Thank you for standing by. Welcome to Micron's post-earnings analyst call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during this session, you need to press star one one on your telephone. Now I'd like to introduce our host for today's program, Farhan Ahmad, Vice President, Investor Relations. Please go ahead, sir.
Thank you, and welcome to Micron Technology's fiscal fourth quarter 2022 analyst call back. On the call with me today are Sumit Sadana, our Chief Business Officer, Manish Bhatia, our EVP of Global Operations, and Mark Murphy, our CFO. As a reminder, the matters we will be discussing today include forward-looking statements regarding market demand and supply, our expected results and other matters. 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, including our most recent Form 10-K and 10-Q, for a discussion of the risks that may affect our future results. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
We are under no duty to update any of the forward-looking statements to confirm these statements to actual results. We can now open the call.
Certainly. Ladies and gentlemen, once again, if you have a question at this time, please press star then one. One moment for our first question. Our first question comes from the line of Ambrish Srivastava from BMO. Your question please.
Hello, this is Jamison calling for Ambrish. I just had two quick questions. The first one is on, given the fact that you had guided free cash flow to negative $1.5 billion in 1Q, and what seems to be a similar loss in 2Q given the front and weighted CapEx, similar revenue and profitability profile, as well as inventory continue to rise, and then leading to your commentary of free cash flow generation in the back half of the year, can you comment on your expectations for fiscal 2023 free cash flow as a whole? Thank you.
Yeah, we just to maybe reference the script, I believe we stated over $1.5 billion negative free cash flow in the first quarter. We're not guiding the second, though I did say it would be challenged, you know, because we do have still low levels of revenue and income. You know, the inventory, elevated inventory levels. As you pointed out, we said that we would have CapEx weighted heavily in the first half. All those are gonna weigh on second quarter free cash flows as well, but we did not provide a number. We do expect to return to free cash flow generation in the second half. I'm, you know, we're not providing a full year estimate at this time.
Okay. Thank you. One other question on long-term bit growth, so especially for DRAM. I think you guys have lowered your bit growth several times over the last few years, from, you know, 20% to mid-high teens and now to mid-teens. What would it take for long-term bit growth to be said 10%? Is that something that you guys can see over the next several years or next decade happening, or is that something that is very unlikely and we should maintain it at mid-teens? Thank you.
Sumit, do you want to take that one?
I'm sorry. I couldn't catch the question. Was it?
I did. Is Sumit on? Oh, no. All right. I can. The question was. Sorry, Mark. The question was about the long-term bit growth tag.
Down to 10%.
For DRAM. The question is, we used to say 20%.
Yeah.
For DRAM, you know, four or five years ago. It came down to mid- to high teens, and today we're saying, you know, mid-teens. His question is, what would it take for your assumptions to have this long-term category come down to 10%?
Yeah, that's not our assumption.
Yeah.
So.
Yeah. I mean, I think right now we, you know, our best projection we have, given the strong trends in, you know, artificial intelligence and 5G and eventual, you know, the content increases that'll be driven in autos by autonomous. You know, right now our outlook is the mid-teens%, and that's kinda where we see it now.
Okay. Thank you.
Thank you. One moment for our next question. Our next question comes from the line of Aaron Rakers from Wells Fargo. Your question please.
Aaron, can you hear me?
I can't hear you.
Now we can hear you.
There we go.
Yeah. Sorry about that. I missed my name there. It broke up. I appreciate you taking the question. I have two quick questions if I can as well. On the first question, you know, Mark, I just wanna understand kinda how you're framing, you know, the expectations of bit growth. I think in the call you had alluded to an expectation of returning to year-over-year bit growth. It sounded like for both DRAM and NAND into the back half of the fiscal year. I guess the first question to that is that the expectation you're currently operating to?
I guess if you believe that, you've got to assume a fairly steep, you know, north of 20% sequential bit growth expectation in your mind looking into the back half of the fiscal year. Is that how you're thinking about it? Is that a fair assumption?
Aaron, I did not break it out in the call, but you're right in that, you know, conceptually that in the second half, we are expecting a, you know, robust recovery in volumes.
Yeah.
that was.
Aaron.
DRAM and NAND.
Yes.
