratulations on the solid results. Sanjay, if you think back 90 days ago, when you gave guidance for the May quarter, there was a lot of uncertainty around the pandemic and you guys guided it accordingly in hindsight extremely conservatively. I think your comment on the call last time was that you're building inventory. So you're assuming that your customers are building inventory. I guess as you look to the August quarter guide, was there a similar methodology used to inform this guide? And I guess specifically There's a lot of consternation in the investment community about data center demand. And you seem to be arguing that in your fiscal fourth quarter, it remains strong and you expect it to remain strong. In the calendar second half. I'm wondering if you could just share with us why you think that and why you're not as concerned as some perhaps in the investment community about inventory build. So specifically with respect to data center pre COVID, we expected 2020 to be a year of strong growth in cloud. Again, with all the trends building around AI and that needing more memory and storage we expected healthy demand for pre COVID and cloud applications. And of course, with COVID, as we discussed in the last earnings call, certainly some of the trends got pulled in, work from home economy as well as e commerce, gaming, video streaming, all of these drove strong surge in demand on the cloud front. As we look ahead at the second half, of course, Given the total COVID environment and uncertainties around COVID around the globe, we basically have limited visibility yet, we do believe that cloud demand in the second half of the calendar year will continue to be healthy for us. We work closely with our customers in terms of understanding their inventories. We understand what their demand trends are. And from what we can see customer inventories with respect to cloud are in a healthy place. And course, there are other parts of the market, such as mobile phone, where there are other considerations such as geopolitical, considerations as well as related to COVID as well, where customers may have built up some additional inventory And in mobile, in particular, you saw in China that how in April, post COVID within China, the demand vendor searched up for smartphones. So some of the customers may be preparing for as the consumer comes back, given the low point that the world experienced in March, April timeframe, customers want to be prepared to supply the smartphone demand to them as well. So overall, it's a mixed picture. With respect to the inventory on the customer front, cloud inventories are in decent shapes, mobile, I would say, somewhat in anticipation of demand as well as managing to the supply chain considerations due to COVID. And some geopolitical considerations as well. So overall, I would say as when we look at fiscal first quarter, the environment is similar to what we had experienced in our Q3 and Q4. And of course, our best assessment is baked into the guidance that we have provided to you. Perfect. Thanks guys. Appreciate it. Thank you. Our next question comes from CJ Muse of Evercore. Your line is open. Good afternoon. Thank you for taking the question. I guess a question on gross margins. How should we thinking about mix particularly DRAM as we move into the August quarter. And I guess we'd love to hear as part of that what implied cost downs will look like. And really just trying to understand the nice step up you're seeing how much of that is mix versus cost down versus perhaps other? So, well, let me step back to Q3 a second. So gross margins obviously expanded in the third quarter as well. As I said in the prepared remarks, I'd say that that was the pricing environment in both DRAM and NAND combined with just a richer mix of higher value products, which which obviously carry with it, better gross margins. From a high value solution perspective, I think we see that again in the 4th that is helping drive an improved outlook for gross margins for the 4th fiscal quarter. You know, CJ, that we don't telegraph pricing and cost out for future quarters. But suffice it to say, we take both pricing and cost reductions into account. And obviously, the combination of those are, are pretty favorable. The other thing I would say is in the the 3rd fiscal quarter, we did have some, expenses associated with, COVID 19, both in terms of just increased spending on our part to manage through some disruptions that we had early on. And then on top of that, we did have to move around the back end production that did increase our tariff expense in the third quarter. So those things we wouldn't expect to happen again in the fourth quarter, which is helping also on the gross margin front in the fourth quarter. Thank you. Our next question comes from Blayne Curtis of Barclays. Guys, thanks Timmy question. I'll echo this congrats. Just on CapEx, it seems like this year there was some return that maybe lower it. It's $8,000,000,000. I guess when you look at next year, I don't know where your starting point was, but I was wondering if you could walk us through some of your moving pieces. You talked about 5G as being the big tailwind. That makes sense. I'm curious what you would highlight, that you're taking in account for next year on the other way? Yeah, I mean, the one thing to keep in mind is, so CapEx spending this year had a fair amount of construction expense And actually, we drove the front end equipment expense down quite considerably on a year over year basis. Sanjay said in the prepared remarks, it was down more than 40% in both DRAM and NAND. So we cut back pretty heavily on the front end equipment side, this year. Next year, we would expect, some of that to come back. In particular, we're going through a full rotation into our 2nd generation of replacement gate. That certainly will drive some, CapEx