Earnings Call: Q4 2017

Sep 26, 2017

Good afternoon. My name is Karen, and I'll be your conference facilitator today. At this time, I would like to welcome everyone to Micron Technology's 4th Quarter 2017 Financial Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer period. It is now my pleasure to turn the floor over to your host, Shanye Hudson. You may begin your conference. Thank you, Karen, and welcome to Micron Technologies 4th fiscal quarter 2017 financial conference call. On the call with me today are Sanjay Marotra, President and CEO and Ernie Madug, Chief Financial Officer. Today's call will be approximately 60 minutes in length. This call, including audio and slides, is also being webcast from our com. In addition, our website contains the earnings press release, which was filed a short while ago. Today's discussion of financial results will be presented on a non GAAP financial basis unless otherwise specified. Comparison to prior year non GAAP financial results excludes stock based compensation and the amortization of acquisition related intangibles. A reconciliation of GAAP to non GAAP financial measures may be the call and webcast replay will be available on our website later today. We encourage to monitor our website at micron.com throughout the quarter for that we will be attending. You can also follow us on Twitter at Micron Tech. As a reminder, the matters we will be discussing today include forward looking statements. These forward looking statements are subject results to differ materially from statements made today. Form 10 K and Form 10 Q for a discussion of risks that may affect our future results. Reflected in the forward looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements We are under results. And with that, I'll now turn the call over to you Sanjay. Thank you, Sheeny. Good afternoon, everyone. Our fourth quarter results accentuate an unprecedented year for the company. I thank the Micron Global Team for maintaining intense focus on our key priorities in delivering outstanding with record gross margin, operating income cash flow also set company records. Our results were driven by favorable industry fundamentals and solid execution in deploying our next generation, lower cost technologies and diversifying our product portfolio toward a rich and may of differentiated high value solutions. We are excited about future opportunities as customers increasingly recognize the strategic value of our Now I will share details from each of our business units followed by our perspectives on industry dynamics and an outline of our corporate strategy. In our computer networking business unit, we saw robust growth in Q4 revenue and profitability compared with the prior year. Our results were driven by strong demand in cloud and graphics complemented by a healthy pricing environment. Revenue growth from these two segments significantly exceeded overall C and BU growth, which more than doubled compared with the year ago quarter. Cloud sales are supported by increasing DRAM content per server, which is up nearly 50% versus a year ago. In graphics, we continue to leverage our industry leading, GDDR5 and GDDR5x performance, to address strong demand primarily from gaming. The business unit is also benefiting from the initial ramp of our 1st generation 1x8 gigabit DDR4 product, which was sold primarily into the client and cloud segments. In fiscal Q1, we anticipate continued growth of our 1x portfolio, coincident with the ramp of our 2nd generation 1x8 gigabit DDR4 and GDDR5 products, both of which have already been validated as certain partners and customers. We also received initial customer qualifications on our TSB stacked DDR4 products enabling modules with up to 128 gigabyte and the highest speeds supported on industry standard server platforms. These products address the growing demand for analytics and in memory databases in both the enterprise and cloud segments. 4th quarter revenues in our mobile business unit were driven by a favorable pricing environment and significant growth in our EMCP business, Due to strong execution, sales from our mobile NAND and EMCP solutions nearly doubled year over year. We believe that increased DRAM and flash capacities and flagship smartphones will continue due in part to new applications such as augmented reality in mobile devices. Our roadmap of new LP DRAM discrete managed NAND and EMCP offerings position us well to address these market requirements. In fiscal Q4, we achieved our first 1x LP DRAM qualification at a major mobile OEM, and have several others underway. Also, our technology capabilities in 1x LP DRAM package on packaged products allow us to offer cost effective, high capacity mobile solutions ranging from 3 gigabytes to 8 gigabytes. We expect volume shipments of these new products During the fourth quarter, we also qualified our 1st 3 d TLC E MCP and E MMC solution at a major chipset vendor and now have dozens of high density products in qualification with several OEMs. We expect production shipments to start TLC UFS products will also start OEM qualifications later in 2017, enabling us to participate in the mobile markets highest density designs. The Stoneridge Business Unit recorded a revenue increase of 71% in Q4 compared with the prior year quarter, supported by strong demand for our SSD product portfolio. Late in the fourth quarter, we identified and corrected a flash component issue on select TLC 3 d NAND products. We paused shipments of affected products as we worked to implement a solution to the