Status Update

May 22, 2020

Slides

Ladies and gentlemen, thank you for standing by, and welcome to the Mobile Business Unit Update winning in the 5G era conference call. At this time, all participants' lines are in a listen only mode. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today. Mr. Farhan Ahmad, Head of Investor Relations at Micron. Thank you. Please go ahead sir. Hello. I'm Farhan Ahmed, Head of Investor Relations at Micron. Thanks for joining us for today's presentation and Q And A session. On the call with me today is Raj Daluri, Senior Vice President And General Manager of Micron's Mobile this unit. Dave Cintner, our CFO, will also join Raj during Q And A. We request that you keep your questions focused on topics related to today's presentation 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 the statements made today. We refer you to the documents we file with the SEC, specifically our most recent Form 10 K and Form 10 Q 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 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'll now hand it off to Raj Thanks, Farhan. I would like to welcome you to this call. By the way of introduction, I joined Micron 2 years ago from Qualcomm, where I worked for 9 years and was part of the leadership team that brought Snap Dragon to market. Prior to that, I was a Texas instrument for 15 years and also part of the mobile leadership team there. Having worked for over 25 years focused on mobile segment of the semiconductor industry, I can tell you that It's a degree of why I joined Micah. Before diving into the presentation, I want to briefly cover the near term business environment As we mentioned on the last earnings call, Corby is adversely impacting the mobile demand. Since then, as China has reopened, it has been widely reported that the mobile demand has rebounded. We are hopeful that as Europe and US start to recover, we will similarly see a recovery in the mobile demand in the coming quarters. While the near term environment is clearly challenging, I will primarily focus on longer term trends in our memory business unit and how we are positioned to win in the 5G era. Now, turning to our presentation today. Today, I'm going to discuss the 5G opportunity with a focus on Micron's mobile business unit, our mobile strategy and the financial results we are achieving. I'll start off with an overview of 5G. 5G presents a huge opportunity because it will mean a 10x plus change in network performance which will drive the proliferation of connected devices. As for mobile specifically, it will be a catalyst for unit growth and content growth. The 4G to 5G transition is unlike any before because it combines a high magnitude of change across all three of the most important technical vectors that define a network performance, speed, latency and the density of devices that can be supported by the network. 5G download speeds of 20 gigabits per second make it possible to stream 360 degree video in high resolution enabling AR and VR applications and also port streaming where users can control the vantage points and the camera viewing growth. Low latency means systems that are far apart can operate as if they're in the same place. This means massively multiplayer online games with imperceptible lag times. And in health care, the possibility of remote surgeries via connected surgical robots. And the TENEX high density enabled by the 5G network means you can have 1,000,000 devices per square kilometer enough to support the internet of things and machine to machine communication. Today, I'll focus on what 5G means to our mobile business unit. But it's important to understand that 5G will also drive secular demand across other Micron business units. 5G will drive a proliferation of connected devices at the edge and networking and data center infrastructure at the core for applications and services that support these devices. Together, the interaction of these devices with each other and data center will result in an acceleration of data creation, analytics and storage, along with the the demand for Micron's products and solutions. 5G will lower the cost of data transmission and will usher a new era of devices and services, many of which are hard to imagine today, but that will be realized over time. These will be transmitted to our lives as creation of the internet has been. Turning to mobile. 1 of the early applications we expect to see is video everywhere. The faster speed and lower latency of 5G will enable 8k live streaming ARVR enabled content and multi channel broadcasting offering users selected viewing angle. Video is data heavy and will drive the need for both DRAM and NAND Thornton. As consumers interact with more video, the amount they will store for offline access will also increase. 5g phones will have greater levels of memory and storage content than 4 gs phones. And we can see this already in phones being introduced in calendar 2020. Even early generation of 5G phones need more content because they need to be able to support the future application In addition to video, which I mentioned earlier, these applications will include AR and VR, gaming, multitasking and more sophisticated always on AI assistance. In flagship Android phone, defined as those selling for more than $600 The average DRAM content will increase from 6 gigabytes plus to 8 gigabytes plus and the average NAND content will increase from 128 gigabytes and 2.36 gigabytes to 250 gigabytes and 512 gigabytes. For some premium flagship phone, we see phones with 6, 16 gigabytes of DRAM and 1 terabyte of NAND. In high end, we see similar increase in DRAM and in NAND as its flagship, but using MCPs instead of discrete DRAM and NAND. MCPs are multi chip packages, which combine DRAM and NAND in one package and simplifies smartphone design and production for our customers. We see the strongest content growth in the low to mid segment, which is also the biggest part of the market in terms of units. 