Yeah, Aaron, I'll just add that if you think about it, we are not right now shipping well below end demand. You know, the demand or our bit shipments are artificially in some sense low because of the inventory adjustment going on at the customers. Once that is done, it'll bounce back and, you know, you can think of it like, you know, like, from where we were in the Q3 levels. From that, we have volumes come down almost a third, maybe even more than that into the Q1. At some point there should be a bounce back from that as the inventory is adjusted.
Yeah. No, I appreciate that. I guess it kind of segues to my second question, which is, you know, I guess your best assessment of the cloud, the server demand profile that you're seeing right now. You know, any views of what inventories are looking like? I think on the call you alluded to some match set issues, supply chain constraint issues still going on there. But how would you assess what you're seeing from a cloud inventory perspective at this point?
Sumit, are you on?
Yeah, I'm here. Can you hear me?
Yes.
Okay. Yeah, I can take that question. Yes, I mean, first of all, the demand in the cloud overall is healthy, and there is demand out there for servers that just cannot be built because certain components for servers like network interface cards of certain types are still in pretty significant shortage. Definitely because the servers cannot be built, the other portions of the supply chain which have more than adequate inventory are being cut back in terms of demand. That is one aspect that is impacting the demand even though the end demand in cloud is relatively healthy.
Within cloud, you know, if I were to just look at different segments based on discussions with customers, there are portions of the cloud demand that are somewhat impacted by the macroeconomic environment, and then there are portions of the cloud demand that are very robust from a demand perspective. When you net all of that out, the overall demand is relatively healthy. You know, I mentioned the server issue. The other aspect is memory and storage inventory at cloud customers is generally high and does need to be worked down, so that is part of what's impacting the demand in the near term.
Now, you know, we do think that the cloud demand is going to remain better than other segments of the market, even as the economic environment proceeds along the trajectory that most people expect, because there is going to be a desire from companies to find a way to cut costs, to convert capital expenditures into operating expenditures through the use of cloud, to defer IT CapEx and use cloud more and things like that. There is definitely going to be an outperformance in terms of cloud demand versus other parts of the market. Obviously the whole trend towards digitization of the economy is going to also continue. We think that this is going to continue to be a good environment.
It may have some ups and downs based on the macroeconomic demand, but we are optimistic about how this will play out over time.
Thank you very much.
Sure.
Thank you. Once again, if you have a question, please press star one one. One moment for our next question. Our next question comes from the line of Thomas O'Malley from Barclays. Your question, please.
Hey, guys. Thanks for taking my question and, thanks for hosting the call. Mark, this one's for you. You talked about some decisive action on the OpEx side of things. Obviously, you're not seeing that flow through right away. It takes some time, but could you just try to lay out the cadence and the vector of how extreme that could be throughout the year, just as that's a pretty good offset, as revenue comes down, just the shape of that OpEx decrease and how much you could save.
Sure, Tom. I you know, as with CapEx, we did respond quickly in this unprecedented downturn. Yeah, we've got clear line of sight on our spend, and it's in control, and we're projecting it to come down. I think, you know, in fourth quarter, we actually, it may not have been noticed, but we're actually below the low end of the guidance range we provided on OpEx. I think, you know, some of that was incentive comp. But I think, you know, the actions in the company have already started. We expect a decline sequentially off this billion-dollar level that we guided for the first quarter, and we would expect a decline through the year as, you know, as the actions take hold and more actions kick in.
We would plan to end the year, you know, down closer to the levels that we did in FY 2022, so I would say 3.8 or above. Yeah, the actions are wide-ranging. You know, headcount freeze, attrition, other actions. You know, focusing on highest value and highest probability projects for development. You know, those that are not, we're taking a harder look at, looking at office space, outside services, discretionary spend and so forth. A lot of actions in flight, you know, more coming and of course, we would adjust our spend as the market conditions warrant.
We are clearly trying to balance, you know, the short term challenges in the business with, you know, retaining the long term capabilities of the company and, you know, just working through that very carefully.
Really helpful. Then just a follow-up is on the tax rate. You made a comment that it should be $300 million. Were you referring to the total for calendar year 2023 being about $300 million? If that's the case, is like a 25% tax rate just kind of held consistent through November of 2022 through November of 2023, kind of the right area? Or does it need to move around a little bit? Just any color there would be helpful.