increases. And offsetting that, we'll have to look at construction and see what directionally we want to do there. I'd say we haven't firmed up what the CapEx plans, but lead for the year. As you know, we maintain a lot of flexibility around CapEx. We take a hard look at the demand profile of bits over the next few years. And we kind of manage the front end CapEx accordingly to make sure that we're staying aligned with that. So over the next couple of months, we'll continue to refine our outlook over the next year or 2. And I think we'll be able to give you a better picture, when we have our fourth quarter earnings announcement. I would say when we looked at, coming in pre COVID levels on the CapEx front, for front end equipment. And now that we look at it now, it certainly has been cut back. And our expectation is that will impact kind of our bit supply, in the calendar fourth quarter. Thank you. Our next question comes from Harlan Sur of JPMorgan. Your line is open. Good afternoon and congratulations on the solid execution. Last earnings call, the team highlighted the supply production shift in mix from mobile server DRAM to service the higher demand from your data center customers. Given the outlook for stronger data center demand, are you guys keeping the production mix more heavily weighted towards server DRAM or are you already starting to shift part of your DRAM production mix back to mobile? So we, of course, manage our mix on an ongoing basis. We assess customer demand expectations and made judgment regarding managing that mix. So yes, like you noted, we had shifted some of the supply from mobile toward the server applications. And at this point, we continue to make, study how the trends are evolving. And we think we are in a good position with respect to managing our mix. But if some changes are needed, we'll of course revert to making those changes in the future. Great. Thank you. Thank you. Our next question comes from the line of Timothy Arcuri of UBS. Your line is open. Thanks a lot. Sanjay, you talked about Huawei, I think, twice or maybe 3 times. And I know you've been reshipping under the licenses and the new restrictions are really on ASICs, not on standard products. So is that comment really more around the fact that this is sort of the last extension of the commerce licenses And, and so you won't be able to ship to them in another few months. And can you sort of quantify how much is your quality exposure right now? So thanks for asking that question. Just to be clear, the Huawei placement on entity list We had applied for licenses and we secured those licenses for mobile and server shipments. And we do not supply in to the networking side of the business. We never sought that license. So the entity list placement that had happened several months ago did impact some of our outlook, but we have been operating under the licenses that we have already received. The comments that I was making today is really related to, last month's action by Commerce Department, which will go into effect sometime next month. And as a result of that action, we are already starting to see an impact in our fiscal Q4 as our customer reacts to the actions by the U. S. And quite frankly, impacts related to Huawei are still unfolding. We expect some of the impact to Huawei, yes, related to the foundries, but it affects their potentially overall considerations on managing their business, managing their supply chain. And we expect some of these impact to continue in FQ1 and beyond as well. And then this is compounded further by changing inventory strategies at customers, as well as market share shifts that happened between the smartphone players. So as far as we are concerned, you know that we have improved our revenue diversity, we have significantly expanded and strengthened our product portfolio. And we have good design and activity with all key players, particularly with new products that we have introduced, such as UFS 3.1, LP5 DRAM and multi chip packages. So we continue to work with our customer ecosystem to mitigate the effects of this, but the particular comments that you heard us talk about on the Huawei front really relate to the actions from U. S. Government that have last month that have impacted the customer reaction, the Huawei reaction to those actions and impacting our outlook in FQ4. And then I guess just how much of, revenue wasn't maybe in May, Dave? In the May quarter, the at Q3 quarter, that did not the action announced last month, did not action announced by the commerce department last month did not have an effect in FQ3. Now suffice it to say that, we didn't list them as a over 10% customers. So you can, make the assumption that it was below 10%. Okay. Thanks, Dave. Sure. Comes from the line of Joe Moore of Morgan Stanley. I wanted to ask about customer inventory. I went to revisit that. To the extent that customers are wrestling with pretty unprecedented potential supply challenges. Do you think they're building up buffer inventory to deal with that? I mean, we've seen single earthquakes in one region caused that behavior in the past. Now we're dealing with rolling outages across multiple continents. Do you think customers may be building inventory And if so, do you think memory sort of less or more impacted than other things from that? And I have a follow-up. So what I can tell you is that Micron itself in our supply chain operations has focused on making sure given all the considerations around the globe, with all the uncertainties around COVID and COVID containment and COVID spread, Micron itself in its supply chain operations is increasing the inventory for raw materials to make sure that we are well prepared to meet our customer demands. So this trend of higher level of inventory, elevated level of inventory is It's been talked about and is common in the tech supply chain. And with respect to our specific customers for memory and storage, So as I mentioned earlier, so yes, some customers may have built some inventory given their considerations, their concerns around supplies potential supply chain disruptions that may occur due to all the COVID related uncertainties, as well as I pointed out, some of the customers in the mobile may have done some inventory given U. S.