5g phones priced near $300 have 6 gigabytes of DRAM and 64.128 gigabytes of NAND. As integrated application process and more than reduce the 5G form bomb costs, we see the potential for sub-two hundred dollars 5G forms. In addition to the continued content growth, we expect 5G will reaccelerate the replacement rates and return the market to unit growth, whereas the smartphone unit slightly declined from 2016 to 2019 and declined unexpectedly in 2020 due to COVID. We anticipate that there will be growth from 5 5G smartphone demand has remained more resilient during this period of demand weakness due to COVID. Data list is showing that 40% of the mobile phones sold in China in April were 5G phones. We remain confident in the growth trajectory of 5G phones, expect approximately 450,000,000 5G units in 2021. Combining the unit trends to the content growth, we see bit demand CAGR of 15% in DRAM and 30% in NAND from 2019 to 2022. Our demand forecast have been conservatively revised due lower due to COVID. As always, we remain disciplined in growing our supply in line with the evolving market dimension. Now I'll discuss our strategy in mobile. Our team, execution and technology and product leadership has put us in an outstanding position to win in the 5G era. Our global networks of manufacturing technology and business centers of excellence play a key role in our strength. Our global footprint allows us to benefit from scale while streamlining processes and operations. It also brings together some of the world's brightest talent to work on our most advanced memory technologies. We also support our customers' innovation and success by being where our customers lead us with local sales offices and customer labs. Through our diverse global operations, we deliver comprehensive collaboration, support and quality throughout the product lifecycle. Micron's mobile business unit has expertise in understanding the usage of memory and storage in various mobile applications. We take a holistic approach that considers the overall mobile system and examines how our products can affect the application performance and ultimately, the experience of the smartphone users. To do this, we attract the industry's best talents with extensive expertise that span silicon to systems. Additionally, we have organized our team so that they're highly collaborative, both internally within Micron and externally across the ecosystem. Our teams work with alignment across products, operations and sales so that our roadmaps align to our customers and ecosystem partners needs. The new Micron has gone through a dramatic transformation by rapidly improving our execution. Looking back at FY 2018, we were late to introduce 1x DRAM. And our mobile products were coming even later as we prioritize other segments in our early ramp. The net result was that our mobile products were more than a year behind competitors. Fast forward to today, we've gone from a lager to a leader. We have been the first to introduce 1b nanometer based LP DRAM first to bring LP5 technology to market The first introduced UMCP5, combining LP5, the advanced UFS 3.1. We were also the 1st in industry to support the ultra high speed 6.4 gigabits per second throughput on our LP5 products. In NAND, we've gone from lagging industry by more than a year in 2018, to catching up with industry this year, as you are targeting the introduction of UFS C.1 in line with the market. In summary, whereas 2 years ago, we used to lag the industry today, we are leading on process technologies, new interfaces and speed. As a result of this execution, Micron has emerged as a technology and product leader in mobile space with a complete portfolio of mold products that are qualified with all the major chipsets. Qualification with mobile chipsets from companies such as Qualcomm and MediaTech accelerates the qualification of products with smartphone OEM. Additionally, the breadth of our product portfolio offers our customers greater flexibility to design phones that better match their target market segment and that redefines the user end user experience. ICONS LP file is a great example of a product that redefines end user experience. Building on the success we've had with LP4, we lead in LP5 technology with the leadership in power efficiency and speed. Our LP5 product as approximately 20% lower power consumption for bandwidth intensive use cases, including 8 way recording, 8 k recording, compared to our competitors LP5. Our LP5 is also the fastest low power DRAM in the market, delivering 6.4 gigabits per second translating into better performance for AI applications, superior photo and video and more. Now I'd like to highlight a few key results that demonstrate how we have improved the performance of our mobile business unit Micron has been