Earnings Call: Q1 2018

Dec 19, 2017

Good day, ladies and gentlemen, and welcome to Micron's 1st Quarter 2018 Financial Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. As a reminder, today's conference is being recorded. I would now like to turn the call over to Ms. Srini Hudson, Ma'am, you may begin. Thank you, Chelsea, and welcome to Micron Technologies 1st fiscal quarter 20 18 Financial Conference Call. On the call with me today are Sanjay Virotra, President and CEO and Ernie Maddick, Chief Financial Officer. Today's call will be approximately 60 minutes in length. This call including audio and slides is being webcast from our investor website at investors. Micron.com. In addition, our website contains the earnings press release filed a short while ago. Today's discussion of financial affiliation of GAAP to non GAAP financial measures may be found on our website, along with a convertible debt and capped call dilution table. An a reminder, the prepared remarks from this call and 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'll be attending. As a reminder, the matters we will be discussing today include forward looking statements. These forward looking statements are subject may cause actual results to differ materially from statements made today. 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, level of activity, performance or achievements. We're under no duty to update any of the forward looking statements after today's date to conform these to May 1st in New York City, will share further details about this event in the coming months. With that, I'll now turn the call over to you Sanjay. Thank you, Shani. Good afternoon. Micron's record first quarter results demonstrate the company's continued strong execution among environment that reflects the strategic importance of memory and flash storage and healthy supply and demand fundamentals. During the quarter, end. We improved our mix of high value solutions, delivering record SSD revenues and further increasing our SSD share. More recently, we began shipping our first 64 layer NAND consumer SSD. We also introduced the industry's fastest high density, 32 gigabytes, NVDIMN, which combines Micron's DRAM NAND to deliver a persistent memory solution that addresses intense data analytics workloads. We have garnered solid interest from enterprise and cloud customers and customer qualifications are underway. And we strengthened our talent bench with the recent addition of Manish Patia, who leads our global operations Manish brings extensive experience in managing end to end operations and is focused on driving manufacturing and supply chain efficiencies to reduce costs and improve our agility. Finally, we improved our financial foundation with the retirement and believe our focus on speed and execution better position Micron to deliver value to our customers and capture the increasing number of end market opportunities. I will now discuss trends and results in each of our major markets. Cloud and traditional enterprise data center trends are continuing to drive robust demand for memory and flash storage solutions. Our Q1 SSD revenue to cloud and enterprise customers increased 50% sequentially. We recovered from the Flash component issue discussed in our September earnings call that impacted last quarter's SSD sales. On the compute side, we had solid sequential DRAM revenue growth into data center markets, driven primarily by enterprise sales. We ramp based shipments to both cloud and enterprise customers were up by more than 50% year over year, underscoring the data centers growing need for memory and our strong execution in this market. Our 1x nanometer designs have been well received by cloud customers with more than a quarter of our cloud revenue in Q1 coming from our Onex technology. Fast qualification and production ramp by our cloud customers of new technology node products is a significant benefit as it diversifies and accelerates our customer traction and market reach during early of production deployment of these advanced nodes. The need to access, analyze and store data extends well beyond the cloud. This is perhaps most apparent in the mobile market smartphone capabilities have surpassed simple communication and web browsing. They help us navigate, monitor and interact with the world around us. New cameras capture precious moments with amazing fidelity and emerging applications like AR have tremendous promise. This increase in functionality is driving the use of higher capacity, memory solutions and increased storage in mobile devices. These trends, along with our solid execution, drove record mobile revenue in FQ1. We are strengthening our offerings in continue to diversify our portfolio of LPD RAM, MCP and Discrete Managed Storage solution to meet the growing needs with the release of new products, such as our 1X LPD RAM designs. We also shipped initial samples of our 64 layer NAND discrete UFS solution to chipset partners and customers with very promising results. Home Automation And Edge Computing devices continue to drive strong revenues in Consumer And Industrial market segments, which require a wide variety of memory machine learning and intelligence, we see opportunities to provide higher performance memory and flash storage solutions in these markets. We've also seen rapidly growing demand for our graphics products. The graphics market continues to be fueled by the ever growing popularity of gaming and Esports. Although smaller in size, recent interest in cryptocurrency mining has put further pressure on graphics supply. Our closed customer relationships and leading product portfolio helped drive record graphics revenue, up more than 75% year over year. We