You know, I think what we said, Thom, was a minimum number of 300. You know, could be above that, and that's a dollar basis for the full year. You know, you can assume that as a floor, could be a bit more. I won't give you a percent because you'll be able to, you know, back into full year income. It will be a, you know, strong double digit rate. You know, we expect that to be the rate that we're experiencing or we expect to experience in FY 2023 is really driven by two things.
One is the introduction of this capitalization and amortization of R&D expenditures, and that, you know, that was a headwind on tax. The second thing is just the low levels of profitability. The way our tax planning works is it's optimized for higher levels of profitability. When you get these lower levels of profitability, you have, you know, basically sort of some fixed costs or fixed taxes at these levels. Now as you look out in the future years and we return to more normal levels of profitability, we would expect to be in the low- to mid-teens %. That increase from, you know, FY 2022's rate, which was 8%, and, you know, there were some, you know, let's say a normalized rate there is 8%-10%.
You know, that's several points of increase, as we look forward on a normalized basis, is principally driven by that R&D, capitalization and amortization effect. Then also just as, you know, income grows, the GILTI, you know, parts of the U.S. tax reform, put some pressure on the rate as more income gets exposed to GILTI.
Super helpful. Thank you.
Thank you. One moment for our next question. Our next question comes from the line of Rajvindra Gill from Needham. Your question please.
Yeah. Thank you for taking my questions. Yeah, just a follow-up question on the assumption of returning to year-over-year bit growth in the second half of fiscal 2023. Sanjay mentioned, you know, some color around smartphone market and kind of the PC market starting to normalize next year. That kind of assumes that the inventory adjustments at the customers, you know, will take place. I'm also wondering, are there other assumptions that you have kind of built in with respect to those particular end markets as well as the other end markets to kind of give you confidence that we are gonna see kind of this demand inflection point, you know, exiting February quarter?
Are the inventory levels at the end market levels at a sufficiently low level that, you know, that gives you confidence that they'll start to rebuild? Any color there, in terms of that inflection point would be helpful.
Yeah. I can take that question. So I think, you know, there are actually several moving parts in the demand environment. You know, of course there is different segments of the market growing at different rates. There is different levels of inventory in the various segments of the market, and the macroeconomic environment is also expected to impact going forward these segments in different ways. The other important thing to just keep in mind is number one, the shipments that we are making currently to customers are below the consumption rate of DRAM and NAND because obviously customers are trying to reduce their own inventories.
Now, keep in mind that the PC market and the smartphone market entered the down cycle before the other parts of the market and well before the economic environment broadly started to weaken. We also expect that since these are consumer devices that are pretty essential, when the volumes of these devices get down to really low levels, you know, we do think they will stabilize and there is a good chance of improvement in these volumes as countries like China start to open up and forego some of their zero COVID lockdowns related to zero COVID. We are assuming that those lockdowns will improve as we go through our fiscal year.
Sometime in early next calendar year, we are assuming that, you know, the Chinese economy will start to improve and, there will be some reintegration of consumer demand there. You know, the last point I will make is the shipments that we are talking about growing in the second half of fiscal 2023 versus the first half of fiscal 2023 have a heavy component of, you know, the demand that's catching up to what the end demand is because the inventory correction has largely, we expect would have largely run its course by the end of our first fiscal half of fiscal 2023.
By the end of the February quarter, we are expecting that the customer inventories would have been materially improved because they would have been in inventory improvement mode for many months up to that point. If you think about the PC and smartphone segment, they would have been in that inventory improvement mode for the better half of a year.
Right.
I think, you know, those are some of the factors. The final thing I will mention in terms of the overall health of the industry, although not directly related to demand itself, is that just like right now, the supply is significantly higher than demand in calendar year 2022. We expect that situation to reverse early in calendar 2023, where we expect that due to the CapEx cuts that we are making and what we expect the industry supply growth to be next year, which is only in the mid-single digit sort of percentage range for DRAM in terms of supply growth.
Demand growth being in our model, you know, in that mid-teens range, we get a situation next year where the inventory starts to come down sharply because the supply growth has fallen well below the demand growth. The situation that you have today, you'll see sort of a mirror image of that sometime next year. It's obviously based on certain assumptions of the macroeconomic environment. If the environment is better, you know, things will get shifted to the left in terms of improvement of shipments. If the environment gets worse than what we are modeling, then obviously things will shift to the right. That's sort of how we are looking at it. Hope that helps.