delivering solid results, gaining share in the most attractive parts of the mobile market and driving strong cross cycle profitability. Although the smartphone annual unit sales declined from 2016 to 2019, Mobile Business Unit demonstrated a strong growth during this period. Our revenues doubled from 2016 to 2019 much faster than the growth of industry, which grew approximately 28% during the same period. This relative outperformance to the mobile DRAM and NAND industry was predominantly driven by growth in our mobile high value solutions, which include MCP, and manage discrete NAND products. Mobile high value solutions combine a controller and firmware with our NAND component combining these parts together increases the product cost per bit, but it increases the value even more. The value in high value solution comes from reducing our customer's R and D expense and speeding up the development and qualification time. Mobile high value solutions now represent the majority of the mobile market. We have made tremendous improvements in our product portfolio in this area, allowing us to nearly triple our high value solutions revenue from 2016 to 2019. And to broaden our customer base, to include all major smartphone OEMs. Micron also continues to maintain a strong position in discrete DRAM market, with our industry leading LP DRAM offering. Our LP4 and LP5 products have approximately 20% lower power consumption in bandwidth intensive applications and bandwidth intensive use cases compared to our competitors. This advantage also differ shared our MVPs from our competitors. The growth in our high value solutions also positively impacts our profitability and reduces margin volatility. Combined with our faster than industry cost reductions and improving industry dynamics, this has helped to improve the MBU cross cycle profitability. Through the last 4 years, we have demonstrated operating margins up a very strong 33 percent for the mobile business unit. In summary, Micron's mobile business unit is strong. We have a world class team, technology and product leadership, and we are executing to win in the 5G era. I will now open the call for questions. And our CFO, David Dinsner, will join me. Our first question comes from John Pitzer with Credit Suisse. Your line is now open. Yes, Raj, it's Farhan, David. Thanks for doing the call. Raj, I have kind of 2 big, bigger picture questions that I think capture some of the concerns investors have. 1st on the NAND content story for 5G, just help me understand kind of the tension between storing more at the phone versus having ubiquitous connectivity and storing more at the center, especially as OEMs kind of struggle with bomb cost on 5G phones? And then secondly, just relative to the Huawei bans, I'm kind of curious to get your perspective on whether or not That slows the deployment of 5G infrastructure in China and what impact that may or may not have on handset unit demand. Okay. Nice to hear from you, John. Yes, so let's talk about the first question, which is, NAND content in mobile phones because of 5G. Interestingly, we're actually seeing that 5G will actually drive more storage need in the phones, than less. And the reason is, I think that the speed at which now you can connect with the network is higher. So people really want to download a lot of content in a short term. That's one of the big reasons. Like, and also the content itself, if you look at a lot of the content places where you get content from that like Netflix and Prime and so on. I actually moved to this model of a lot of 4K video now and they let you download entire seasons of episodes and people just want to get it all down in the phone. So they have even we're connected, not connected. That's one reason. The other thing we actually found is actually very interesting. Most people when they buy a new phone now we find that most of them will start by restoring the backup they've had of their old phone. And so almost everybody in the app led to a new phone starts in the back of the phone that takes up quite a bit of the NAND that they had before, and now they're forced to buy a new one. And the third one we found is the app centric If you look at things like WhatsApp and Instagram and in different parts of the world, different chatting apps, there is so much audio and image content in those apps. That very quickly it's eating up the storage space that you have. So those are actually some of the trends that are actually making it go faster. And also, the latency at which you can actually have that performance is kind of very, very important, going up to the network and coming back. We don't have that immediate experience that you had on high resolution pictures. And the last one we found is, as your latency gets low and start playing market player games. These game applications are actually very, very large apps and they take a lot of storage because they have a lot of seen content that actually goes into the NAND and the app launches. So we're actually seeing it move up as 5 year launches. Your second question on 5G rollout, we actually are seeing the 5G rollout continue as planned China. And also in U. S, we haven't seen that slowdown at all. Europe may be slowing down a little bit because of COVID and when you take to build into the infrastructure. But on the whole, we are fairly optimistic that in the next year, it'll just