sampled industry leading 16 gigabit per second G DDR6 products to key customers and are seeing significant interest in automotive and networking applications that meet the high bandwidth this memory provides. We plan to ramp GTTR6 to production in early calendar 2018 for the graphics market followed by other high performance applications such as automotive and networking. The LatAm Innovation And Automotive Technology Towards Autonomous Driving continues to create significant demand for higher memory capacities and greater performance. We secured a key design win and an important autonomous driving platform this quarter and are focused on replicating our success to retain our leading technologies than they have in the past. And our announcement of the fastest 1x LPDDR4 and GDDR6 products autonomous driving applications will ensure we continue to support this shift to leading edge technologies. We also said record revenues supplying the networking applications that serve data centers and edge devices that our reputation for consistency and innovation drives strong ties with networking customers. These diversified growth drivers and structural market trends are generating tremendous opportunity for Micron. Are uniquely positioned in these markets with a broad portfolio of both DRAM and NAND solutions, excellent quality and comprehensive customer ecosystem engagement. Relationships and enriching our revenue mix to capitalize on these opportunities. Turning now to Manufacturing And Technology our ability to execute our technology roadmap and drive cost competitiveness are foundational to our ongoing success. In terms of wafer manufacturing plans, we still expect to achieve bit output crossover on 64 during the second half of AM by the end of calendar 2018. We are outfitting our new back end factory in Taixin, Taiwan, to ramp assembly and test capacity and expect meaningful output from the facility before the end of the fiscal year. Our capital investments are tracking with our and cost effectiveness of our operations through these investments. Both 1y DRAM and 3rd generation CDNAND development are progressing well and we remain on track for the initial output of both in the second half of calendar twenty eighteen. We continue to make good progress with our 3 d crosspoint technology. Historically, Micron's efforts on 3 d crosspoint have been largely focused on technology development and early manufacturing ramp. But given our increased focus on high value product solutions, we have recently resourced a product development team to address the opportunity ahead of simultaneously, we are working with various players in the ecosystem to assess market and enablement opportunities and we will provide further details of our views regarding these opportunities during our upcoming analyst event. We will also continue to have Switching to our industry outlook, our supply and demand projections remain consistent with what we shared last quarter. DRAM industry supply rate growth is expected to be about 20% in calendar 2018, and we expect a healthy market environment driven by the ongoing enterprise data center, cloud and mobile strength, as we just discussed. We expect the industry bit growth for NAND to approach 50% in calendar 2018, as the industry continues to ramp 64 layer designs into volume production. SSE adoption continues to increase and will expand further as more supply becomes available over time. Against that backdrop, projections for our own bit growth remain unchanged. We affect our DRAM bit growth to be slightly below the industry During fiscal 2018, we capacity and on improving our mix of high value solutions to enhance our revenue share. For fiscal 2019 and beyond, we continue to assess scenarios for the fab cleanroom space required to implement technology transitions to future, more advanced DRAM and 3 d NAND nodes. I'll now turn it over to Ernie to provide details on our first quarter results by business unit. Thank you, Sanjay, and thanks to all of you joining the call today. Continued was $6,800,000,000, up 11% from the prior quarter and up 71% on a year over year basis. Non GAAP gross margin expanded to 55 percent, up four percentage points from Q4 and 29 percentage points from 41% in the prior quarter and up 35 percentage points from the year ago period. We continue to prudently manage spending with non GAAP operating expenses totaling 612 remaining relatively flat quarter on quarter. Non GAAP net income increased to 44% of revenue and totaled approximately $3,000,000,000 or $2.45 per share. This performance compares with 2,400,000,000 dollars or $2.02 per share in Q4 $335,000,000 or $0.32 per share from the year ago period. Turning to performance by business unit, the Compute And Networking Business Unit reported FQ1 revenue of 3,200,000,000 dollars of was 60% compared to 56% in FQ4 and 14% in FQ1 2017. Q1 storage business unit revenues increased 7 percent sequentially to $1,400,000,000, driven by strong growth in SSD sales. On a year over year basis, revenues were up 61% driven by increasing market share and SSDs. In fact, sales of SSDs reached record levels in the quarter with double digit sequential growth across 9% from 19% in the prior quarter and negative 5% in fiscal Q1 2017. These results reflect a higher value product mix and continued market acceptance of our TLC 3 d NAND based products. The mobile business unit reported $1,400,000,000 in revenue, up 16% sequentially and up 32% year over year. We are solid demand environment combined with the traction we've made with our latest generation products led to operating income of 37%, up from 31% in FQ4 and 9% in FQ1 2017. In embedded business unit reported revenue of $830,000,000 in FQ1, in line with the prior quarter and up 44% year over year. Operating margin was 41%, essentially flat from the prior quarter and up 10 percentage points year over year. Sanjay noted earlier, we continue to see exciting demand trends across each of the underlying embedded markets with evolving end market requirements ranging from high performance memory surveillance cameras. We are focused on building upon our existing leadership position to capture these growth opportunities Turning to results by product line, DRAM represented 67% of overall company revenue in fiscal Q1. Demand for client PCs, solid exposure to new flagship smartphones and ongoing strength from servers, particularly in cloud and micro scale data centers drove DRAM revenue higher during the quarter, up 13% sequentially and up 88 percent year over year. Sequentially, shipment quantities increased in the upper single digit range. DRAM non GAAP gross margin was 61.5% in FQ1, up two percentage points from the prior quarter and up 33 and represented 27 percent of overall company revenue in fiscal Q1. Trade NAND revenue was up 47% year over year, driven by our strong growth and market share gains in the SSD market and robust demand from the mobile and embedded markets. On a sequential basis, shipment quantities increased the low single digit range. Trade NAND non GAAP gross margin was 49% in FQ1, up 9 percentage points from the prior quarter and up 26 percentage points from the year ago quarter, reflecting a richer mix of sales into high value end markets. As Sanjay noted in his prepared remarks, we are making strong progress on the rollout of our 1x nanometer DRAM and 64 layer 3 d NAND deployment. The rollout of these technologies will enable meaningful levels of on and cost per bit reduction as we make progress throughout fiscal 2018. For DRAM, our bid output growth will be more heavily weighted to the first half of year while NAND bit output growth will be relatively greater in the second half of the fiscal year. The company generated operating cash flow of $3,600,000,000 in fiscal Q1 compared to $1,100,000,000 in the year ago period. During the quarter, we deployed $1,900,000,000 for capital expenditures net of partner contributions. We continue to expect halves of fiscal year. Free cash flow for the quarter was $1,700,000,000 compared to negative free cash We continue to pursue dollars from an equity offering and repurchased or converted $2,400,000,000 in principal amount of our debt. $300,000,000 as of the end of FQ1, and we currently expect to exit FY18 with approximately $8,000,000,000 in face value debt. We expect the interest savings from these deleveraging actions combined with higher interest income from larger cash balances the anti dilutive effects of selling converts for cash to materially offset the dilutive impacts associated with the equity offering. Exiting FY18, we foresee non GAAP net interest expense of $25,000,000 to $30,000,000 per quarter versus $100,000,000 per at least $6,600,000,000 and continue to see the opportunity to exit FY18 in a positive net cash position. Moving on to guidance for fiscal the range of $6,800,000,000 to 7.2000000000 dollars, gross margin in the range of 54% to 58%, operating expenses between $625,000,000 $675,000,000 operating income ranging between $3,250,000,000 $3,450,000,000 and EPS ranging between $2.51 and $2.65 per share based on 1,241,000,000 diluted shares. Finally, a word about tax reform. As draft in FY19 and beyond, we would expect some impact to our non GAAP tax rate with an offsetting benefit of more flexibility in deploying our global cash balances. As further clarity around this legislation develops, we will provide appropriate updates. With that, I will turn it back to Sanjay. Thank you Ernie. As we close out calendar 2017 and look 2018, we see increasing opportunities for Micron to play a larger role in the technology trends shaping modern life. We will be hosting an analyst conference in May where we plan to elaborate on our view of these trends and how Micron envisions our technologies shape the world in the years to come. We believe that our technologies, capabilities and team talent place us in a unique position in the market. Memory and Flash storage are strategic assets that put Micron at the intersection of the biggest growth trends in technology, and we cannot be more excited about our future. Our customers increasingly view us an Ascension partner in early design discussions due to the differentiation our solutions can provide. Are focused on increasing this value and I look forward to sharing questions. Thank you. And our first question comes from the line of Srini Pajjuri with Macquarie Securities. Your line is open. Thank you and congrats on the great quarter guys. A couple of questions on demand side. Sanjay, at least among the investor community, there seems to be some concerns that there's going to be a flood of supply coming online into the industry in the first half. I'm just wondering if you have any thoughts about what your view is about the supply demand balance as we head into the first half? And then for Ernie, the NAND gross margin improvement is 900 basis points sequentially. I know you mentioned mix helped you there, but I'm just curious if you could provide some more color as to exactly what driving that and how sustainable that is going forward? So in terms of the industry demand supply environment, let me just say that With respect to the industry supply growth in the calendar year 2018, we have said that the industry supply growth would be approaching 50%. While that is more than what the calendar year 2017 supply growth is, is in the range of 35% to 40% the