Yeah, that's super helpful to understand those splits and takes. Just my follow-up with respect to the cloud server inventory, you know, you made a distinction between, you know, you know, some portions of cloud being healthy, you know, regardless of the macro, some portions of the cloud being impacted by the macro. You also mentioned that, you know, the cloud inventory remains high, needs to be worked down. They clearly are kind of waiting for memory pricing to drop further before they start to kind of rebuild. I want to get, you know, a little more insight on the portions of the cloud business that are being impacted because of the macro.
You know, can you elaborate further, are you seeing kind of a, you know, an expectation that the hyperscaler customers will reduce infrastructure spending for data center? Or is it just, you know, they already have too much inventory and they're gonna wait to rebuild until, you know, prices come down further?
Yeah, I mean, I think I don't view this as customers are waiting to have prices come down in order to buy. I don't feel like that is the mindset they have. I think what has happened is they had a certain amount of demand that they were, you know, buying components for, and then they couldn't put together all the servers they needed to put together. That was mainly due to things like network interface cards and so on that were in shortage.
They found out that, okay, when they can't pull together all the servers they need, they do have built up a high level of inventory of things like DRAM and NAND that obviously they need to slow down the purchase of because they are only able to build certain number of servers. That's one aspect of it. I think the other aspect of it is in terms of the areas that are somewhat impacted. I mean, if you think about consumer companies who do leverage the cloud infrastructure for their own purposes of you know, extending into some kind of a hybrid environment or a cloud-only environment, these consumer-facing companies.
They are getting more impacted by the inflationary environment and changing customer consumer behavior in terms of spending patterns, or generally getting more cautious about the macroeconomic environment and the trajectory of their own businesses. Those are the ones that are a little bit more susceptible in the short term in terms of what's happening to the macroeconomic environment. The companies that are more B2B type of companies have little bit less susceptibility. Of course, these are very generalized statements. Within those sectors, there are some companies that are very strong and some companies that are weak. At an aggregate level, I would say that when you put all of that together, the end demand for cloud is still healthy.
Of course, if all of the components had been available to put together servers, it would have been even stronger than that. That's the situation we are in right now. I do think that it's not so much the putting off of purchases for lower prices. I think once the inventory normalizes at cloud companies, you know, their purchasing will improve of DRAM and NAND, somewhat regardless of, you know, the end demand. Because when our shipments fall below their consumption level, that kind of pattern typically corrects itself after X number of months. You can decide what that X is just based on how much inventory each customer has.
Thank you.
Thank you. One moment for our next question. Our next question comes from the line of Sidney Ho from Deutsche Bank. Your question, please.
Great. Thanks for taking the question. More on inventory, but your own inventory days. Sounds like that is gonna go up in the November quarter. Should we be thinking that is the peak level in terms of either dollars or days? And at what point should we be worried about you have to write down that the value of the inventory? Is it when gross margin turns negative? And do you expect that to happen in the next few quarters, especially given, especially on the NAND side?
Yeah, Sidney, you know, we do expect inventory levels to go up substantially in the first quarter and days go well over 150. We expect it to stay sort of at those levels into the second quarter and then begin to come down as volumes pick up in the back half of the year, but remain above our target level for sure through 2023. In fact, stay probably elevated at that 150 plus through the year. You know, though prices have come down and we have price assumptions in our outlook, you know, we have a robust process internally to monitor the potential exposure on inventories.
We review sales volumes, customer orders, contract prices, apply demand signals, seasonal factors, other trends, to evaluate the risk. Based on our assessment, as we see in our outlook, you know, we project margins at such levels that we do not see currently any write-downs. However, we'll obviously continue to monitor.
You mean due-
Monitor things.
Due to lower profit.
Due to lower profit. We always, of course, have, you know, inventory adjustments for various reasons that occur every quarter. The lower of cost or market that you're talking about, we-
Right.
We do. I think that's where we are.
Okay. Maybe a quick one on the capital spending side. I know you're taking it down to $8 billion. You normally talk about how much of the CapEx is dedicated DRAM versus NAND versus backend. I wonder if you can give us a breakdown of that. Within the WFE cut, you talk about 50%. Are you cutting more on the DRAM side or NAND side, or it's about the same?