continue to be move as fast as we expected because 5G does provide, as I explained in the presentation, a lot of clear end user benefits, and that's what ultimately drives the penetration of these costs. Raj, maybe another way to ask the NAND question. How do you see handset OEMs dealing with the increasing bomb cost pressure of 5G phones, just given the margin world that they live in? Yes. So one thing to realize, you know, I've been in the industry for a while, right? I've been there at 3G launch, 4G launch now. This is my 5G's 3rd generation 5G launch. What typically happens when new technologies launch is, people like Qualcomm And MediaTech and who actually make this process initially launch with a separate application process in the modem. And so they have a separate memory system on the application process, separate memory system on the modem. That increases the total BOM cost quite a bit. And also in some cases, the RF is actually duplicated, because it was not all integrated to because of time to market Now as we see and so the total bunk has actually very high because of that reason. Now as we see single chip solutions come out, which we already seen them come out, very quickly, the BOM cost gets a lot more manageable and we see that people are actually adding memory and NAND because that actually matters to the end user experience. Thank you. Our next question comes from CJ Muse with Evercore. Yes, good afternoon. Good morning. Thanks for taking the question. I guess first question, and perhaps this is you know, a few years into 5G, but given how real estate is increasing in importance, with the move to 5G, Are you seeing any sort of changes in packaging requirements in this transition? Yes. So I think a couple of things, that's why I believe that high value solutions and MCPs are going to be really important, and that's why we launched our first UMCP file. When you have discrete solutions, you basically need 2 different packages, one for NAND and for DRAM. And also many times that DRAM is actually put on top of the apps process, so it increases the thickness, thereby taking away some space from things like battery. So we actually see that as 5G rolls out more and more, what we call MCPs or multi chip packages, which actually integrate DRAM and NAND, and what we call high value solutions are going to be more and more prevalent and that's actually something we are quite excited about. Great. And as a quick follow-up, on the last earnings call, you guys talked about migrating certain wafer starts to servers away from mobility. But here we are, into some sort of seasonal rail for smartphones into the back half of the year. You are integrating into MCP package. How in this uncertain environment do you kind of manage production starts. Would love to kind of get your thoughts on that. Yes. Good question. So as we mentioned last time, we saw, because of COVID, we saw an effect in mobile phone demand and also some production in China. And then we reacted by moving some of the bids to other areas where we saw stronger demand because of what from home economy and all that. Which actually was a good move that we did. What we're seeing now is we actually see China recovered now and, of course, COVID now is in the rest of the parts of the world and we're seeing that closely. We talked to our customers very regularly, not actually the cadence of our communication to the customers that actually increased quite a bit. I'm on calls every month with all our key customers. And as we see things recover, we are quickly making the adjustments to make sure that we are the right products for them. Our next question comes from Blayne Curtis with Barclays. Your line is now open. Hey guys, thanks for the resignation and taking my question. Maybe to follow-up on John's trade question. I'm just kind of curious, obviously, it's been a moving target to try to quantify all the effects. But to the fact that Huawei can't get chips and share moves to Android, I'm kind of just curious, your perspective as to your positioning in non Huawei Android and whether it'll benefit you? And then I'm kind of also curious just on delivering content per phone I think the incremental units are going to be kind of more mid range phones. I think 5G is, been more of a you've seen the total handset number go down and put the mix go up dramatically. I'm kind of just curious the content uplift in, more of a mid range phone versus high end for DRAM. Thanks. Okay, sure. Yes, I mean, I think one thing that, as you saw from my presentation that we've done over the last couple of years, is to really focus a lot on our product portfolio. And if you look at our product portfolio now, it's actually pretty wide and pretty broad both in discrete DRAM and MCPs, which actually helped us have a much better customer penetration across all the customers pretty much most all of them use our products now in different segments of the market. So we believe that that brings the business a lot more stability to any one customer fluctuations up and down. And we work very closely with them. We work very closely with Huawei. It's really hard to predict the effect of the band, but we do feel like our products are designed in across a large number of customers in Android. So we feel like we have good penetration to whether any changes in the customer market share and so on, both in short term and long