Good afternoon. My name is Latif, and I will be your conference facilitator today. At this time, I would like to welcome everyone to Micron Technology's update call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, please press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. It is now my pleasure to turn the floor over to your host, Farhan Ahmad, Head of Investor Relations. You may begin your conference.
Thank you, Latif. Good afternoon, and thank you for joining our call regarding Micron's intent to acquire Intel's interest in our IM Flash Technologies joint venture. On the call with me today are Manish Bhatia, Executive Vice President and Global Head of Operations, and Dave Zinsner, Chief Financial Officer. Our CEO, Sanjay Mehrotra, is unable to join the call today due to prior commitments related to the events planned to mark our 40th anniversary. Today's call will be approximately 20 minutes in length. Our call today will be focused on discussion regarding our intent to acquire IM Flash Technologies, and we will not be answering any questions that are unrelated to today's announcement. This call is also being webcast from our investor relations website at investors.micron.com. A webcast replay of this call will be available on our website later today.
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 documents we file with the SEC, specifically our most recent Form 10-K, for a discussion of risks that may affect our future results. Although we believe that 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 confirm these statements to actual results. I'll now turn the call over to Manish.
Thank you, Farhan, and thank you to everyone who's joining us today on short notice. I'm pleased to share with you our decision to exercise our call option to acquire Intel's interest in the IM Flash joint venture, which includes the manufacturing facility in Lehi, Utah. We believe that this acquisition will accelerate our commercialization of 3D XPoint and future emerging memory technologies, which will benefit our customers and provide an attractive return on investment to our shareholders. This acquisition provides Micron with a well-established development and manufacturing facility that is equipped to produce 3D XPoint memory and a highly skilled workforce with a proven track record of strong innovation and execution capabilities.
This transaction demonstrates Micron's commitment to 3D XPoint solutions and confidence in our emerging memory technology roadmap, which will enable our customers to create significant value in a broad range of markets, particularly artificial intelligence and big data analytics applications. IM Flash Technologies, also referred to as IMFT, is a joint venture that Micron established with Intel in 2006 to manufacture NAND flash memory. IMFT today exclusively manufactures 3D XPoint products, and our agreements with Intel allow IMFT to only manufacture products that are based on jointly developed technology. Earlier this year, Intel and Micron announced that we have decided to end our joint development of 3D XPoint after the completion of our second-generation node, which is expected to occur in the second half of fiscal 2019.
Following the end of joint development with Intel, Micron will continue to pursue our own roadmap of emerging memory products, and we plan to introduce new products that will be based on our independently developed technology. Through this transaction, Micron will secure capacity for 3D XPoint production and will gain the flexibility to develop and manufacture other technologies at this facility. Keep in mind the Lehi facility is the only fab in the world that currently manufactures Storage Class Memory in volume. After closing, employees of IMFT will become part of Micron and will help us to accelerate our technology roadmap on 3D XPoint and other emerging memories. Following the close of the transaction, there are certain supply agreements that come in effect and will extend for a period of one year.
We will also continue to have the opportunity to sell 3D XPoint wafers to Intel on a foundry basis. Consistent with our prior commentary, we expect to introduce 3D XPoint products in late calendar 2019, with revenue ramp starting in calendar 2020. The expected closing of this transaction lines up well with the start of our production ramp, as well as the timing of pilot capacity requirements of our next generation emerging memory products. With that, I will pass it over to Dave to go over the financial considerations of this intended transaction.
Thanks, Manish. Turning to financial implications, given that we already consolidate IMFT in our financial statements, we don't expect a meaningful impact to our profitability in the near term. We expect to continue to have the underutilization charges consistent with current levels through the end of fiscal 2019. Having said that, ownership of the Lehi fab gives us greater operational flexibility to better manage our utilization after the close of the transaction. We can exercise the call option starting January first, 2019, and the timeline to close the transaction is between six and 12 months after the date Micron exercises the call. Intel will choose the exact closing date within that six to 12-month window. At the time of the acquisition. We expect to pay approximately $1.5 billion for Intel's non-controlling interest in IM Flash and the elimination of IM Flash member debt.
While this debt at the time of closing might change, IM Flash member debt was $1 billion at the end of fiscal 2018. We expect to use cash on our balance sheet for the transaction and plan to continue with our previously announced stock buybacks, which we continue to fund through our free cash flow. Additionally, we continue to expect capital expenditures to be $10.5 billion ±5% in fiscal 2019, and our long-term CapEx model should remain unchanged in the low 30s as a % of revenue. To summarize, for our $1.5 billion investment at the close of this transaction, we're getting full ownership of a fab in which Intel and Micron have jointly invested over $6 billion since its inception and are reducing member debt to zero on our balance sheet.