I can take that one, Sidney. I'll take the second question first. We're cutting on both. There are reductions on both. What I'll just, you know, emphasize is that, you know, all of the WFE that we're spending is really going to next generation technologies. Meaning in DRAM, 1- beta and beyond, including even some early spending on 1- gamma. On the NAND side, 2022 and beyond. Even though we're slowing down those ramps, still all of whatever spending we do have in WFE is really going towards the future. You know, whenever you get in a situation like this, you always have to make a choice.
Typically, what you do is you sort of stop spending on the existing technologies because that's capacity growth, and you pivot your spending towards the future generation so that you're prepared when, you know, when things reverse, that we're gonna have, you know, leading-edge technology, you know, qualified. We're gonna have multiple different products qualified, good yields, and that's sort of what we're investing for now, as well as, you know, generations even beyond those two. In terms of just giving you some, you know, rough breakdown of the overall $8 billion, I think, you know, we can say that.
You know, the WFE is the largest part. It's you know, more than half. We then have construction spending, which is actually, as we said in the script, above what the levels were in 2022. Construction spending, as you know, tends to be lumpy. It's sort of you build clean room space. We have been very proactive, you know, over the last several years before last year in building clean room space. If you go back to you know, our years in 2019 and 2020 and 2021. So 2022 was a lower year. This year we have more spending, and inclusive of that spending is the spending for the US project that we announced in Boise earlier this month.
We have spending for technology and development, as well as for assembly and tests, that are sort of the next category.
Okay. Great. Thank you.
Maybe Sidney, just to add to something that you know, Manish was covering there. I think it's noteworthy, as he said that you know, there's a sizable construction part of this spend and as you know, as we cut levels, that becomes a higher percent. That actually is a higher percent in the back half of the year. I just think it's worth calling out because these are investments for the long term, and we're gonna begin spending monies around you know, Idaho, for example. That is for end of the decade you know.
Yeah.
later in the decade demand. You know, I just think it's important to call that out because we're certainly exploring ways to, you know, finance those expenditures. You know, there's certainly government grants that we are working through, that CHIPS Act, for example, and the ITC benefits of that legislation. We would use of course, as the business improves our own operating cash flow, our balance sheet, and then other means to, you know, finance those expenditures.
Great. Thank you very much.
Thank you. One moment for our next question. Our next question comes from the line of Krish Sankar from Cowen. Your question please.
Hey, guys. This is Eddy for Krish. Thanks for squeezing me in. At your Analyst Day, you gave us 50% target mix of DDR5 in servers by CQ4 2023. Obviously, this will be lower, but can you share your updated thoughts with us? I have another question, please. Thanks.
Yeah. I mean, definitely the DDR5 crossover point has been pushed out largely due to the push out of the schedule of certain new architecture introductions by the CPU vendors. As we look at the DDR5 ramp, it is continuing on the PC side, but on the server side, the numbers are far lower in 2022 as we look towards the end of 2022, far lower than we had originally expected or the industry had originally expected. We expect that by the end of 2023, the DDR5's penetration in the server space will be meaningfully below 50%. We'll get to 50% level sometime in 2024.
Great. Thank you. On cost declines, how should we think about cost declines for fiscal 2023 across DRAM and NAND? That's it for me. Thanks.
Sure. I can take that. I mean, both of them are going to be, Eddie, are gonna be below the long-term category this year in fiscal year. Actually, I shouldn't say this year. In fiscal year 2022, last year, we performed very well. Both NAND and DRAM at the memory level were above, the cost reductions were better than the long-term CAGR that we have for both, for DRAM, which we've said is high single digits and for NAND, low teens. So we did better than that in 2022. In 2023, we expect both DRAM and NAND to be below that. Obviously the, you know, reduced capital spending and slower technology transitions have a big part in that. The underutilization has a part in that.
Mark gave some color on the call before about that part. We have some inflationary headwinds, particularly in Singapore. On the NAND side, we have a inflationary headwind specifically unique there given the electricity you know, what's going on with the electricity markets there, and that's a challenge for us. DRAM does have some benefit on, you know, FX given we manufacture in Japan and Taiwan, and both the yen and the Taiwan dollar have weakened recently. We have some things there. When you put all that together, we still expect DRAM and NAND both to be below the long-term CAGR for memory level cost reduction in fiscal year 2023 and NAND to be more challenged than DRAM.
Will it be lower than fiscal 2022?
Yes. Sorry. Yes.
Okay.