term. As well as your comment on mid- to high tier phones content. And we've done some work recently to really see like we actually took one of the higher end fonts, the flagship fonts and we tried to see what exactly is the memory footprint and where is it getting used. While this is early data, we have of expertise and this kind of stuff because I came from Qualcomm and I understand apps process pretty well. And I brought in a team of people from Qualcomm to work here. And we actually saw that the minimum footprint needed today in a 5G phone, between the Android OS and the system is thin enough gigabytes just to start. And then by the time you load 6, 7, 8 apps, it's actually over 4 already. So that's why there really are no 5G phones in the market today that use less than 6 gigabytes of DRAM. Now that will change in time. We believe people will try to optimize that. Anurag will try to optimize maybe camera regulations will adjust, but I still believe that 4 gig is probably where even the mid tier phones will need to be to really provide that user experience in 5G because what happens typically I've seen in the phone market is when people buy their first 5G phone and they get this great experience of apps and everything that they get used to it, they try to want the similar kind of experience as you go lower and go into the tiers. So it's one of those things that kind of drives drives content because you don't want to compromise the user experience that you are used to. Thank you. Our next question comes from Harlan Sur with JPMorgan. Your line is now open. Good morning. Thank you for doing this call today. Very informative. On the higher value added mix within the team's NAND portfolio, it was 50% of the mix in fiscal 2019. It hit 70% of the mix last quarter. You guys have a target to get to 80% next fiscal year. I believe your MCP business has been driving record revenues. And I think your managed NAND business has also been doing very well. So can you just help us understand is the biggest part of the higher value added mix your mobile products or is it more the SSD products and within With the big uplifting content for 5G, would you expect the mobile mix to continue to go faster relative to the other higher value added solutions? No, I mean, for us, as you pointed out, we've done, because of the things I mentioned in terms of understanding the system, building the right product portfolio of managed NAND and also MCPs to address the different customer mix we've been able to grow both management and MCPs at a record clip. But our SSD business is doing really well. And we believe that both SSD and mobile are important to us and both of them are growing nicely and both of them will grow. So we look at them both very important in growing our total high value solutions a share. I'll just ask you, like, in the near term, Harlan, the, clearly, like just more recently, because we have been, not as broad in our portfolio of SSD NVMe's MCPs clearly has done better more recently, but SSDs as we grew that in SATA, certainly was growing at a great rate. Now that we do have a more robust portfolio of NVMe, SSD will be back on track and growing nicely. So as Raj alluded, we think both of them will have good growth rates. Okay. No, I appreciate the added insights there. Thanks, Dave. Maybe more near term, I mean, I appreciate the update on the demand side, but I believe many of your MCP and or managed NAND solutions are assembled in your Malaysia factories. I know the team was having some challenges given the COVID-nineteen related movement controls in Malaysia. Can you guys just give us an update on your operations there? You want to take it there? I can take it, Shadi. No, go ahead. Go ahead. I'll just take it. Yes. So our MCPs are actually done at the multiple locations. Not just Malaysia. I mean, we make them in Malaysia and Singapore and Taiwan. So we kind of have a broad footprint and where we make different things. So, so I think it's been, you know, we've been fairly fortunate that we've been able to keep that going. The other thing is at this point now, Harlan, we're actually backup and running essentially full capacity in Malaysia now. So at this point, we're in pretty good shape across the supply chain. Now of course, anything can happen, but, at least as it stands today, we're in good shape. Our next question comes from Timothy Arcuri with UBS. Your line is now open. Thanks a lot. Actually, I had 2. First, I don't know whether Raj you want to take this or Dave, but I'm sure you saw overnight to talk about the fact that the U. S. Government and, they might extend the ban of the use of U. S. Equipment to produce memory to themselves to Huawei. So I think the comment was specifically more about the Koreans, but obviously it would impact you as well. So, hey, I just wanted to get your feeling on that. I mean, I know that over time, you'd be able to fill that hole, but I just wanted you to address that. And then I guess secondly, Raj, if you can talk about, is there any incremental content difference as we roll out millimeter wave versus sub 6. I know it's not necessarily due to the connectivity standard, but are there other things about millimeter wave that will drive more memory content versus the sub 6? Thanks. Yes. So, I mean, I haven't seen the U. S. Government thing that you talked about, so I can't really comment on