issue, which appeared only under a narrow set of performance condition As a result, our SSD revenue declined sequentially during the quarter. Shipments have now restarted and we expect to resume solid sequential SSD revenue growth products across a broad range of customers. Our flagship SATA 5100 SSD has been qualified at Enterprise Server OEMs, cloud service providers, and Fortune 500 Companies. Demand for our client SSDs is also strong with Micron shipping solutions to most leading PC OEMs. We see healthy demand trends for SSDs moving forward. Client SSD attach rates continue to increase. And although storage density growth has slowed temporarily due to a tight pricing environment, we foresee longer term demands for higher density SSDs. We made substantial progress in growing our relationships and our business with cloud and hyperscale customers in fiscal 2017. Cloud data center customers are seeking innovative tailored to their workloads. Micron's unique capabilities and expertise in DRAM CD NAND and emerging memory technologies make us a compelling partner for these customers. Our embedded business unit delivered strong performance, growing revenue 39 percent for the full year. We strengthened our leadership position in automotive in fiscal 2017 with growth driven by increasing connectivity and electronics content in vehicles. Automotive applications continue to require leading edge performance. As a result, we have seen significant ramp of our 20 nanometer DTR and LP DDR technologies this quarter and began sampling automotive grade 1x DRAM to meet these needs. The growth in edge analytics in both industrial and consumer connected home applications led to record quarterly revenues in both segments. We saw strong growth through the year of our NAND and LPDTR MCP products driven by form factor and performance needs in applications like machine to machine communications, surveillance, drones, and home automation. Turning to Micron's technology progress, our 1X DRAM and our 64 layer NAND production rollout is proceeding on plan and we expect to achieve mature yields in both technologies before the end of calendar 2017. We are pleased with our 1y DRAM technology progress and are focused on the late stages of technology and product development. Our 3rd generation 3 d NAND development is also proceeding well with production expected to commence later in 2018. This latest generation technology continues to utilize Micron's industry leading CMOS under the array architecture which uses smaller die sizes. We have made significant progress in our technology development and volume per ramp execution. We see meaningful opportunities to further shorten the cadence of new technology node introductions, accelerate new technologies into volume production, upgrade our fab infrastructure and expand our captive assembly operations. Through successful execution, we expect to narrow with a disciplined focus on profitable growth. Our fiscal year 2018 CapEx plan targets achieving these objectives through technology migrations with no new wafer capacity. Ernie will discuss our CapEx plans in further detail later in the call. Our ability to successfully execute will be a key enabler of our cost reduction and supply bit growth capability in the foreseeable future. Moving on to the demand and supply fundamentals, we expect the industry to remain moderately undersupplied for the rest of 2017 for both DRAM and NAND. We see DRAM industry supply bit growth of about 20% calendar 2017 and expected to grow at relatively similar levels in calendar 2018. The DRAM Industry supply demand balance is expected to stay healthy throughout calendar 2018, driven in part by ongoing strength in data center and cloud computing trends. We expect Micron's fiscal 2018 DRAM bit output growth to be slightly below the industry growth rate. Our bit growth is supported by our 1X DRAM ramp, which represented mid teens percent of our DRAM bit output in Q4, and will grow throughout the next several quarters to achieve bit output crossover as we exit calendar year 2018. We expect industry NAND bit supply growth to finish calendar 2017 in the high 30% range. At these levels, supply remains below demand, which has created a constrained environment. As the industry continues to transition 64 layer 3 d NAND, we estimate industry bit supply growth in calendar 2018 will approach the 50% range. Which should better satisfy the current unfulfilled demand. We expect that Micron's ongoing transition to 64 layer 3 d NAND in fiscal 2018 will result in bit output growth that is somewhat higher than the industry range. In fiscal Q4, 64 layer NAND represented mid teens percent of our trade NAND bit output and we expect to achieve bit output crossover during the second half of our fiscal 2018. The dynamic industry transition to 3 d NAND is taking place in the context of a NAND market that has consistently exhibited demand elasticity. We expect this behavior to continue as higher density SSD solutions increasingly displays HDDs in client computing, cloud data centers and enterprise environments, And as average capacities continue to grow with more performance sensitive storage hungry devices and applications in mobile and other end markets. These trends support our view that NAND demand drivers will remain healthy into 2018. As I begin my first new fiscal year year as CEO, I would like to outline our strategic priorities: 1st, we are focused on driving our cost competitiveness to best in class levels, primarily by accelerating the percentage of our output on Leading Edge Technology in both DRAM and NAND. 2nd, we will drive execution excellence delivering solutions to customers quickly, predictably and in line with their product launch windows. 