Both of them will be below the long-term CAGR, so therefore below. Let me make sure I'm clear. I should. Below the. They will be. They will not reach the long-term CAGR. They will be worse than fiscal year 2022, and they'll be less cost reduction.
Shallower cost reduction than the long-term CAGR, with NAND more challenged than DRAM.
Thank you. One moment for our next question. Our next question comes from the line of Toshiya Hari from Goldman Sachs. Your question please.
Hi, thank you for taking the question. I had a couple of questions on the demand side. You know, as your expectations have come down over the past, you know, couple of months, and this obviously isn't just you guys, but the overall environment has come in, which end market or application, I guess, has surprised you the most? It sounds like everything is worse but if you can differentiate between the big core end markets, that would be helpful. Then related to that, you talked about elevated customer inventory and cloud, but is there a significant difference in customer inventory levels across the end markets vis-a-vis what you consider to be normal?
Yeah. I mean that's a good question. I think in terms of what surprised us the most, I mean, you know, the smartphone and PC segments first ones to weaken and they, you know, weakened sharply early in the cycle. We started seeing inventory related corrections then spread to other segments of the market, and then some segments of the market started to see some end demand erosion alongside inventory correction, and that sort of compounded the demand issue. In terms of, you know, the pullback of actual purchases, it has been pretty broad-based across all of the segments due to a combination of inventory and end demand concerns. In some segments, the end demand concerns, like cloud, I mentioned, you know, end demand still healthy, but inventory and server issues.
Generally, the pullback has been pretty significant across multiple segments. I would say that the end demand in automotive still remains in very good shape as well. The pullback in demand in areas like automotive, despite the inventory correction, is you know, less pronounced compared to the overall pullback in demand in other areas. You know, pretty much all segments have been impacted quite a bit.
I think part of this is also coming from the concern, a broadening level of concern among customers about the trajectory of the global economy and the U.S. economy, and just driving that cautionary behavior of needing to manage or wanting to manage free cash flow and inventory levels in a tighter way than they would in a mode that semiconductor parts are generally in shortage for the last couple of years, and the mindset had been to just accumulate parts and not gauge revenue. Now the mindset is more to protect free cash flow and keep, you know, healthier levels, lower levels of inventory. Sorry, go ahead.
Sorry, go ahead. No, please go ahead.
You know, I was just going to the other part of your question regarding cloud. I mean, I think in terms of cloud, you know, the only differentiation I wanted to make is, you know, the enterprise versus the cloud part of the data center, you know, overall data center market. The enterprise being, you know, more of the traditional on-prem type of OEM driven purchasing, that has been weaker than the cloud trends, generally speaking, in terms of differentiating between enterprise and cloud. I think that at this point, I would not say that inventories are at normal levels in any major segment. I would say that there is some level of excess inventory in most segments. A small amount in some, but more in others.
There are definitely customers who have normal levels of inventory. Within each segment, there may be customers who have more normal levels of inventory. If I look at it from an entire segment level, not easy to identify one where there is, entire segment is healthy from an inventory perspective at this point. I do think that, you know, you see that in our shipment numbers, in FQ4, our bit shipment declined. In FQ1, our bit shipment declined. Small bit shipment declines do happen from time to time. It's very normal on a sequential basis. Bit shipments, having two quarters of back-to-back declines in a pretty substantial way, typically only happens when, you know, inventory is being liquidated.
You can see that inventory is going down at customers between Q4 and Q1 of our fiscal year. We expect those inventories to keep going down through the rest of this calendar year and into the early part of calendar 2023, at which point we think they would have reached levels where the ship in volume should start to rebound to meet the ship out volume levels. Of course, all of this is based on assumptions of certain macroeconomic environment that obviously is ahead of us.
Great, thank you for that. As a follow-up on the supply side, so you're cutting WFE by 50% in fiscal 2023. You know, if for whatever reason the environment ends up being a lot better or less bad than expected, say in the second half of your fiscal year or your expectations for the early part of fiscal 2024 improve, how flexible can you be with that CapEx with your equipment suppliers? Meaning can you go back to them and say, "We actually don't wanna cut this much. We need tools" or just given where lead times are, would that be difficult? I guess you know, if you can compare and contrast the flexibility you have today versus past cyclical inflections, that would be helpful. Thank you.