it. But about the second one on millimeter wave was the sub 6. I think the millimeter wave clearly provides much higher bandwidth than sub 6 and sub 6, of course, helps you with more with mobility. So we believe that the content on millimeter wave will be higher for will lead higher content for things like video and gaming and so on. And so I think that's probably going to be one of the drivers also. Dave, can you can you address the equipment issue, the China issue with the Huawei? Can you address it? Nothing that came out last night, I can't comment on. I mean, up until, or anything that I've seen, at least in the directly wouldn't impact us. Of course, challenges around businesses of our customers is always something we have to manage around. But as we kind of see it, we've been able to do a fair job of that. Thank you. Our next question comes from Ambrish Srivastava with BMO. Yes. Hi, thank you. Raj, I was wondering if you could comment on the difference in bid growth that you saw in 4G versus the numbers that you gave us. And then also, if you could please comment on, what does it do for, demand on the infrastructure side? And then I had a follow-up for Dave as well, please. Difference in Bitwood, we saw at 4G versus 5G. Is that your is your question? Yes. Yes. Yes. Yes. I mean, I think 5G, clearly, we believe, will drive more content growth, because of the, as I mentioned, the things like 4K video was possible in 4G, but in 5G, now people are into 8 K video, which by itself makes a pretty big difference. And also the number of cameras and the camera resolutions during the 4 k time has been 15, 20, 13, 24 megapixel. But if you look at now, there's 100 megapixel phones and I've even seen customers talk about 150 megapixel phones coming out now. And again, the reason for the higher megapixel, a lot of people ask me is because you can now do real time zoom. Right? That's actually a pretty big deal because phones always struggle with how to make Zoom and not lose quality. And the other thing people are finding in this cameras is multiple cameras, some wide, some zoom, some in the front, some in the back. So these are innovations that have timed with the 5G launch. And that coupled with the fact that you have a very high bandwidth connection to actually get the content down. Both those are driving much higher 5G, much higher content growth in 5G era than the 4G era. Now I mean, but in the premium tier side, we've already seen quite a bit of growth, right? I mean, for people are launching 8 gig, 12 gig, even 16 gig phones. So there's probably going to be a little bit of saturation at the very high end, just in terms of how much more you can put in there. But clearly on the mid and high tier, where you kind of see a lot more units in 5G, I believe that the content could be higher in 5G than in 4th Jira. Yes. I was just trying to compare the bit growth you gave for DRAM and for Flash. 15% 30%. And I was just wondering what was the bit growth when you had the van in going from 3% to 4%. That's the question. Yes, I don't have it handy, but I mean, I think I also will say this. So we're actually a little bit conservative, I would say, in what we are estimating moving forward. And it's actually just prudent to be conservative because we use those numbers to manage our investments in CapEx And Supply. And we always want to make sure that's done carefully. So we don't out in Mexican CapEx. So in that sense, it's probably a little conservative number, but we'll probably have to get back to you on what it was in 4G. I don't remember that. Yes. Umesh, needless to say that the content growth has been, has come down. It used to be higher because the innovation in the smartphones were a lot more early on. And they were starting from a very, very low base here in all the tiers. And so you saw a pretty strong growth. And, as we look ahead as, Raj said that on the very premium end where you're getting like 16 gigabytes of content already, it's hard to see that continuing to grow. At the rate at which historically it has grown. Okay. Thank you. And Raj, I was wondering if you had any insights on the infrastructure side? For 5G, what are the deltas and the differences that enable you to grow content on that side? I don't know that part very well. So maybe we had someone from our infrastructure to talk about. I mean, we'll have to get back to you, Madeline. We are not everything the broader. And then my, maybe I'll squeeze in one for Dave. Dave, last, through several quarters, you have addressed this that there has been some sort of, over buying going on in China. And I think a couple of quarters ago, you said that you didn't expect it to to come to a stop. And I was wondering, has that abated, but or given all the additional ratcheting of trade talks has that continued on? Yes, I mean, what we saw in the second half of calendar twenty nineteen was, some inventory build in China based on concerns around trade. And I think most OEMs trying to derisk their supply chain As we came into this calendar year, we had a bit lower expectation around DRAM growth rate. And part of that, was an assumption that they would make some adjustment to their inventory levels over the course of this calendar year, and that would affect the growth rates a bit. Of course, early on in the calendar year then, the COVID situation arose. And I think, for the most part, most of