overall, what you have to look at is the demand requirements. In calendar year 2017, of course, supply has been tight. There has been pent up demand, particularly in the areas of client SSDs in the client PC notebook PC environment. The march toward high density SSDs in notebook PCs was somewhat slowed down given the overall tightness of supply in calendar year 2017. When I look ahead at calendar year 2018, I see strong demand trends with respect to attach rate of SSDs and client PCs continued to increase, the applications related to cloud and data centers, enterprise data centers continuing to drive higher average capacities usage in cloud and data center applications as well. Of NAND content continue to increase. And these are all increasing because of the trends, right? I mean, attached rate in notebook PCs in calendar year 'seventeen, about 35% going toward over the course of next several years by 2020 timeframe, getting to 75% attach rates. So a lot of HDD that is still to be replaced with SSDs and same trends are continuing in all markets for NAND average capacities are continuing to increase. So the demand trends continues to be very robust for Flash, yes, more supply environment, but we are very focused on continuing to strengthen our product portfolio and increase our share with respect to SSD markets as well as with more managed NAND solutions to address the mobile markets. And relative to the question about margins, I think there are 2 pieces of that. 1, we are making progress toward a mix, a higher value added mix of solutions and those typically carry the opportunity for higher margins. Also, we continue to make progress on the cost side, with respect to increasing amounts of 3 d NAND as well as TLC. And you had a good quarter for cost reduction as well. So it's a combination of both market facing with the higher value add solutions and then a good quarter from an operational perspective relative to cost. Thank you. And then maybe just one follow-up on the balance sheet. I think you previously said your gross debt target is about $8,000,000,000, which you said you're going to reach, I guess, next quarter. Given assuming that the tax bill will pass, there any change to that target? And then if you can talk about again assuming that the tax bill will pass, what's your priorities for Cal going forward? Yes. I don't think we said that we'd reach that gross debt target in FQ2. We said by the end of our fiscal year, And so, I wouldn't expect that we would achieve that level in fiscal Q2. Standard would not necessarily change the priorities, which are always to continue to make sure we have the best technology we can in production and to be able to transition that at a time that makes sense for us. And then for fiscal year 2018, certainly, again, the balance sheet in shape relative to these aggregate levels Thank you. And our next question comes from the line of Harlan Sur with JPMorgan. Your line is open. Execution. On the DRAM side, you've got Intel ramping Sky Lake, you've got AMD ramping Epic on the server CPU side. Cloud and hyperscale CapEx spending looks to grow about 30% next year. Given all of this, do you guys anticipate continued momentum in mixing your server and cloud business in DRAM to continue to move higher next year. And then from an industry perspective, does server and cloud segment become a bigger part of the DRAM consumption mix over the next 2 to 3 years overtaking mobile? Yes, absolutely. Cloud and server, datacenterenterprise as well as cloud datacenter absolutely will continue to be the biggest growth drivers, at large volumes for the DRAM industry. And we have very strong penetration in these market and actually we do expect to continue to build momentum in these markets going forward. Great. Thanks for that. And Sanjay, you talked about semi and fully autonomous wins in the quarter. All of the major auto OEMs and subsystems guys are focused on this we talked to one of the leading guys that's focused on sensors and processor technology required for these types of vehicles they're talking about 25, 30 gigabytes of DRAM and 1 terabyte SSDs per car for level 4 and level 5 fully autonomous. That's a pretty significant step up in DRAM and NAND content. Is that consistent with how you see the content trends in automotive over the next kind of 3 to 5 years? It absolutely is. I mean, when you look at autonomous vehicles, they really are level 5 autonomous vehicles in future and projected to have about 40 gigabyte of DRAM content in them. And when you think about it, that is very similar to the average capacity that are associated with servers in the server workstations, right? So these cars will be really very powerful computers in the future and they are not only going to be driving a tremendous amount of DRAM content usage but they will also drive NAND flash usage. They will be generating using data to make millions of real time split second decisions to make sure that the passengers in the autonomous vehicles can be transported effortlessly and safely to their destination. There will be sensors from Sonar to camera that will be generating billions of signals and all of that data will have to be processed, accessed in order to make fast decisions. So you're absolutely right to note that this is really a secular trend here in front of us in terms of driving continued usage of memory and storage. Earlier, we talked about cloud and data center applications. And again, those are growing faster than the rest of the industry. Autonomous vehicles will be another big driver in the future. And Micron is uniquely positioned with a strong portfolio of solutions, both with flash solutions as well as DRAM memory solutions to