We're bringing on board a highly skilled team of IMFT employees who will help us accelerate technology development and commercialization of our emerging memories. This investment also secures 3D XPoint capacity while increasing our operational flexibility. We believe this investment will allow us to enable exciting technologies for our customers while providing an extremely compelling return on investment to our shareholders. Latif, with that, we'll open it up for questions.
Thank you, sir. Ladies and gentlemen, to ask a question, press star then one on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Again, that's star then one on your touch-tone telephone to ask a question. To prevent any background noise, we ask that you please place your line on mute once your question has been stated. Our first question comes from the line of Amit Daryanani of RBC Capital Markets. Your line is open.
Yep. Thank you, guys. I guess just a question for me. Dave, I think in the past, you guys have talked about 100 basis points headwind from the model from underutilization of these assets. I think you and Manish both talked about operational flexibility that's enhanced once you are done with this transaction. Is the sense that 100 basis points margin headwind could abate a lot sooner than calendar 2020, I guess, perhaps when you start to get some revenues over there? Or how do I think about that margin headwind, and what does operational flexibility really provide you guys from here?
Yeah, it's a good question. Obviously, from here until whenever the close occurs, we would expect to continue to have roughly that 100 basis point or so headwind from the underutilization of our capacity at the IMFT fab. Really, like I said, we do get some flexibility, which we'll try to manage. I think it's a little early to tell exactly what sort of benefit we might get. Clearly, the most impact we can have is when our products get introduced, and we start to ramp those. As Manish mentioned, we expect to introduce products in late 2019 and start to see those ramp in 2020. I'd say that's probably the bigger factor in terms of seeing those underutilization charges go away.
Perfect. Thank you.
You're welcome.
Thank you. Our next question comes from the line of John Pitzer of Credit Suisse. Your line is open.
Yeah. Good afternoon, guys. Congratulations on the transaction. Manish, I'm just kind of curious, relative to the supply agreement, that 12-month agreement, I'm assuming, kicks off when the deal closes. One, is that correct? Two, just relative to your own progress of controller technology on 3D XPoint, how do we think about the timeline for you to have product in the market and qualification, and where are you on the controller technology, especially for using 3D in a DIMM format, 3D XPoint in a DIMM format? Thank you.
Thanks for joining, John. Yes, that's correct, that the supply agreement that we referred to would begin at the closing of the transaction, will continue for 12 months, and there are certain terms around how that supply from us to Intel would work. With regard to our progress, as we've mentioned, we're making good progress on developing our system-level products, which include the capability for a controller to be working with our memory to be able to be used in different types of system applications. We feel like we're on track to be able to have introduction of those in the end of calendar 2019.
Next question.
Our next question comes from the line of Romit Shah of Nomura. Your line is open.
Yes, thanks. Good afternoon. Thanks for doing this call. Dave, you mentioned that you're paying about a billion and a half for the asset. You're also taking on an incremental $1 billion of debt. Can you just talk about valuation and why it made sense from that perspective? As a follow-up, you alluded to the fact that you're going to be selling wafers to Intel for up to a year. Can you quantify for us how much you think you'll be able to recover by supplying wafers to Intel? Thank you.
Let me go back and clarify a little bit what I said. As far as the actual purchase price, it's $1.5 billion. That would include the reduction of any IMFT debt that's outstanding at the time of the transaction. We don't know exactly what the amount will be at the end of the transaction. What we can tell you is at the end of the fiscal year that we just ended, it was $1 billion on the balance sheet. The valuation is mechanical in that it's determined based on the agreement, what we call it for. It represents Intel's portion of the contribution into the IMFT fab. We repay that. What we did do is we ran the calculus on whether we thought that felt like a good deal for us.
As I mentioned, we're going to get a fab that $6 billion has been invested in. We think the ROI on this is going to be very good based on our projections. We get essentially 100% ownership of the only 3D XPoint fab right now in the world, in a location that's perfect for us proximity-wise to our Boise location where a lot of the tech development is being done. On top of that, we have a very skilled workforce there that has been doing this for a decade that I think really makes this attractive for us. In any event, that's kind of the puts and takes of it. As Manish mentioned, we do have this supply agreement. I think it's early to tell exactly how much supply.
There's some mechanics within the agreement. They can have slight modifications to it based on how things go. We'll kind of see how it goes. Like I said, I think for us financially this is probably relatively neutral to us initially. Of course, as we ramp up our products it's going to be very positive for us and a very good return ultimately.