3rd, we will accelerate our transition to high value solutions. We intend to lead the industry in deploying disruptive memory and storage solutions. 4th, we will leverage the full breadth of our capabilities to develop deeper collaboration and partnerships with marquee customers maximizing our value in the market. And finally, we are strengthening our focus on our teams, investing in the best talent and driving a winning culture. We believe our diligent emphasis on the speed and urgency with which we execute these strategic priorities will have a transformative effect on our market competitiveness and financial performance. I look forward to sharing the results of our progress with you in the year ahead. I'll now turn it over to Ernie who will walk through the specifics of our financial performance this quarter. Thank you Sanjay, and thanks for joining the call today. Our solid operational execution and favorable market dynamics resulted in excellent financial performance in our 4th fiscal quarter the full year. For the full fiscal year, we achieved record We narrowed the technology cost gap with our competitors by successfully executing our technology migration plans. Our efforts resulted containing our wafer output. I'll now provide some further details on Q4 results, starting with a breakdown by technology and business unit. DRAM represented 66% of our Q4 revenue with the following segmentation. Server held steady at approximately 30% mobile was 20%. Specialty DRAM, which includes networking, graphics, automotive and other embedded technologies remain in the mid-twenty percent range and PC was the and MCPs and automotive, industrial and other embedded applications, each represented approximately 20% of our quarterly trade end revenue. The remaining 40% of our trade NAND was made up primarily of component sales to partners and customers. Turning to performance by business unit, the Compute And Networking Business Unit reported record FQ4 revenue of $2,800,000,000 more than doubling on a year over year basis. Who are architecting data centers and computing capabilities that enable them to execute their specific strategies. Our successful conversion to 20 nanometer DRAM production and the initial ramp of 1x DRAM output boosted Q4 CMbu operating income to $1,600,000,000 or 56 percent of revenue, up 31% compared with Q3. The mobile business unit delivered its highest ever revenue quarter at $1,200,000,000, up 76% from the year ago quarter. Mobile operating income also set a record at $364,000,000 or 31 percent of revenue. Our results are due in fiscal 2018. 1% on a year over year the NAND component issue that Sanjay discussed earlier. With this issue behind us, we are focused on leveraging the progress we've made in penetrating the SSD markets over the past year. We estimate that our global SSD market share nearly doubled in fiscal 2017 enabling record fiscal year revenue percent of revenue unit also achieved record 18% sequentially and 61% on a year over year basis. Growth in the quarter was driven by solid sales for consumer applications, which include home automation. Automotive also remains a key revenue driver for this business as a shift towards cars is driving increased memory content. These trends bode and strengthen our leadership position. Operating income for Ebu was $348,000,000 in Q4 or 40 percent of revenue more than doubling year over year. Moving on to overall company results, revenue for 4th fiscal quarter was 6 point basis. Sales revenue mix. Non GAAP gross margin was 51%, up three percentage points from Q3 and 33 points from the fourth quarter of fiscal 'sixteen. The improvement reflects the successful adoption of products based on our advanced technologies combined with a healthy industry pricing environment. Non GAAP net income was 2.4 of $5,600,000,000 or $4.96 per share compared with $273,000,000 or $0.26 per share for fiscal 2016. Turning to results and increased 13% sequentially. The sequential results reflect a 5% increase in bit shipments. DRAM non GAAP gross margins for the 4th quarter was 59%, up 39 percentage points from year ago levels and up five point in the continued strong market environment. Tradenant revenue increased 81% on a year over year basis. Sales were 8% higher quarter over quarter supported by demand for mobile and embedded segments and a 5% increase in ASPs. Trade NAND non GAAP gross margin for the quarter was 40% up 24 percentage points from a year ago and down 1 percentage points sequentially as a result of the NAND related issues mentioned earlier. NAND bit shipments increased sequentially by 3% during the quarter. Our fiscal year results reflect strong adoption of our 3 d TLC NAND products and a strong market environment. As we continue as we consider the ongoing progress of the business as well as the competitive environment, we plan on making a few changes the to higher value add solutions, which often have higher a less continue to provide qualitative color through our business unit reporting. Non GAAP operating expenses for the quarter were $601,000,000 essentially flat from the prior in fiscal $5,000,000,000 for capital expenditures net of partner contributions and $5,100,000,000 for the full fiscal year. DRAM investments 40% 45% of the full year spend and non volatile memory was around 30%. Free cash flow dollars in fiscal 2016. In fiscal 2017, we