address these fast growing market trends. Thanks Sanjay. Thank you. And our next question comes from the line of Blayne Curtis with Barclays. Your line is open. Hey guys, thanks for taking my question and I echo the congrats as well. A couple of questions. Maybe on DRAM, can you just go back to the service been a huge driver? And that's really been without Intel's probably still the minority. Can you just maybe talk about, content per server? How much of that increase this year. And then as you look into next year, how much of a driver is currently as you look into the second half and that being more meaningful? So in terms of content for server, I think 2017, if you look at, Flash attached rate, it's about average capacity around 2.5, 2500 gigabytes. And when you look at projection over 2018 time frame, going to anywhere above 3000 gigabyte average capacity continues to march ahead by 2021. Time frame almost tripling from the 2017 levels. Well above 8000 gigabytes as well. So that is on the SSD side. And similarly, on the DRAM side, Average capacity has continued to increase nicely there as well. In 2017 timeframe, about 145 gigabyte, for server outage capacity estimated. And, industry reports are showing that by 2021 timeframe going to about $350,000,000. So very strong solid year over year increases, not just in near term, but again, as I say, these are secular trends here. Thanks for that. And then just on the NAND side, if you just want to go back to that prior question, obviously you're seeing a crossover 64, how do you think about the cost trajectory here as you then start to ramp? 3rd gen, you just looked at the fiscal year, is there any sort of, what's the slope of that cost curve as one's going up and the other one's going As we introduce 3rd generation 3 d NAND, we would continue to expect that that technology had mature yield have, or has a favorable cost dynamics relative to and positive or negative impact in our FY 2018 results as we will just be implementing that as we get into the last quarter of the fiscal year. So it won't be material enough either way. To change the fundamental dynamic that we're going to see this year, which is largely driven by our 64 layer, TLC NAND. Thanks, Aaron. Thank you. And our next question comes from the line of Kevin Cassidy with Stifel. Your line is open. Thanks for taking my question. You had mentioned that when you gave your guidance CapEx for the year about adding more value added into your DRAMs and Flash. Can you say what percentage right now would you call it a value added group and what's the goal for that? Well, in the value added solution category, we count our SSDs in that. And in fiscal Q1, we are really solid increase in our SSD revenues. We gained share in the market as well. In the mobile space, managed NAND solutions, are also a discrete NAND solutions we consider as value add as well. Our share in those markets today is relatively low, low single digits, but we see tremendous opportunity as we are continuing to diversify our product portfolio And as we execute on that product roadmap, in the quarters to come, we expect to beginning, making substantial progress And, of course, in the DRAM side, applications such as automotive, such as graphics, high performance applications as they all contribute towards the value add solutions. We are not providing you any specifics at this point. We'll discuss more details at our Analyst Day in May. Okay, great. Maybe just as one follow-up is because especially at DRAM market had been such commodity market, are you getting any pushback from your customers that they want you to move more towards a commodity? And let me just point out in response to your previous question that while we provide more detail in May, but on a year over year basis, Certainly, we are increasing our value add solution mix substantially and very pleased with the progress that we are making. Regarding your second question on DRAM, DRAM really is a strategic enabler today in diversity of markets and the megatrends we talk about Whether it is data centers, cloud applications, being the fuel for AI engine, helping make decisions for various search algorithms as well as various activities in all verticals that are being pursued leveraging AI in mobile space, as more and more applications go toward augmented reality type of features in mobile, requires more DRAM DRAM is highly strategic. Even in the future, when you look at, notebook computers, they will require the form factor and the low power aspects, even in PCs of LP DRAM in future years to come. So you see, and of course, we just talked about automotive as well. So now DRAM is addressing diversity of markets. I mean, several large diverse markets, product portfolio meeting the needs of these markets is becoming differentiated. And when that happens, that always gives you stronger opportunities to drive profitable growth in that market. And our customers, when we have engagement with them, when we have dialogues with them, they are talking to us how memory DRAM memory is really now helping them solve the bottleneck in their applications. So DRAM today is very different, as I've said many times before, from the DRAM in the PC era only or when it was about just PC and mobile. Today, it is about many more applications of DRAM and really providing a very strategic enabling role in, creating all these applications that are truly transforming the world, right before our eyes. Thank you. And our next question comes from the line of David Wong with Wells Fargo. Your line is open. Thanks very much. I not sure if you said it, but on the November quarter, how much of your total NAND production was 3 d NAND And as you transition