-China trade tensions and the regulations. So the thing is these are unprecedented times uncertain times, not just for us or for the memory industry, but for our customer ecosystem as well. And customers inventory strategies are changing. They are adapting as they themselves see how their market trends are evolving and how they want to best address their own inventory position as well. So this is a changing environment. We continue to work closely with our customers And we make adjustments as appropriate. And key is to be adaptable and to be agile. And I think we have shown over the course of first half of this calendar year that we have been, really running our operations with tremendous amount of adaptability and agility and continuing to produce healthy results. Great. Thank you for that. And then in terms of the strength that you guys are seeing in cloud, in the second half. Would you differentiated all by geography? I think you mentioned China being stronger, but is it any different China versus the rest of the world in cloud? We're not going to break it down here between China and rest of the world, but overall, when we look at in totality, we continue to see healthy demand trend in cloud in the second half of the year. And of course, cloud, when you look at long term trends, I mean, long term cloud is still actually in early innings. And long term trends for cloud are strong because AI as well as 5G, 5G driving more intelligent devices at the edge growing more data opportunities. It's really the virtual cycle between cloud and intelligent devices at the edge. And then industrial IoT and everything around Autonomous And Robotics, all of these trends, we point to growth at the edge as well as in the cloud. So long term trends continue to be healthy. Will it ever be a little bit lumpy here or there? Certainly, it can be But the point is that long term growth drivers are solid and secular in nature for cloud. Great. Thanks so much. Our next question comes from Mitch Steves of RBC Capital Markets. Your line is open. Hey, guys. Thanks for taking the question. So here's mentioned 2 things on the call that I wanted to double click on. So the first one, you mentioned that some of the shipments of semi cap didn't come in on time. So is this enough in your opinion to kind of impact the price of memory? Not looking for specific numbers, but what was the shipment miss impactful amount? Do you think it's going to hurt supply in to move the price? And then secondly, just high level, any comments on the U. S. Government kind of incentivizing U. S. Manufacturing? So we got TSMC coming to the States? And any impact you guys think it'll happen to you guys in the future? So regarding equipment piece that you asked, let me be very clear that, Micron did receive its equipment in time because our equipment deliveries were rather early in fiscal Q3 toward our 1Z technology ramp and DRAM. And of course, other aspects on the NAND front as well. So we did not say that equipment deliveries were delayed for us during FQ3. However, it is well known and has been talked about in the industry that given the various challenges due to COVID such as logistics and transportation related challenges, as well as supply chain challenges. Some of the equipment deliveries have been impacted in the industry. And yes, for us, in the future, it is possible, given the challenges of COVID that some of our deliveries in the future may get impacted. But in the past, we have been in good shape overall with respect to our receipt of equipment, again, because timing of most of that equipment delivery was such that we were able to actually escape some of the potential challenges in this regard. So from an industry point of view, if equipment deliveries get impacted, which have been talked about, there have been reports, equipment suppliers have talked about some of that as well. Then obviously that impacts technology transition capabilities and therefore it can impact supply, perhaps some supply growth, somewhat lower than pre COVID expectations due to the difficulty in making sure that the equipment are delivered on time as well as equipment install and equipment ramp. Is happening smoothly given all the travel considerations involved as well. So yes, to the extent that affects the supply growth and lessens the supply growth, it obviously impacts the industry supply and demand environment. We have talked about that the demand also due to COVID in certain pockets, certainly has been less particularly those pockets related to COVID. So and we don't really comment on the pricing, but obviously supply has an important role to play on the pricing front. Your Second piece of the question regarding, possible U. S. Incentives for semiconductor manufacturing, Let me first say that we are pleased that the U. S. Administration as well as the Congress is considering incentives for U. S. Semiconductor industry. This just goes to highlight that U. S. Semiconductor industry is extremely important to our economy today. Semiconductor really forms the foundation of the economy of the future and also highlights the recognition of this importance by the officials in Washington, DC. And really, it's important that U. S. Maintains its global competitiveness and innovation capability. So from that point of view, we are pleased that there are these considerations, the bill that has been put together. Of course, a lot of detail still has to be worked out and the bill be approved. So