Sure, Toshiya. Thanks, and that's a nice thing to think about, to try to think about on a day like today. Thank you for giving us that question.
Exactly.
Look, we have, you know, a great relationship with the equipment vendors, some of it over, you know, multiple decades, all the vendors really, you know, whether in the U.S. or Japan or Europe. What I'll tell you is that, you know, when they were having supply chain challenges over the last couple of years, we really partnered with them closely to help them get their, you know, figure out how to, you know, keep their shipments up to meet our schedule, doing things like qualifying alternate sources for certain parts so they could ship equipment or even doing the installations in place. We've worked with them really well, and I think they appreciate that partnership, and they're working with us now, you know, as we have this difficult period.
I'm, you know, as I mentioned, we are maintaining, you know, the manufacturing corridors for the ramp-up of these new technologies to get multiple products qualified across them to improve yield and make sure that when the demand turns around, we'll have the ability to ramp those leading-edge nodes. In terms of the flexibility that we'll have, you know, we've exhibited flexibility with them to try and help increase or improve and, you know, keep our ramps on pace in the past. This is obviously a different period, but we can certainly go back to the playbook we had before if we need to expedite shipments again. If we did, it would be for leading-edge technology that we would.
I don't think that it's something where, you know, we're gonna do it in line with the demand trends, and demand environment improving. You know, for now we're kind of slowing the ramps down through 2023 and looking at 2024 where we'll get the majority of the impact from these two new technologies, 1-beta and 232-layer.
Makes sense. Thank you so much.
Thank you. One moment for our next question. Our next question comes from the line of Hans Mosesmann from Rosenblatt Securities. Your question please.
Yeah. Thanks. Can you hear me okay?
Yes.
Yeah, we can hear you, Hans.
Okay.
Great.
Okay, great. Just a clarification. There's a previous question on DDR5, and I think management indicated that the DDR5 transition and/or crossover had been delayed during the analyst meeting. But now I think that the answer has been that the crossover is going to be well below 50% by the end of 2023. Is that accurate or did I misunderstand?
Yes, that is what we said. Yeah.
That's a change from what had been implied during the analyst meeting earlier this year.
I mean, the DDR5 transition in the server market is heavily driven by the timing of the platform rollout from the CPU companies because, you know, the DDR5 needs and can attach to only certain server platforms. It also then depends on the rate and pace at which those platforms will be deployed. If the deployment of these platforms is faster than we expect, then of course, you know, we'll be able to take advantage of that because we have an industry-leading DDR portfolio, and we have a share position in DDR5 that's actually higher than our supply share. We are in a really good position with DDR5 and regardless of what the timing of these ramps in DDR5 are, we are in great position to take advantage of it.
Our current expectation is that, yes, the 50% point would not have reached by the end of calendar 2023 as we had earlier expected.
What was the earlier expectation? Just to kind of confirm it. The earlier expectation was middle of 2023?
No, no. It was never middle. It was more like it was going to be towards the end, like fourth quarter of 2023. Now it's pushed into 2024.
Okay, great. Thanks for the clarification. Very helpful.
Sure.
Thank you. Our final question for today. One moment, please. Our final question comes from the line of Steven Fox from Fox Advisors. Your question please.
Hi. Thanks for squeezing me in. I just had one question. You guys have given a lot of detail on your thoughts on inventories and demand by different segments. I guess the one overall overarching question I had, especially since Sanjay called out China as being important. How much influence do you now looking back think that excess purchases out of China influenced this whole cycle up and down? How sensitive do you think you're gonna be to what's going on in China on any sort of recovery? Thanks.
I think in terms of China, you know, we do have YMTC selling NAND to customers for use in China, mostly into lower-end consumer applications. We do have a model of the industry capacity that incorporates certain levels of growth of supply from Chinese suppliers. That's part of how we look at the world in terms of when we think about supply and demand and balance and so on. There is no doubt that particularly in NAND, but to a lower extent in DRAM, but particularly in NAND, you know, there has been supply from YMTC that has added to the supply-demand imbalance that is currently in the market.
We do expect that, you know, the overall supply growth next year, even in NAND, will fall meaningfully below the demand growth and the environment to consequently improve once the inventories are in better shape, as we have described in the past.
Great. Thank you.
Thank you. This does conclude the question and answer session as well as today's program. Thank you for your participation. You may now disconnect. Good day.