to 64 layer in the February May quarter next year, did your NAND production drop or grow sequentially? So that 80% of our output for the quarter just completed was on 3d and over course of the balance of fiscal 2018, we'd expect that number to grow to about 95%. We expect that we'll have some measure of bit growth. As we said, each and every quarter, we said it would be in the prepared remarks a little more heavily weighted to the back half of the year. But you've nevertheless will grow in the first half? Yes. Okay, great. Output for the quarter, was up in the low single digit range. Thank you. And our next question comes from the line of CJ Muse with Ever Corps. Your line is open. Yes, good afternoon. Thank you for taking my question. I guess first question on DRAM, you talked about 20% bit supply for the industry in 2018, which would suggest continued tightness throughout the whole year. So curious, how customers are reacting to that reality? What kind of visibility are you seeing, to pricing as well as extension new contracts? We work very closely with our customers and we certainly, work hard in terms of gaining visibility to their future requirements of DRAM and how their applications are shaping up so that we can make sure that our technology and product roadmap is addressing their needs. And it just varies from customer to customer. Some customers tend to be more on a month by month basis, some more quarter and some certainly longer term engagements as well. And you're right to note that, yes, I mean, with the industry supply growing about 20% and demand likely to be somewhat higher, we do expect a healthy DRAM Industry supply and demand environment and continue to work very closely to drive strategic growth of our revenue mix going forward. Very helpful. And I guess as my follow-up on the NAND side, you're talking around 50% bit growth or approaching that for the industry. One or 2 of the other players in the market are expecting lower type of bit growth. So it would appear that you're making assumptions around the 64 layer ramp that might be a little bit more robust than your competitors. So curious, how are you thinking about that ramp? And clearly, I think you would agree that risk is probably lower than 50. How would you kind of, I guess, put a probability around where you think it truly ends up? So, of course, in terms of projecting, our industry bit growth estimates here, we, of course, are taking into consideration our estimate of the ramp of 64 layers technology in the industry and our assumptions around the ramp of wafer production as well as yield ramp of that technology. And along with other mix of technologies in the industry as well, but you would like to note that the dominant factor of the supply bit growth in the industry will be with 64 layers here. And we continually look at our Smith. And we review it. We based on all the intelligence that we may have as well as we may collect from 3rd party reports we refine our models on an ongoing basis. And if we have any changes on this, we will share them with you. Thank you very much. Thank you. And our next question comes from the line of Joe Moore with Morgan Stanley. Your line is open. I wonder, I know you don't want to get too far ahead of yourself on this, but when you get to sort of net cash neutral and you get to investment grade, what's next from a prioritization of free cash flow? And how do you just qualitatively think about cash return versus maintaining cash for more strategic uses? I think that We will continue to prioritize the supporting our latest generation technology in production As we've talked about for fiscal 2018, clearly focused on getting aggregate debt down to that $8,000,000,000 range. Those things will lead to. We believe over time, improved ratings. But I think how we think about deploying cash is not totally dependent upon the achievement of any particular ratings grade. We just think these are things that will be worked in parallel. And at the appropriate time, I think we're very open to thinking about broader uses of cash, including shareholder term programs. So those do have a place in the hierarchy of, thinking about uses of our cash, but until we get to the point where we have completed or substantively completed our work on this technology deployment and regaining cost competitiveness and also getting our aggregate debt levels to the to a level that we are more comfortable with certainly those will continue to remain our priority. Great. And then I wondered, the disparity between the 60% operating margins in your compute business and mobile, which is still quite high. I guess to me, sort of, you can see that, PC DRAM is still quite a bit more profitable than mobile. How do you think about that going forward in terms of your allocation of mix? Obviously, mobile gives you more stability down the road versus the upside that you can get from how you think about that balance? Yes, don't forget that the compute and networking business unit includes a wide array of products, which includes both client, but also includes, data center, mobile I'm sorry, not mobile, but networking and other products as well. So it is just a statement about the client compute environment. And many of those subsegments within the computed networking business unit, we would also consider strategically important. These are relationships where we have the opportunity to deploy both DRAM and NAND. And certainly, mobile continues to be important. So I wouldn't necessarily presume that the margin performance out of our computing networking business unit is largely driven by the performance of client. Okay. Thank you very much. Thank you. Our next question comes from