those, OEMs in China are probably just as concerned supply chain. Also because of trade, because that is still swirling around, but in addition, concerns around the coronavirus and shutdowns disrupting their supply chain. So our view is that they kind of they have certainly not adjusted their inventories down and, inventories in China remain at somewhat of an elevated level. The magnitude of which is different across markets and across specific OEMs. Our next question comes from Carl Ackerman with Cowen. Your line is now open. Hey, thanks for taking my question. Maybe either, I guess for Raj or Dave, you have traditionally been underexposed in mobile because you didn't have the right cost structure. Now it seems you are in the lead, particularly in DRAM with 1Z, But in mobile, when should we see replacement gate being introduced? And when do you expect to reach revenue crossover of UMCP and UFS devices versus EMCP and eMMC? Yes. So I'll take one shot in our initial part of maybe they have some add to it. But I mean, I think that, the reasons we have been under exposing mobile, and it was not just the cost structure. I think we didn't have the right product portfolio also. Because really to be successful in mobile, you have to have a fairly broad mix of MCPs. Because mobile, as a whole market, it's very different between premium tier and mid tier and high tier and low tier. And that was one of the changes that I was able to bring when I came from having spent quite about 15 years in mobile is to bring that market knowledge and the relationship with the customers to see what products we really needed to make. To be able to address the largest parts of the market and also grow in the MCP space because that's clearly the higher value is and then get the right DRAM into that space. And as you mentioned, getting 1Z really helped because it brings lower power and we were able to get cost structure also much better. So those are and the other one I'll mention is that we spent a lot of time now, in the last couple of years as I said in my presentation, spending time with the customers to understand what's the problem they're trying to solve and what kind of skews of products help them and how the end user phone experience changes based on the products we put in. And that also helped us grow the share quite a bit. As for replacement date versus floating gate, we are actually just sampling our replacement gate products. And we believe that launch will start next year, and we will just continue through that. I can't comment exactly when the revenue mix will change, but from next year, we'll be shipping our replacement gate. Your question on EMCP versus EMCP, I don't remember exactly when the revenue crossover will happen, but we do see the market moving more and more aggressively to to a, to a UMCP. And we can actually see now that the UFS EMCP market coming into even the it usually predominantly used to be only in the premium tier and high tier. Now you can actually see it in the mid tier phones also. So that's one of the reasons we are also growing share because we have a pretty strong UFS portfolio now. Our next question comes from Sruti Hajjuri with SMBC Nikko. Your line is now open. Yes, thank you for taking my question. Raj, just to follow-up to the previous question. I'm trying to better understand how the capacity allocation works between mobile and some of the other segment where in the process do you have to decide whether a particular wafer is going to be allocated to mobile, etcetera? And also along the same lines, when you design these products for mobile market, for example, in EMCP, are they designed for a particular customer? I mean, are they in a standard products or are they more of a custom products? Are the design for particular models. So if you can just go through that, that'll be helpful. Yes, absolutely. Well, let me talk about the second part of your question. How do we define products So the way we define product is actually very much market and customer based. What I mean by that is we study trends in the market, like for example, we would say, okay, with 5G launching, then we'll what will be in the 5G flagship phone versus what will be in the high end phone? What will be in the mid tier phone? Then we talk to people like Qualcomm, you know, my old team, and figure out what are the products that they can support and to MediaTech and high silicon and Samsung and whoever else sells process And then we define products that actually will interface well with those guys. And then we qualify those products with them first so that they're ready. Then what we do is, we also make, like, for example, in the UMC P case, we'll make 128+32, which is basically 8 gig plus and so on, our 6 gig and we'll make multiple products with different SKUs. And then we work with each of the customers to see which part of the market are they addressing for example, one of our customers may want to go more into India and they may want 64+32. Another customer may want to go more into China and they may want 128 48. So we actually have different SKUs based on the different customers, but these are not custom, by the way. They can easily be more one customer finds that they're not doing so well here, they want another part. We have that SKU also. So that's kind of the point I was making earlier. The reason for our success has been that