Great. Thank you.
Thank you. Our next question comes from the line of Aaron Rakers of Wells Fargo. Your question please.
Yeah, thanks for taking the question, and also congratulations. I think in your recent 10-K filing, there's a disclosure that the IMFT sales to Intel were about $500 million for this past fiscal year. As we look out and think about the supply agreement beyond the 12 months, am I to assume that those sales come into the model at a healthier margin relative to what that $500 million would come into the model today? Any kind of color on how we should think about that framework?
Again, some of it is dependent on what the partner decides ultimately in terms of the supply. I don't know whether it will end up being different than the $500 million, but our best read on it is that there won't be a material change as we transition from a joint venture relationship to a supply relationship. Obviously, when you have supply, you get some cost-plus opportunity there, but we haven't disclosed those details and don't intend to.
As a quick follow-up, could you give any metrics of the Lehi, Utah facility? Any kind of wafer starts per month or any kind of framework of what the capacity looks like in that fab?
Thanks, Aaron. As you know, this was a fully populated 2D NAND fab for us for the better part of the last decade, and then now we've transitioned it fully over to 3D XPoint technology. We won't get into the kind of the specifics on the capacity, but I will tell you is that we feel very good about the potential both the timing of when we're acquiring this capacity or expected to acquire the capacity, kind of lining up with the time that we're starting the revenue ramp of our products. That we feel between that capacity and available additional space within the facility, we can support growth requirements of those products as they become adopted in 2020 and beyond.
Thank you.
Thanks.
Thank you. Our next question comes from Blayne Curtis, Barclays. Your line is open.
Hey, guys. Thanks for taking the question. I was just kind of curious on future roadmaps, gen 3 and beyond. I know you won't comment on what Intel plans to do, and I'm just kind of curious, what's the status of the IP that was developed within this flash entity for the first few generations, and what access Intel may have to that?
Thanks, Blayne. Certainly, both parties have developed this technology together and will have access rights to the jointly developed technologies. Intel and we would share that. Keep in mind that the technology and the process and manufacturing has all been done exclusively in the Lehi facility and in our Boise technology development facility in terms of the core process modules and integration and then volume production. A significant part of that would come with the IMFT transaction.
Okay, thanks.
Sure.
Thank you. Our next question comes from Weston Twigg of KeyBanc. Your line is open
Hi, thanks for taking my question. Just as a follow-up to that, I'm curious, you said second-gen JV will be completed by the second half of 2019, then you move to Micron's own roadmap. When you do the ramp in Lehi for your own production ramp, do you expect that to be on that second-gen technology? Or would you be on potentially your own technology and maybe having to produce the second-gen for Intel on your own version of the product simultaneously in the same fab?
Yeah. We actually intend to be ramping those initial products that we've been referring to in introduction in 2019 and ramp in 2020 on the second-generation that's jointly developed with Intel. That this capacity that we're acquiring actually fits very nicely with that production requirement. Then beyond that, we will be introducing our own sort of independently developed emerging memory technology as a follow-on. That would be for follow-on products after those initial ones that are ramping in 2020.
Got it. That's helpful. Just real quickly as a follow-up, can you help us understand how much you need to invest in the fab during the ramp to support that 2020 ramp, just in terms of maybe a dollar amount or wafer amount?
Well, I don't think we're going to give specific details on that. It's far enough there, but I think that we feel good that the $1.5 billion relative to the assets that we're acquiring and the capacity that would come along with that for the existing 3D XPoint technology will be able to provide us with a good baseline to be able to begin our production ramp.
When we built our model of kind of low thirties CapEx, all of these kind of things were contemplated in it, so it's not additive, for sure.
Yes.
Okay. Thank you very much.
Sure.
Hey, Latif, we have time for one more question.
Yes, sir. Our final question comes from the line of Kevin Cassidy of Stifel. Your line is open.
Thank you for taking my question. Can you give us any more details about the other emerging technology? I think you said it was going to be internally developed, or will you acquire it outside of Micron? Is it persistent memory, non-volatile memory, or somewhere in between?
Kevin, we're not going to give. Obviously, that is going to be confidential, but what we announced earlier this year is that each party would be independently developing the follow-on generation to the second generation of 3D XPoint. That follow-on generation will be independently developed by Micron, then we would look to introduce it. We believe that the expected timing of the close of this transaction will give us the Lehi facility, will be a terrific choice for us to put pilot production of that next generation technology, with it being close proximity to our Boise development fab where our technology is developed.
Thank you.
Thank you.
Thank you.
Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may disconnect at this time.