the line of Ramesh Shah with Nomura Instinet. Your line is open. Yes, thank you. Sanjay, some of your equipment, semi cap equipment suppliers have, it just feels like over the last 3 months have been raising spending forecast for 2018, driven in part by higher DRAM investments. So my question is, what's the risk that your competitors perhaps are going more aggressively for share and that the 20% growth assumption you laid out for next year may actually end up proving conservative? I think, again, our estimates be for DRAM is well are based on all the information, from various sources and reports that we gather, and we have put that to here, I do think that even when you look at estimates by other suppliers, they are all pointing to fairly close, tightly aligned in the supply growth estimate here. And, but this is our estimate. We will, as I said before, for NAND, same thing. We routinely look at this very, very closely. And just also remember that the technology transitions in the industry today certainly are becoming increasingly complex and they have greater capital intensity as well as With the advanced technology nodes, you are actually getting less bits on a per wafer basis, even at maturities compared to prior generation nodes. Again, given the scaling challenges, the increased complexity, so all of these trends on actually increased technology complexity and increased capital intensity have a moderating effect on the supply growth. Thank you. And then just on the February quarter, I don't know if you guys look at individual periods on a seasonal basis, but it seems like the February quarter typically is a down quarter and you're guiding to sequential growth. Off of a better than expected November period. What's driving the better than normal seasonality for you? Is it pricing or other factors as well? Yes. I think Sanjay mentioned earlier the diversification of the DRAM demand stream and certainly that is also true on the NAND side. And in the context of that diversified demand stream, for example, automobile tend to be far less seasonal than client PCs. And if you look at data center deployments, among all of the key players, there's certainly a specific pattern for customer, but when you put them all together, there is no macro seasonality pattern that emerges when you look at that. So as we've transitioned to these diversified demand drivers, the concept of seasonality, I think, has been has been redefined and is perhaps less impactive on a quarter by quarter basis than it may have been in the past. Interesting. Thank you. Thank you. And our next question comes from the line of Jagadish Ayer with Summit Redstone. Your line is open. Yes, thanks for taking my questions. Sanjay, two questions. First, if NAND ASPs continue decline from rising supply, do you expect cost reduction to keep pace with the ASP decline as we look at fiscal 'eighteen? And then I have a follow-up. I mean, we are certainly not projecting pricing for fiscal year 2018 here. But again, what point to you is that if you look at the history of NAND, increase technology capabilities, technology advances, which lead to cost reductions, ultimately enable opening up of many new market applications and drive the elasticity in many of these markets as well and drive the demand environment. So I consider it environment. And while we don't get into the projection of pricing, again, when we look at all the demand drivers that are ahead of us, I spoke about it repeatedly in the call today, multitude of demand drivers. And in each of these large market segments, again, whether it is about cloud data center, enterprise data center, mobile, smartphones, client notebooks, automotive applications, all of these are continuing to drive strong demand trends for NAND flash application. Yes. I think the one thing I would add to that as well is if you think about our statements around industry bid growth, which are approaching 50 percent. Those would be associated typically with fairly healthy levels of cost reduction. We're not going to get into the specifics of what that might be. But it is important to remember that that bit growth usually would be accompanied by, some good cost reduction as well. Okay, fair enough. Then on the on 3 d cross point, I was wondering how much are you earmarking for spending in fiscal 18? And has there been customers who have identified and how should we think generally on a big picture about pricing there? Thank you. So this is Ernie. The, the 3 d Crosspoint CapEx, and any associated R and D the CapEx piece is embedded in our nonvolatile estimates for the year, which we said was between 35% 45% of our total spending. And, as we look at that product, we're going to have to see how the markets develop as Sanjay mentioned. Before we provide any broader perspective on that. Thank you. Our next question comes from the line of Steven Fox with Cross Research. Your line is open. For me. First of all, you mentioned the market share gains in SSDs, and I assume some of that was related to fixing the component issue. But can you sort of give us some more color on where you think specifically you had most success in gaining share? And then secondly, I know you're not going to talk specifically about pricing for the upcoming quarter. But if you could maybe qualify some more how you get to your sales guidance in terms of pricing and mix, that would be helpful. In terms of SSD share gains during the quarter, we believe we gained share both in client applications as well as enterprise and cloud, data center locations. Really, our products did very well there. And at this point, our offerings are with SATA drives And next year, we'll bring out our NVMe solution sometime