flexibility and understanding of the market and defining products that match the requirements months based on which part of the market they want to go into at any point of time. That's kind of how we define them. And again, understand system requirements is very key. So we really need to know what use cases will drive what products, which has been the new thing that we brought on the last couple of years. For your last comment on how do we do the allocation? We have a small team of people submit me and there's a couple other GMs. And we all get together and we have a plan for the year, but we, we review that very, very closely and try to make changes as we see the market going And, yes, go ahead. Sorry, Raj. I was just going to jump in on this one a little So one way to think about it is Rajan meets pretty regularly with his customers, probably more frequently now than he's ever met with them. And uses that coupled with his own sense of the business. All the other GMs do the same. That builds up what their expectations are going to be around their particular needs over the course of the next, say, 12 months. We meet frequently with operations and we've stepped that up probably twice a month now. To take that information and start to build a plan around how we're going to manage the mix. And we have to do that obviously because we need to start wafers now for Raj to get product 4 months from now. So we have to constantly try to anticipate how things are going. And in addition, we then aggregate all that up and look at what the overall bits would suggest we need to build and plan our CapEx around that as well. So we're now every other week kind of looking at capital spend in relationship to what we think is the bit demand over the next several years and adjust our CapEx assumptions based on that. And of course, suffice it to say, if we went back to call it February or something. I had a pretty good line of sight that our CapEx next year would be growing at a reasonable rate relative to, where we think we will land for fiscal 2020. And now it's pretty clear, that's less likely. And so CapEx clearly now the assumption is to spend, less than what we were originally thinking for fiscal 'twenty one. And now it's just a matter of exactly what the magnitude of is, magnitude of that will be. And so over the next couple of months, we'll We'll use all the data that we get from Rajan is compatriots, the other general managers, to make some plans around next year's capital spend. Got it. Thanks, Dave. Just to follow-up to that, the CapEx spend for next year, the change in view Is there primarily driven by the weakness in mobile or is there something else, it's some any efficiency gains or any other markets where you're seeing weakness any competitive factors playing your role there? Yes, it's a common yes, it's a combination of, an aggregate sense of where we think clearly there will be less bit demand this year than we came into the year thinking. And so that adjusts the inventory levels that we had originally planned out for this year and next year. So, and as you kind of saw, our inventories were in the kind of $100,000,000 to $130,000,000. And, potentially will be that at that or somewhere around that for this quarter. So we want to bring that down. So if we want to bring that down and we have a different assumption around bit demand for this year, We have to adjust the CapEx accordingly. Our final question comes from Tristan Gerra with Baird. Your line is now open. For taking the question. You talked a little bit about the next generation DRAM architecture that 5G mobile is going to need. Could you talk a little bit more long term about how 5G is going to reshape memory architecture and potentially also the positioning for 3 d cross point, longer term in sounds? Yes. So, as I mentioned, I think in 5G, one thing that's happening is, we clearly see the need for much higher bandwidth from the data. And also need for much lower power point, the power consumption by the DRAM itself. So we continue to work on both those fronts. For example, after LP5, there'll be something a new standard called LP5X. So we just continue to drive that standards to make sure that we can get that. And the other thing I think that's going to happen in 5G is that as 5G moves from the premium tier to high tier and mid tier, the single chips will only have, 2 channels of, to connect to the memory. Typically in the premium tier, they have 4 channels and they have to come down to 2 channels, but still the use cases still need as much bandwidth. So what happens is you just need to run the DRAM faster and drive more throughput or just two channels where you had the we're doing it for in the premium tier. And that needs innovation and that needs higher clock speed. That's why we're excited about LP5 because we're actually the first one to run it full 6.4 gigabits per second. So we actually expect that trend to continue in 5G, higher speeds, more bandwidth over lesser number of channels and lower power. And your comment on 3 d cross point, our initial focus on 3 d crosspoints in the data center, and we're going to get that to production and get it to market. And once we do that, we will see, if it makes sense to have some advantage in mobile app. So we're constantly evaluating that right now or focused in the data center. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.