deployed percent of our free cash flow for We ended the 4th quarter with cash marketable investments and restricted cash of approximately $6,200,000,000. Turning to more near term matters, as we have been discussing for some time, our 2 key priorities for cash flow are accelerating the company's cost competitiveness and improving our financial foundation through reducing leverage. We currently percent. Our investments will be focused on technology transition and product enablement. Generally We expect that between 35% 45% of CapEx will be deployed for DRAM, 35% to 45% for nonvolatile memory and the remainder for technology and product enablement. There are no wafer capacity additions planned for fiscal 2018. We will term target of $8,000,000,000 to $9,000,000,000 of gross debt during fiscal 2018. These actions together with the progress that we've made in fiscal 2017 will drive to be fiscal Q1 twenty eighteen on a non GAAP basis, we expect the following: revenue in the range of $6,100,000,000 to $6,500,000,000 gross margin in the range of 50 percent to 54 percent, operating expenses between $575,000,000 $625,000,000 operating income ranging between $2.09 $2.23 per share based on 1,191,000,000 diluted shares. With that, I'll turn it back to Sanjay. Thank you, Ernie. As part of our strategic planning process, Micron developed a new vision statement that embodies how we see the opportunities in front us. As we close out 1 year and look to the next, I would like to now share it with you. Our vision transforming how the world uses information to enrich life captures the tremendous potential Micron possesses. New technologies like artificial intelligence will change the world in ways we can barely imagine today. Fast data access and high performance data analytics will be at the heart of those transformations, making memory and storage core to the data centric world that is taking shape in front in our focus, accelerate Tron and increasingly prominent player in the industry as these revolutionary new technologies take shape. Fiscal 2017 was a record year for us, but I'm confident that the best is yet to come for Micron. We will now Our first question comes from the line of John Pitzer with Credit Suisse. Yes, Ernie, Sanjay, congratulations on the strong results. I guess, Ernie, my first question just for CapEx number of 7,500,000,000 That doesn't surprise me as much as your sort of guidance around bit growth for DRAM and NAND for the fiscal year, just given the significant jumping CapEx. I'm wondering if you could just help me understand, to what extent is this being driven by a backend loaded expectation around CapEx And how do we think about kind of the bit growth exiting next fiscal year? And I guess at what point do you think you begin to start to outgrow, bits relative to the industry for both DRAM and NAND? Yes. So, multi part question, let me try and break it down in an easily understandable way. First, as you pointed out, there is a time lag between the time cap has invested and the time that the bit growth is realized. And certainly, if you look at what we did in 2017, that was actually a of the investments that we made in 2016. And it's also important to remember that the Innovara investments, were not part of Micron's CapEx plan then. So if you had Micron spend and Innovara spend, you're probably in the upper $6,000,000,000 range. And so that's a good point of comparison as we now look at, 2018. So in 20 18, we would expect the majority of the bits that are the results of the CapEx come on toward the latter part of the fiscal year. And you heard Sanjay in his prepared remarks say that we would be a bit crossover on an output basis for our 64 layer NAND, around the second or third fiscal quarter of the year, but it was going to be the exit part of the calendar year for DRAM before and the impacts of timing on those investments. I would also tell you that our objective over a multiyear period is to grow at about industry levels. And certainly, we think this investment plan over the course of fiscal as we've just reported DRAM at the low end, little above on NAND. So I think looking at snapshot compares across our fiscal year is interesting, but really important is the statement that we intend to grow, aligned with industry over the course of these multi year periods. And, a question. And of course, our focus also would be on high value solutions so that our revenue share outperforms our bid share. That's helpful guys. And then Sanjay, this is my follow on question. I think clearly the most significant concern in the investment community is the sustainability of the current environment. So I'd love to kind of get your thoughts on sustainability. And I guess specifically to what in an environment like this, can you move the business from more sort of a transactional hand to mouth business to something that might have more backlog and visibility with your customers, especially as you try to move the mix towards more higher value end solutions? In terms of the market environment, we are certainly excited about the demand requirements for DRAM as well as for NAND. As I mentioned in my prepared remarks, I mean, big growth driver for DRAM certainly that outpacing the average growth of the industry is in the area of server and cloud. And here, we are making great penetration with the hyperscale customers in terms of driving the growth of the DRAM business. So, we remain very bullish about the DRAM market environment through the 2017. We think it will be undersupplied. And given the demand