we will continue to monitor this. And from the point of view of memory, I think the important thing is that cost and scale in memory are extremely important considerations. Micron in this regard actually has a well diversified footprint of front end manufacturing across the globe. You know that we have fabs here in the U. S. In Manassas Virginia as well as in Utah and state of the art best in class R and D facility in Boise, Idaho as well. And of course, we have R and D and manufacturing for memory in Asia as well. So we will continue to monitor these trends, but important considerations are scale, cost and ROI on any investments is important. It's not just about government incentives. It's about managing the business in a healthy fashion, keeping in mind ROI considerations. And above all, it's extremely important that supply growth is managed in a cost effective fashion, but also managed in a fashion to not disrupt the industry to certainly not disrupt Micron's supply plans and make sure that supply CAGR is aligned with demand CAGR. So while we welcome these incentives for growth of U. S. Semiconductor Industry And Innovation Agenda, we will continue to monitor this in a very disciplined fashion. Before we make any decisions in this regard Thank you. Our next question comes from Chris Danely of Citigroup. Just a question. Can you just talk about the linearity of bookings during the quarter? Did they sort of build all quarter? Was there some volatility in there? And then you also mentioned mobile and data center were the strongest end markets, were both of those stronger than expected? Yes. So linearity bookings was, was pretty, I would call it pretty linear through the quarter. No surprises. And the mix Of course, we as we said, data centers showed good strength through the quarter. And mobile was a bit weaker than perhaps we were thinking coming into it. But, just in terms of linearity, but in general, I would say actually a fairly linear quarter for us. Thank you. Our next question comes from Mimi Hosseini of SIG. Your line is open. Yes, thanks for squeezing me in. Most of the good questions have been asked I just have a follow-up. I'm just wondering Sanjay, what would it take for your customers to feel comfortable it's signing multi year by quarter rather contracts. I remember when supply was tied back in 201617. The industry was highlighting the longer term contracts associated with enterprise customer. I think that has changed. In the context, how do you see this coming back and a more pertinent part of the memory industry? Thank you. So, Matthew, you were breaking up a little bit. However, your question is a good question. And of course, we as you know, our customer base is extremely well diversified from automotive to data center to PC to smartphones and networking and industrial and consumer customers. So customer requirements with respect to discussions around supply. And, from us, they vary. Some of the customers are managing it. On monthly basis, some manage it on quarterly basis. And with some customers, we do have supply agreements that extend for years. Timeframe, of course, certain pricing discussions, etcetera, are I mean, are not part of these contracts. They tend to be around supply and discussions around pricing tend to be on an ongoing basis. Auto is an example where the contract can be multiyear contracts, long term contracts. So it really varies from market to market. And you know that the technology and product mix continues to change as well. So I think we want to be careful in terms of the length of the contracts that we manage with the customers and We manage, I believe, the diversity of our customers very well. And our customers value our supply, they are valuing the product portfolio that Micron is delivering. They are recognizing that we are the only company in the world that have NAND, DRAM, and 3 d cross point. And ability to bring innovative products and solutions to them with a mix of technologies in them as well. And this really positions us uniquely. So our discussions really regarding longer term nature of product roadmaps and supply considerations we win all of these various aspects and are built around the roadmaps as well. So things do change in this business. And therefore, multi year contracts are more in the market that are auto market where more legacy nodes are required to be in production for longer terms. But the parts of the markets where technology and products are moving fast, it's not about multi year contracts there, but varying length of contracts depending upon the end market customers. Thank you. Our next question comes from Carl Ackerman of Cowen. Good afternoon, gentlemen. Thanks for letting me ask a question. It's great to see the improvements in your SSE segment, both client and enterprise, First, what sort of percentage could QLC drives represent as a portion of your overall FSD mix next year? Could it be 25% or more? And I'd appreciate hearing your perspective on the developments taking place in enterprise SSDs. On one hand, your U. S. Based competitor has been adamant. They're going to gain significant share in enterprise SSDs this year, yet merchant controller manufacturers do enable cloud provider students on their own in house enterprise SSDs rather than just relying on off the shelf SSDs from OEMs, So I was hoping you could just provide, the opportunity that you see in enterprise SSD this year versus peers. How you see that playing out over the next 12 to 24 months, particularly as some of the new technologies that you're introducing in operating, such as PTR E 4.0 becomes more mainstream. Thank you. Thank you for asking the question. We are very pleased with our execution in SSDs, as we noted, that record quarter for us in SSDs and really solid sequential growth in SSDs. And this is happening as we had said before that during calendar