during calendar year 'eighteen. And that should help us expand our portfolio and give us opportunities to continue to gain share in this market. And regarding our guidance that given you, of course, we have certain assumptions related to total demand and our pricing assumptions are baked in there as well. But obviously for competitive reasons, we do not get into discussion of pricings on the call. Thank you. Our next question comes from the line of John Pitzer with Credit Suisse. Your line is open. Good afternoon guys. Congratulations on the strong results. Ernie, maybe I can ask the gross margin question around NAND a little bit differently. I'm just kind of curious given that you guys had significant gross margin upside on pricing down low single digit sequentially under a scenario where pricing continues to decline, let's say, at a low single digit rate sequentially. Is there enough mix and cost opportunity for you to maintain and or grow gross margins from here? Or how should we think about the parameters of you able being able to maintain or grow gross margins relative to your cost and mix availability from here? Yes. So if we're framing the scenario in the future as we continue to see sort of marginally declining pricing environment, a couple of points per quarter or so. I think there's ample room for gross margin expansion, both as a result of our cost reduction as well as the ongoing transition to high value high value solutions, which would include redirecting continuing to redirect component sales into higher value added solutions as well as some of our partner contracts wind down over the course of our fiscal 2018 and into into 2019. So I think in that pricing scenario that you've set forth, we believe there's reasonable room for gross margin expansion. That's helpful. And a similar question on the DRAM front. You mentioned in your prepared comments that you expect more DRAM bit growth in the first half of your fiscal year than the second half. As we transition into the second half, how much how many levers do you have on the mix side in DRAM to be able to progress sort of gross margins higher from here? Respect to continuing to move toward higher value add solutions. You heard Sanjay speak to, for example, in increasing the breadth of our managed NAND offerings. If you look at server, that's certainly a very, very strong growth pattern here. Well as automotive. So I think there are a number of segments where we would continue to expect to be able to to optimize our bit output toward that would give us the best gross margin opportunity. And of course, even though our bit output growth is going to be lower in the the NAND, we would still expect to deliver, some meaningful cost reduction there, as I articulated in the prepared remarks. Perfect. Thanks guys. Congratulations. Thanks. Thank you. Thank you. And we'll take our final question from the line of Mark Newman with Stein. Your line is open. Hi, thanks for squeezing me in. I had a question on CapEx and capacity. So my point, you stepped up with the CapEx quite a bit this year from previous years, but still, quite similarly under spending some of the rivals, particularly Samsung. My question actually is about how is Michael thinking about the need for fabs longer term. This is more of a kind of longer term question because, both Samsung and IX are building, brand new Greenfield fabs as we speak. What is the status right now for Micron in both DRAM and NAND in terms of how much space you have available to you in DRAM and NAND And I understand your goal is to keep wafer capacity roughly flat and grow gigabytes from technology migration, what point do you need more fabs placed to keep that fab capacity roughly flat. There's, of course, more layers, you price more fab space. And of course, as you shrink DRAM, you also need more fab space as well. So do you have any plans for new fabs? What would be the plan? And how are you thinking about that? So like you noted, in order to realize the technology transitions, you, of course, do need a space in your clean room to deploy the tools that are required to implement the advanced technology nodes. So our fabs have had space here in terms of deploying the technology transitions, for example, in Singapore going from 32 layer to 64 layer. And in the past, in Singapore, fair for NAND going from planar to, 3 d nodes as well. And similarly, clean room space is something you look at very carefully for DRAMs as well because as I just said, I mean, more cleanroom space is needed for technology transitions. So as I said in my prepared remarks, I mean, we do continue to assess the scenarios that are needed for future technology transitions. And I'll continue to assess our cleaned room space requirements. Fiscal year 2018, we are not looking at any new wafer capacity additions. We are not looking at any new any meaningful new cleanroom space required to implement our technology transition plans in fiscal year 2018. As I said in my remarks, going beyond that, we continue to assess various scenarios to implement the requirements for technology transitions, both in DRAM as well as in the end. No plans formed up yet. And as and when we look at it, we will share these things. Remember, anytime you build a new clean rooms, it takes several months to build construct the building, And it takes a few months then to roll in equipment into the new clean room and to deploy the equipment, qualify it and build products. So these are things that are to be looked at for the longer term horizon, and we are evaluating those scenarios. Okay. Thanks very much. Thank you. And this concludes today's question and Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.