trends, we think we'll have healthy demand supply balance in DRAM throughout 2018. Timeframe as well. And in terms of NAND, as is well known, that average capacities are increasing, certainly in mobile devices, But even more importantly, SSDs are displacing HDDs at a rapid pace with the attached rate continuing to be projected to be going up over the course of next several quarters. And of course, there's a strong value proposition for SSB in the cloud and hyperscale data center environment as well, given all the trends of artificial intelligence, machine learning, all of this is driving big data analytics. So all these trends are related to artificial intelligence, big growth in data customers wanting to offer differentiated value to their end customers. All of this is driving need for memory and storage solutions and overall, we remain pretty bullish about the demand trends. I mean, look at DRAM as well as NAND, even in autonomous vehicles, the demand requirements for flash, I mean, data is being generated, so much data is being generated by autonomous vehicles. That it requires fast processing both within the vehicle as well as on the cloud. So I think demand trends for the foreseeable future continue to be strong and that bodes well for our industry. In terms of your questions regarding customers and of the customers wanting to engage in longer term requirements, yes, that is absolutely happening. And we do consider that based on various customers. I mean, it depends on the nature of the customer's requirements. Really cannot get into the details of that here in this call. Certainly, our business includes, customers that are more transactional in nature that have business more on a monthly transaction basis, some that are more on a quarterly basis and certainly, certain customers that are also involved in longer term trends. I think customers are just seeing increasing value of memory and storage. DRAM and Flash is becoming strategic to our customers. And our customers are seeing Micron as being uniquely positioned with having a strong portfolio of DRAM as well as Flash and being the only company in the Western Hemisphere with those capabilities and that is definitely making us an attractive and valued partner to our customers. Thank you guys. Congratulations again. Thanks. Thank you. Thank you. And our next question comes from the line of Rajvindra Gill with Needham And Company. Yes, thank you. I echo the congratulations. A question on the NAND bit growth. So the Big growth is increasing to 50% from kind of the high 30s this year. A lot of this obviously being driven by a 3 d NAND. Wanted to talk about in terms of how you're seeing the supply demand balance going into next year in the NAND environment and kind of your thoughts around pricing as we start to have more supply and the impact also to cost per bit. So in terms of going into 2018, we see healthy industry demand and supply balance for NAND. And you are right to note that the bit growth is going up because of the technology transition in the industry to the 64 layer technology. And when we look at the demand trends, those demand trends continue to be strong as I just pointed out related to SSDs as well as increasing average capacities of a flash in mobile devices and all kinds of other devices. So demand continues to be strong. We see healthy trends in that regard in 2018 timeframe. Regarding pricing, we don't specifically for competitive reasons, provide comments on pricing on the call. But we'll just try to point out that we believe that a healthy industry environment is 1 where price decline is less than or equal to cost declines. And we are certainly focused on aggressively reducing our product costs with realizing successfully our technology production ramp of 64 layers. Thanks. And just my follow-up, Sanjay, one of the positive trends that has been happening at Micron is the diversification of the end markets for DRAM. And you can just compare this cycle, say, to previous cycles, maybe not just too long ago, I mean, it was only about 3 years ago. Where PCs were a higher percentage of DRAM and now they are mid-twenty percent range today. So can you talk about that phenomenon and you mentioned it in your prepared remarks. But the diversification of the end marks in DRAM specialty, particularly in graphics and automotive and server, how that is affecting the business model, how that is affecting the the customer relationships and engagements going forward? Thank you. Certainly the diversification of the end markets for DRAM absolutely bodes well for the future health of our business. We have enjoyed the benefits of that calendar year 2017, as you noted, is a great example, and you just pointed out the mix of our DRAM business between PC, what used to be just about PC and mobile is now very much about PC mobile server, automotive and multitude of markets and and Micron has really great presence with variety of, I mean, whole slew of customers and channels So this really bodes well, plays very well to the strength of Micron. It has really, for a long time, enjoyed diversified set of global customers and great presence in channels. And that is coming into full play as the demand requirements for DRAM continue to grow nicely and into multiple mega markets. Thank you. Thank you. Our next question comes from the line of Mark Newman with Bernstein. Yes. Hi. Thanks for taking my question. Congrats again on the great results. Question is about the technology migration. You talked about 64 layer, crossover, I believe, second half