year 2020, we will be expanding our portfolio of SSD solutions, introducing NVMe solutions for client as well as data center markets. And we had said before that as we bring out those new solutions as we qualify them with those customers, those NVMe solutions, it will give us an opportunity during the course of the year to gain share. And this is what has been happening during the course of this year. With our strong performance in SSDs, we actually have been gaining share, yet our share is still relatively low. And as we continue to bring out new products in the future and several are underway and several qualifications are underway as well with our customers. We will have ongoing opportunities through the course of next year as well. In terms of driving for profitable share gains front as well. We are shipping QLC SSDs in the consumer market as well as, we have product offerings that will be having, drive future opportunity for us on the value side of the PC on the OEM front. As well and QLC SSDs are also being used in lead intensive applications and replacing 10 K HDDs as well. So you see there are multiple end market applications and opportunities for our SSDs. And We are already more than 10% of our total NAND consumption with respect to QLC. And this presents a good opportunity for us And we fully expect our SSD mix to continue to increase as we bring out more new products over the course of next several quarters. So yes, I mean, QLC as a mix of, SSD percentage will go up for us. And let me just add that QLC is obviously an opportunity that instead of 3 bps per cell, it has 4 bps per cell, So obviously, once done right and you really have all the BOM cost taken care of on the product side, it gives you lower cost and therefore improved profitability opportunity as well. So we are, certainly focused on increasing the mix of TLC. At the same time, TLC will remain vast majority of the market for considerable period of time Our final question comes from the line of Mark Newman of Bernstein. Your line is open. Hi, thanks for squeezing me in. Congrats on strong numbers today. Just a follow-up question on the data center segment, that seems to be, I mean, it sounds like everything you said today is very upbeat, quite bullish data center demand remaining quite strong. There seems to be some worries in the market, particularly around some investors of hyperscalers, inventory having increased slightly. And I think the worry is stemming from what happened in 2018 with the cuts in orders in late 2018, which, which continued too much for 2019. So my question is, at how, how has the communication changed with the data center? Did the hyperscalers are you having more frequent and closer communication with them to determine, trying to get a better idea of what the inventory levels are or otherwise is how can you, help sues those fears that the data center demand is going to remain stronger for longer as we hope it will. So first of all, I would say on the inventory side pre COVID data center customers as well as other customers largely had inventories that had returned to normal levels. And certainly supplier inventories were at normal level as well pre COVID. And the COVID environment, work from home environment has driven strong surge in demand. On the data center front. And as we mentioned, we expect demand trends to continue to be healthy in the second half for data center as well. In terms of inventories in the data center market, yes, while certain customers may be carrying higher levels of inventory again for the reasons that I had mentioned earlier related to, their own supply chain considerations. As well as changing environment with respect to the demand. But the point is that compared to 2018 or 2019 environment, customer inventories are really at a much better, much healthier levels. This is not like a 2018, 2019 situation. Even if certain customers are carrying some higher levels of inventory, again, given the uncertainties around COVID. And the other point I would say is that, while COVID does give us lower visibility and does bring about uncertainty, not just for us, but for our customers as well. Cloud is an area where the long term demand trends, as I mentioned earlier, are secular in nature overall. So memory and storage, given the kind of applications that customers, our data center customers, hyperscalers are working on, those are requiring more memory and more service. So the longer term trend continues to be healthy. In the near term, yes, I mean, COVID does have unprecedented amount of challenges and uncertainty in the entire tech ecosystem and we are doing our best to continue to work with our customers Our relationships today, since we were asking about those, are certainly a lot closer than they were in the previous timeframe, I would say that even hyperscale customers have become somewhat more sophisticated in terms of understanding the memory dynamics and improving their own supply chain operations. So it's really a 2 way relationship. We do work closely together with them. Having said all of that, of course, our visibility cannot be perfect. In this area, we continue to focus on working closely with the customers, understanding the requirements and planning our supply chain accordingly. And what also helps is that the markets are quite diverse for us. I mean, yes, cloud is a strong driver of, growth for the business but also we are well diversified with a strong mobile footprint as well as PC and between DRAM and NAND. And as we talked about diversified into the gaming side, with new gaming consoles coming in, needing more DRAM twice as much DRAM in new gaming consoles. So diversity of the business is certainly a helpful factor for us to manage through some of these uncertain please. Thanks very much, Sandra. It's very helpful. Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.