FY 'eighteen. Can you talk about what's next on NAND flash 96 layer or whatever it is and what the timing is? And will micron look at transitioning to a Charge Track Flash alternative at 96 layer or perhaps one after that? And then similarly for DRAM, when what is plan for 1y and timing for EUV? With respect to NAND, in terms of our 3rd generation 3 d NAND, we are not yet disclosing the number of layers in that technology as I said in my prepared remarks, we are continuing to make good progress with that. And we plan to be introducing that technology in the 2018 calendar 2018 timeframe, and continuing to deploy CMOS under the array technology that continues to provide Micron, a type size leadership position, which is usually attractive cost point of view. And with respect to, DRAM in terms of 1Y node, we will be introducing that node also in calendar 2018. Timeframe. And beyond that, we are not providing any specific details for our technology. It's in related to, a competitive basis. And your question regarding floating gate, we have a strong roadmap of future technologies related to floating gate. And then just a quick follow-up, if I may, when do you think you will narrow the gap or catch up potentially with Samsung and both the NAND, 3 d NAND and DRAM, I mean, I think that you've alluded before to closing the gap and narrowing the gap to 0 hopefully eventually I don't think it's happened yet. Is there an update on your thinking of when that could be? As we have indicated before that in terms of, technology cost position, well as the technology note readiness in recent times over the course of last couple of years. Micron has lagged the competitors in terms of getting advanced technology ready in at par with them and deploying those technologies into volume production. However, in recent times, Micron has made very good progress in this area and we are getting the benefit of that as we are ramping those technologies into production. I've said before that these kind of undertakings, driving accelerated deployment of new technology nodes into volume production. And continuing to narrow the gap, on the cost front is a multiyear phenomena. And we have made very good progress in this regard I fully expect us to make continue to make good progress in fiscal year 2018 as well. And we are, of course, very much focused on continuing to accelerate the timeline of our future technologies into production and then well positioned to ramp those technologies into volume production as well. And along with this, of course, remain very much focused on driving a greater mix of high value solutions, both in DRAM and NAND as well. So these are really 2 very important pillars of our strategy, driving cost competitiveness and driving greater mix of high value solutions, And these things don't happen overnight. They will continue to be, strong growth opportunities for us going forward over the course of next few years. Thanks very much. Thank you. And our next question comes from the line of Steven Fox with Cross Research. Thanks. Good afternoon. Two quick questions for me. First of all, you mentioned that as, demand your bit growth accelerates for NAND next year that you expect to capture some of the pent up demand that the NAND market has seen. I guess I was curious if you can talk about what gives you confidence that that pent up demand hasn't actually turned into demand destruction this year, why it'll still be there? And then secondly, if I look at the CapEx breakdown that you provided, it looks like about $1,500,000,000 or so is dedicated towards, product enablement and was just curious how that number compares to maybe a year ago and if there's anything you'd say it's most focused on? Thanks. So I will certainly comment on the CapEx but on the demand side, as I pointed out earlier, I mean, it's not that this demand is perishable. I mean, this demand in terms of the trend of SSDs replacing HDDs in client notebook computers where the attach rate continues to increase. In 2017, the attach rate of SSDs to PCs is around 35% that attach rate over the course of next few years continues to grow to around 50% in 2018. And by 2020 timeframe, expect to go to around 75%. So these demand trends are secular in nature. It's the same thing on the enterprise side and on the cloud side that the attach rate of SSDs as well as the average capacity requirements on on a per server basis continue to go up as well. So these are really very solid, secular trends here. That are long term in nature. And of course, the trends of mobile devices adding new rich features such as augmented reality, such as rich displays, all of these are trends that also continue to drive higher average capacities in mobile devices. So I feel very good about the demand trends on the NAND side. Yes. And just to follow-up on the CapEx, if you look year on year, we just reported the totality of fiscal 2017 and you would get a reasonably similar number within the ranges that we provided. So there we would expect on a hard dollar basis perhaps $100,000,000 to $200,000,000 more in that, enablement and technology piece of the business. And that's predominantly related to these of Yes. The product enablement CapEx is related to back end captive assembly operations, which will help us improve our cost position going forward. And of course, also, there is CapEx associated with upgrading of the infrastructure that is needed to realize the technology transitions. Great. Thank you so much. Thank you. And our next question comes from the line of Chris Stanley with Citigroup. Hey, thanks guys. Can you just give us a little color on the, I guess, the 3 men end market server mobile and PC on tightness relative tightness and how it trended during the quarter? And any information either qualitative or quantitative you have on inventory levels out there in the our customers? Just on DRAM. Sure, Chris. So I think as has been the case for a few quarters now. There's actually a fair amount of tightness across that, across those three channels that you mentioned So it would be hard to distinguish one from the other relative to any nuances there. I don't think there inventory issue, certainly, if you actually take a look at inventory levels that are reported, which are typically financial numbers and adjust those for a dollar cost of how pricing has changed over the course of the year. You do get a bit of a different perspective on inventory as reported by, a variety of customer and channel partners in those areas, but the environment continues to be strong. The supply demand circumstances continue to be fairly tight and we're working very closely with our customers to make sure that we stay in close with them as they think about their plans going forward. Great. Thanks. And for my follow-up question for Sanjay, by the way, welcome to the DRAM party. You were not afraid to engage in M And A at your previous shop. Can you talk about the willingness appetite for M and A at this point for, for Micron versus the desires to continue to improve the balance sheet? We do addiveness and strengthening the high value mix in our revenue. And of course, if and when we were to engage in M and A, our focus would, of course, be to try to strengthen our future opportunities and make it an opportunity that absolutely provides a strong ROI. Beyond that, I would not speculate in this matter. Thank you. And our next question comes from the line of Karl Ackerman with Cowen and Company. Hi, good morning, gentlemen. Ernie and Sanjay, I wanted to ask more of a strategic question. 2 of your competitors in the NAND industry have been a disagreement on the trajectory of their manufacturing partnership, are you and your existing NAND partner inclined to abstain from future partnerships? And I have a follow-up please. I don't think the experience that I think you're referring to, colors are perspective on, on partnerships at all. Partnerships are a very individualized partner specific set of activities. And so certainly, while we continue to become informed just as you do, our color would be very specific to the circumstances at hand vis a vis any potential partnerships or the continuation of any partnerships. And I think we have a long history of valued partnerships here and knowing how to make the partnerships work well. So, I mean, partnerships are important. Absolutely. Understood. Appreciate the color. I guess for my final question, this was somewhat addressed earlier in the call. I just want to move back to just some of the content growth that we have been talking about. But our field work during the quarter indicate that DRAM fulfillment rates at least in the server market improved from last quarter, but they were still well below 100%. Are you seeing more active engagement today with Tier 2 customers for longer term contract agreements that gives you greater confidence in your capacity planning assumptions. I mean, we're definitely seeing strong demand trends, from the entire spectrum of our a large, what you would call Tier 1 or Tier 2 as you termed, although all customers are important to us and We do engage meaningfully with them, and we work closely with them to understand their demand requirements. And we apply our own judgment their demand requirements as well in terms of assessing the overall industry demand trends. And based on those demand understanding of our on behalf of our customers, we project healthy industry demand supply environment in DRAM end. Thank you. And our next question comes from the line of Vijay Borkesh with Mizuho. Thanks guys. Congratulations on a great quarter. Just looking on the DRAM side, you mentioned the crossroads runequonix nanometer. When do you expect to see that And if you can give us some color on what the cost structures are as you transition the mix to 1X? Sure. So, we had talked about being at bid output crossover for 1xt room by toward the end of the calendar year of 20 18. And then as we have previously shared, for the 1 X node, we see somewhere in a roughly 45% increase in bits per wafer versus 20 nanometer and about a 20 to slightly more than 20% cost reduction on a cost. Great. Got it. And on the NAND side, obviously, pretty nice numbers on the storage business side, up 21%, but Could you could you parse out how much is enterprise mix for you on land? And obviously you'd like to see some good traction there. Where is the enterprise mix exiting next year, let's say? Thanks. So we said that our SSD mix was about 20% of our NAND revenue. And that consists of our sales of client, 2 client customers as well as to the hyperscale cloud and enterprise customers. And both are roughly about the same in both of those categories. Beyond that, we don't provide further breakdown. Thank you. And our next question comes from the line of Tristan Gerra with Baird. Hi, good afternoon. Looking at your production cost reduction, timeline, is it fair to assume that there's going to be some slowdown as you reach a crossover you know, crossover for 64 area in NAND, meaning that after that there could be a little bit of a slowdown in terms of your ability to reduce production costs And then if you could reiterate the production cost reduction targets for NAND DRAM for 2018? Sure. So I think that, in terms of Gen III NAND, we'll certainly talk more about that as we are able to, in terms of what we might expect and whatever is appropriate for that. So It is true, just on a mathematical basis, that as you progress up layer count on a, on an absolute basis, there are less incremental bits and there is an association between cost reduction and bit growth opportunity but in terms of providing specifics, it's very, very early to share that with you. And if you look at the 64 layer, versus the 1st generation. It's somewhere in the realm, as we've talked about before, of two times the density and roughly in get a 30% reduction in bid cost. In general, the technology complexity increases, with subsequent technology generations, both in DRAM and NAND. And also given the increased technology complexity, gigabytes or gigabits that you gain in NAND as well as DRAM on a per wafer basis tends to decline, with advanced technology nodes. So all of those factors play a role in terms of cost capabilities as well going forward. Okay, great. And then a quick second question. So you talked about the adoption rate trajectory of SSDs in notebooks. Could you also give us your expectation both now and say in a year or 2 in terms of the adoption rate for SSDs in the data center and traditional enterprise server? Sure. I can do that. I just want to add a comment to the previous question on cost. My comment was related to cost on a per wafer, gigabytes per wafer basis from one technology node to the next. Of course, cost also depends very much on how you deploy those technologies into volume production. And this is one of our focus areas in terms of deploying advanced technologies faster into production. Now specific to your second question regarding their dash rates in, enterprise and, server market. So SSD attach rate is around 50% there in terms of, on a SSD per unit basis. And unfortunately, there is greater average capacities are definitely moving fairly fast. In fact, enterprise and data center is one of the fastest growth segments for Flash in terms of year over year, a bit demand increases that are projected Average capacities in Enterprise And Data Center for SSDs are over 3 terabyte that's average capacity and that trend continues to increase by some projections are tripling almost to 9 terabyte by 2020 timeframe. So as I was saying earlier, I mean, these, demand trends for increasing attach rate of SSDs in client and data center cloud computing applications as well as increases in average capacities are secular trends. Great. Thank you very much. Thank you. And our final question comes from the line of Mark Delaney with Goldman Sachs. Yes, good afternoon. Thanks for taking the questions. First question is a follow-up on CapEx. Assuming you could clarify the comment about no new wafer capacity additions I know you said that explicitly for DRAM, but can you clarify if that also applies to NAND Flash? And on that topic, if you could help us understand to what extent you may need to invest in new cleanroom capacity as part of that CapEx guidance share, obviously, even without adding new wafer capacity, the amount of factory floor space is going up for both 1x nanometer and more so for 3 d NAND. I know the company had some available, but I'm just wondering if any of the spending relates to clean room clearing capacity due to the forest based requirements? Yes, Mark. So certainly the statement about no new way for capacity in fiscal year 2018 applies equally to both DRAM and NAND. And relative to your second question, there is not anything material relative construction costs or whatnot. As you pointed out, there is obviously incremental cleanroom space available or could be available at pretty low cost, but, it would not be a material in course of the overall guide that we provided. Okay. And if I could just follow-up specifically on smartphone demand trends, if you could touch on what the company seen in terms of demand for some of the flagship models, specifically, but also if you could talk about, from some of the Chinese domestic OEMs, if you're starting to see pickup and demand trends, for memory from those customers? I think in the flagship model, to answer your specific question, the demand for DRAM as well as for NAND, average capacity continues to go up. And of course, the mix of these high end smartphones also as a part of the total smartphone market continues to go up. Specifically to DRAM, average capacities, of DRAM in high end smartphones going from somewhere over 3 gigabytes in 2017. Projected to go up to over 5 gigabyte closer to 6 gigabyte by 2020 timeframe. And specifically to NAND, average capacities of NAND in high end smartphones in 2017, somewhere around 70 gigabytes say, projected to double or more than double by 2020 timeframe as well. So again, the average capacity increased trends in smartphones news to be solid, not only actually in high end smartphones, but in value segment of the smartphone market as well. And that concludes our question and answer session for today. I'd like to turn the floor back over to Micron for any closing comments. Thank you. That concludes our call today. We really appreciate your support and a reminder, we will be posting the prepared remarks from today's call as well as a webcast replay on our website later this afternoon. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone have a great day.